The Fintech Hub received international attention in 2019 since the number of international players increased by 50% in one year. More and more Fintechs (i.e.: Revolut, TransferGo, Shift4Payments) – headquartered in London, Stockholm, Amsterdam or other major European capitals – choose Lithuania to expand their business activity.
The aim of this article is to present the Lithuanian Fintech ecosystem and its operating model based on the report of Invest Lithuania and Rockit Vilnius.
The report is based on a survey and contains the answers of 102 market participants. The survey focused on the Fintechs’ applied business model, the financing, HR topics, the attraction of talents, with particular regard to future challenges and opportunities.
The Lithuanian Fintech ecosystem is characterized by the following numbers:
- 4th ranking for Lithuanian Fintech Hub on the Findexable Global Ranking list
- 210 Fintech companies are operating in Lithuania
- 3400 professionals are employed in the Fintech industry
- 5 Specialized Banking Licenses were issued by the National Bank of Lithuania
It is worth having a quick look at Hungary’s position in comparison to Lithuania’s in the ranking of the European Union Member States. The table shows the EU Member States’ rankings compared to each other. Lithuania with the 4th position made an impressive development in the ranking while Hungary’s 20th position shows more place for development in the Fintech industry.
|Market Finance||Household Market Investments||Loan Transfer||Fintech ecosys.||Sustainable Finance||Risk Capital||Intra EU integration||Global Integration||Market Depth|
Source: AMFE report, October 2019
The development of the Fintech companies are based on several key factors that should be in place to understand the needs and provide solutions to support these companies. Among other factors, the following ones are critical:
- Regulatory and Supervisory environment that supports and understands innovation
- Open professional communities
- Sharing of know-how, knowledge and capital
During the last years, Lithuania has created such an effective framework that is now one of the most suitable one within the European Union for establishing, developing and operating Fintech companies.
The referenced AFME report applies the Fintech Indicator to measure such factors. But this indicator shows more than that: it also presents the given country’s capacity to integrate Fintech companies, its ability to adopt innovation, and whether the regulatory environment understands and supports the innovation without increasing macro-prudential risks.
The rapid development of a Lithuanian Fintech ecosystem started in 2016. There was a year when the annual pace of development hit a record 40% increase (the average rate of development is over 30%). In 2019 the number of companies in the Fintech ecosystem exceeded 200, which is a remarkable milestone. Furthermore the pipeline of the new entrants is also growing. The core competencies of the Lithuanian Hub are international payments and transfers; this segment contains 78 companies.
Fintech companies usually choose Lithuania for product and market development due to the supportive environment.
The funding structure of the companies shows that 38% can finance growth and planned development by its own revenue. This is followed by those funded in their early stage and then by more mature companies.
The National Bank of Lithuania provides support and professional help for the participants of the financial technology sector by the Newcomer Program. The program is tailor-made for such Fintech companies that want to provide license-based service (EMI, PI, SPB) in Lithuania and in the European Union. The participants of the Newcomer Program have an opportunity to learn the supervisory, legislative and regulatory criteria to create products and services fully in line with the expectations. In the last 3 years, more than 400 companies from more than 60 countries took advantage of the opportunities of the program.
The business friendly environment significantly affects the number of issued licenses. The chart shows that Lithuania leads in terms of issued licenses to the Fintech companies within the European Union. Lithuania has issued the 2nd largest amount of Electronic Money Institution licenses in the European Union. At the same time Lithuania has also issued an impressive amount of Special Purpose Bank and Payment Institution licenses.
- Ecosystem: in terms of both job creation and the number of companies entering the market, Lithuania‘s Fintech sector is expected to expand at a similar rate to that of 2019. Over the coming years, further growth is expected in the number of digital banking and personal finance businesses which in turn will increase demand for licenses.
- Talent Pool: over the coming year, demand is set to increase for professionals in IT, software development, compliance & AML, and Fintech business development. This can be a challenge in the future, which some Lithuanian universities intend to solve by developing specific educational programs that prepare future professionals for expectations of the Fintech companies.
- Further development of the Fintech sector‘s infrastructure is also anticipated from the market participants. The pace of infrastructure development shall be faster due to the support of venture capital and accelerator companies.
The most promising areas for the coming year seem to be open banking, instant payments and personal finance. Many respondents forecast strong growth over the next 12 months in Regtech, wealth management and digital currencies, too.
In spite of the opportunities, challenges are expected from the areas of international expansion and business development, the adaptability to customers’ behavior as well as product and technological development.