With a tiny population of just under three million, few could have predicted Lithuania would become a hotbed of FinTech innovation. Since the UK’s withdrawal from the European Union, however, Lithuania has become a destination for FinTech and e-money firms.
Despite the turbulence caused by COVID-19, 2020 saw the Lithuanian FinTech industry continue to welcome both homegrown companies and international players such as Mambu, Curve and Ria. These companies are able to tap into the country’s multi-disciplinary talent pool, innovative infrastructure, and progressive regulation.
Lithuania hosted over 230 FinTechs in 2020, mostly focused on payments, financial software, digital banking and lending activities. The country claims to be the largest FinTech hub in the EU in terms of licensed companies, with 118 fully passportable FinTech licences issued. On top of its commitment to FinTech, Lithuania’s central bank is also an enthusiastic proponent of using central bank digital currencies, and has used its LB Coin digital coin project as a test component in plans for a digital euro.
Regulation: shaping the game
Lithuania’s success as a Fintech hub is mainly down to the Bank of Lithuania’s dynamic re-shaping of the country’s regulatory framework. This has created a favourable environment for start-ups looking to take advantage of EU passporting rights.
The first step in this approach came in June 2017, when Lithuania announced the opening of a regulatory sandbox for aspiring firms to test their products ahead of commercial roll out. In January 2018, domestic and foreign companies were permitted to develop and test FinTech blockchain solutions in the regulatory and technological sandbox called LB Chain.
This move paved the way for faster and easier access to new financial solutions. In May 2020, the Bank of Lithuania announced that LBChain had its first graduate in the shape of a P2P insurance platform, which allows consumers to form groups of peers with similar risk profiles to protect themselves against losses.
Domestic regulation aside, Lithuania has also been reaching out to other jurisdictions to build business links and burnish its reputation. In March 2018, the Bank of Lithuania and the Monetary Authority of Singapore (MAS) announced a deal to develop their FinTech ecosystems and encourage greater financial innovation in the two countries. Agreements were also reached with the National Bank of Ukraine and the Astana Financial Services Authority (Kazakhstan) to expand the global sandbox initiative.
In April 2018, Lithuania established a blockchain-based system, the Newcomer Program, for overseas businesses to register and manage their company remotely in the EU as a ‘Virtual Limited Liability Company’. In 2019, the Bank of Lithuania launched a smart e-licensing tool, enabling potential market entrants to apply remotely for a licence and guaranteeing a fast track to licensed status. By 2020, the Newcomer Program was being used by 108 potential market participants from more than 30 foreign countries. The majority (79%) acquired an electronic money or payment institution license, while 35 FinTech authorisations were also issued.
As an enthusiastic member of the EU, Lithuania was an early adopter of the revised Payment Services Directive, PSD2 – a move that set the stage for the development of digital payments and a digital economy in Lithuania. Compared to its peers, Lithuania has experienced accelerated digital payment transformation and mobile payment services, as well as the introduction of instant payments direct from bank accounts.
With a sophisticated cellular communications network and a populace keen on new technology, from tablets to smartphones and devices enabled with the Internet of Things (IoT) Lithuania stands at the forefront of the digital revolution, and has more open banking implementations underway per head of population than any other EU country: only the UK outstrips Lithuania on a per-head-of-population basis.
In a few years from now, expect Lithuanian banks to offer apps combining account management, digital payment services, personal finance management and value-added digital services from location finders to loyalty products. If your company is looking to acquire an EU license or wants to set up an EU subsidiary, Lithuania is very much a location of choice.
To find out more about the regulatory and business implications of locating your payments business in Lithuania, contact us here