Lithuania: gateway to Europe for fintech companies

In this article, we will consider Lithuania as a country with a friendly and straightforward licensing for banks and fintechs

Gateway to Europe for Fintech companies. Source: unsplash.com

After the authorities set a goal to turn Lithuania into a centre of financial technologies, enterprises of this industry began to arrive in the country one after another. Figuratively speaking, it was a line of companies next to the Bank of Lithuania. The firms entering the Lithuanian market say only good things about the business environment in this country. But in this situation, commercial banks feel somewhat deprived.

Startup of financial technologies Revolut from the UK, Chinese monster of international payments “International business settlement”, developer of the payment platform “Moneta International”, established by Israeli investors, and this is hardly a complete list of financial technology companies that are actively interested in working in Lithuania or already opened their offices in the Baltic country.

Government agencies are not going to stop there. They have joined forces to turn Lithuania into a European Fintech centre.

A turning point in the world occurs when small non-banking institutions penetrate the major league game and compete with financial institutions that are already entrenched in the market. The Bank of Lithuania, together with the “Invest Lithuania” agency and the Ministry of Finance of the Republic of Lithuania, believes that the country has a chance to conquer part of the global market. We are taking steps to attract the maximum number of financial technology enterprises to the country
Marius Jurgilas, a member of the Bank of Lithuania’s board of directors

Representatives of the Bank of Lithuania do not tie the activities of fintech enterprises to the physical location of their offices, since they will provide services to many other markets from Lithuania. At the same time, being in Lithuania, they will increase competition between banks, and consumers will only benefit from this.

Aims and achievements

By 2019, the Bank of Lithuania had implemented several strategically important tasks. Source: pexels.com

Let’s remember some history. According to the report of The Pulse of Fintech 2018, presented by KPMG, more than $57B was invested in the field of financial technologies for the first half of 2018. Maybe it’s one of the possible reasons why today Lithuania is one of the most dynamically developing countries in the field of Fintech. In 2016, the Bank of Lithuania approved the development and implementation of Fintech solutions as part of the official development strategy.

Major aims

Lithuanian Fintech strategy implies the achievement of such goals by 2020:

·         become a centre of competence for players in the economic and financial markets;

·         create an innovative and competitive payment market in Lithuania;

·         expand financial asset management strategies;

·         become one of the top three most efficient central banks in the Northern and Baltic regions.

Already accomplished

Since Lithuania is a small country, large companies are not particularly interested in entering the local market. Thus, the Bank of Lithuania has decided to position itself as a point (spot) from which Fintech companies can work across Europe. According to the legislation, it is enough for financial institutions in Europe to obtain a license in at least one country, and it gives the right to operate throughout Europe.

By 2019, the Bank of Lithuania had implemented several strategically important tasks. Without these accomplishments, the development of financial technologies in the country would have been impossible.

Since Lithuania is a small country, large companies are not particularly interested in entering the local market. Source: unsplash.com

  • legalisation of remote user authentication;
  • determination of regulatory standards for crowdfunding platforms;
  • creation of Fintech associations that united all market players;
  • organisation of a regulatory sandbox where Fintech companies will be able to test their products (with real consumers);
  • organisation of an e-licensing system – companies can apply for a license to work through an online form on the website of the Bank of Lithuania in order to avoid paperwork;
  • reduction of time required for licensing of Fintech companies to 1 month and prices to €1,000;
  • the possibility to open a bank of a new type – with a capital of €1M instead of €5M;
  • providing access to the SEPA (Single Euro Payments Area);
  • moratorium on fines in the first year of work of a Fintech company. In case of any violations of the law (from the company’s side), the Bank of Lithuania analyses the case and helps to find a solution, instead of imposing a fine.

All these changes and innovations have allowed to qualitatively change the Fintech landscape in Lithuania. For instance, in 2016 the Bank of Lithuania licensed 12 Fintech companies, while today, more than 60 companies have received licenses, and another 40 applications are under consideration.

Plans for the foreseeable future

  • establish a regulatory policy on P2P lending;
  • learn from the experience of Estonia and introduce e-residence system;
  • determine the legislative provisions relating to the regulation of cryptocurrencies;
  • develop a system of quick access to data for financial companies;

Possible risks

  • the risk of money laundering and the financing of global terrorism (AML / CTF);
  • cybersecurity;
  • occurrence of intermediary banks;
  • virtual currencies/ICO and changes in their roles in the market structure;

According to Jekaterina Govina, executive director of supervision service at Bank of Lithuania (and also a coordinator of the Fintech strategy), Fintech strategy of the Bank of Lithuania is primarily aimed at creating an attractive business environment for European Fintech companies.

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