Last year was extremely successful for the fintech sector in Lithuania and worldwide. However, Russia's invasion of Ukraine, energy and commodity price shocks and inflation challenges have accelerated some fintech trends. Accelerated to such an extent that there were prophecies about the death of the traditional fintech sector. How should the Lithuanian financial technology community react to this?
In 2021, fintech companies attracted $125 trillion in global investment or three times more than in 2020. Increased investments in Lithuania also brought joy - the number of registered companies in our country continued to grow, and the existing ones received more revenue. Arguably, the fintech sector has become stronger than ever due to the additional impetus given by the COVID-19 pandemic. Therefore, the fact that already in May of this year, for the first time, a subsidiary in Lithuania was opened by a fintech unicorn, the US company „DriveWealth”, seems like a natural result of the development.
Nevertheless, the uplifting mood is colliding with new geopolitical and economic realities: high energy prices and unprecedented inflation, a shortage of skilled labor and declining consumer and market expectations.
On the one hand, more moderate investor appetite seems to foreshadow darker clouds in fintech, but from another perspective - drastic changes make it necessary to look for ways out. It is important to note that the fintech field in Lithuania remained stable in the first half of this year and very promptly supported war-torn Ukraine with finances and human resources.
The Bank of Lithuania, which regulates the market, urged the fintech community not to increase the number of new companies, but to use their maturity of high potential by creating products that have not yet been developed in Lithuania. For example, crowdfunding, wealthtech, green finance and similar solutions. The growth of the fintech sector in Lithuania is projected to continue, but at a slower pace as in the rest of the world. Under these conditions, what can the community in this sector do to continue to be among the leaders in Europe and to be seen and known as creating valuable solutions worth investing in?
Do what works best – collaborate
According to the latest data, almost 80% of fintech companies have entered into partnerships with other companies in the sector. It's mostly about developing compliance and financial software products. Partnerships, joint projects are crucial for SME’s wishing to establish themselves in the market and larger companies can become investors in smaller ones and thus grow more local unicorns.
Even closer work with banks
Last year, open banking was one of the hottest topics. It stays relevant: traditional banks have a customer base and their trust, but they cannot always offer them the most convenient products and solutions. That’s where startups come in. While in the growth phase, they take the opportunity to test their products and evolve them in accelerators.
An example of this is the game „Knowledge Walk” based on the „Challanger” platform of the startup „Aimera“ which helps young people expand their knowledge of everyday finances. All participants of „Swedbank” Youth Programme, 180,000 of them, will be invited to participate.
To innovate and create new products
Areas of fintech requiring more attention could include embedded finance and financial inclusion solutions.
The use of embedded financial products is a relatively new field. Such solutions allow financial services to be provided not only through traditional banks or platforms already created by fintech companies, but also where the client needs it in real-time. These are mostly online stores, for example, „Vinted" began to offer payment services to customers in their app. So those who are able to propose a simple-to-implement solution to smaller sellers win a lot.
Nigel Verdon, a well-known professional in the fintech world and CEO of „Railsr”, talked about the future of this solution. Moreover, this year he was the person who announced the death of fintech. Of course, the old wolf’s thoughts were more about traditional fintech, so there’s really no need to worry – the market responds to consumer expectations really quickly. The prediction made by experts a few years ago that all companies in the future will become partly fintech is most likely to come true.
Another topical subject is financial inclusion, aiming to make services accessible and understandable to all users. Interestingly, here we need to develop products not only for people who until now have probably been on the fringes of digital society but also for young people.
To be sustainable, to create sustainable
Pleasantly nice to see how a high number of fintech companies in Lithuania are trying to work sustainably, but only a few products have yet been created to help other companies analyze and evaluate their sustainability. The „Rockit Impact” accelerator initiated by „Swedbank“, especially helps such startups in Lithuania.
More recently, the Estonian startup „CompAct”, which creates an interactive sustainability education platform, tested the functionality of a virtual chatbot with “Swedbank” employees – it invented to talk about various sustainability topics and presented interesting facts and tasks.
Sustainability is not just an organic corporate need or simply just a fad. There is also a very practical reason to expand solutions linked to sustainability: the regulations applied by the European Union are getting stricter.
Let’s not forget, in a few years all listed companies will be obligated to submit sustainability reports. And large companies typically have a huge amount of documentation related to sustainability, so they really need help. Fintech companies that offer this currently under the investor’s magnifying glass and are usually quicker to find the capital they need to develop products.
So, with all this speculation about the death of fintech, rest assured – this is about transforming the sector, in order to take advantage of the opportunities that arise during constant change.