For a time, Lithuania was seen as the go to place if you were an early stage fintech in search of a banking licence. The capital required in order to obtain a banking license in Lithuania is relatively small, between €1m and €5m. Alongside this, Lithuania made its regulators accessible to aspiring bank owners to streamline the process.
The Bank of Lithuania has demonstrated a competitive and welcoming approach to building its fintech ecosystem. The strategy appears to have paid off, as we found out when we caught up with local experts Kęstutis Gardžiulis, Chief Innovation Officer and co-founder of Vilnius-based ETRONIKA (A member of NRD Companies), and Gintarė Bačiulienė, Head of Technology Team at Invest Lithuania*, who gave us their thoughts on the following key topics, summarized below**
What progress is being made with open banking in Lithuania?
For the best part of two decades, Lithuanian banks have provided payment functions through third party platforms, such as e-commerce and e-government. So when PSD2 arrived, little changed from a consumer’s perspective, apart from some additional consent requirements. Behind the scenes, though, banks were forced to introduce a minimum set of production APIs, developer portals and API sandboxes, and authentication redirects. There have also been efforts to monetise open banking in the form of account information aggregation and credit scoring services. International open banking integrators and data enrichment propositions have also entered the market, providing single APIs to access a range of EU financial institutions.
Why should I consider Lithuania as a place to launch my fintech proposition?
If you’re starting a fast-growth European fintech, you could do much worse than look to Lithuania as a possible launchpad. The nation boasts a well-developed fintech community, with an ecosystem comprising more than 230 businesses. Its digital infrastructure is world-beating, thanks to a strong reputation for cyber security (fourth globally), fast public wi-fi (first globally), and skills pool (third globally). On this last point, digital skills are a big area of focus across Lithuania’s education establishments, with some 13,000 IT students working their way towards becoming junior developers. Additionally, around 2,500 people have retrained or up-skilled in technology with private academies. The country also presents itself competitively from a tax perspective, offering a flat 15% corporate tax rate, making it one of the lowest in the EU. Finally, its’ financial regulator supports innovation through its ‘Newcomer’ programme, regulatory sandbox, AML Centre, RegTech solution, and the LB coin, or NFT – the world’s first digital collector’s token issued by the central bank.
What opportunities are there for would-be innovators?
Fintech has delivered great benefits in terms of making the financial space accessible across Lithuanian society but there is much more to be done. Specifically, the population is not exposed to capital markets and financial instruments. Instead, most people collate and grow their wealth through savings accounts. This in turn means weaker capital markets, depriving people of the most effective tools to develop long-term prosperity. Anyone who develops an accessible investment platform could be on to a winner.
On top of this, there is a need to enhance financial product personalisation, using AI and data analytics. Instead of offering consumers loans, financial institutions need to get smarter at delivering ways to meet specific needs at the right time, for example buying a car or a piece of furniture. Fintechs that create this kind of experience may be able to become market leaders in Lithuania.
Are traditional banks innovating?
As with many other markets, banks in Lithuania have been influenced by the fintech revolution, developing mobile apps, digital onboarding processes and other innovations. There is also a growing trend towards partnering with fintechs in areas such as KYC, credit scoring and authentication services. However, there is still an air of reluctance and caution among the incumbents – with some even making it difficult for fintechs to open business bank accounts. There are still those who want to do everything in isolation and shy away from innovation if they don’t see a quick value return for their investments. An attitude of ‘why make customers more happy if there’s no money in it’ appears to prevail in some quarters. However, it would be unfair to say banks don’t innovate, as in some respects Lithuania’s traditional financial institutions were early movers in Europe towards direct online payments and authentication services. As a result, banks are now authentication providers to any online service. Banks have also played an important role in launching digital and mobile signatures.
Lithuania: personal banking in numbers
Research by the Bank of Lithuania, published in a Review of the Survey of the Habits of Lithuanian Residents in Using Payment Services, found that 90% of the population owned a debit card, compared to just 23% for credit cards, and 86% of Lithuanians banked with a homegrown institution. Interestingly, 13% of people held an account with a foreign payment provider, and of these 53% said they did so due to the fact that Lithuania accounts were not accepted by some overseas online platforms. Forty-six per cent cited ease of use and 37% were attracted to foreign accounts for their service fees.
Cash also appears to be king in this Baltic country. Eighty-six per cent of those holding an account made a withdrawal in the four weeks leading up to the Bank of Lithuania’s survey. However, a love for hard currency doesn’t equate to a rejection of tech, with 60% of account holders using an app to access their accounts. The survey also found an increasing tendency towards using mobile devices to execute transactions (29%, up from 23% in 2019) and make payments at the point of sale (11%, up from 8% in 2019).
Thanks to a talented workforce and dependable tech infrastructure, Lithuania is showing incredible promise as a centre of innovation and investment for businesses looking to establish a presence in continental Europe. Additionally, there is clearly a range of niche market opening opportunities available to early movers looking to launch new types of payments products for underserved segments of society. So, with a compelling proposition and the right partners, it seems Lithuania is a great place to start or grow a fintech business.