China’s rapid economic expansion across the globe has been well documented. From Chinese President Xi Jinping’s pledge this month to invest a further $60 billion in Africa to the construction of a previously unimaginable deepwater port in Gwadar, as part of the China-Pakistan Economic Corridor, not to mention the propping up beleaguered Latin American economies with tens of billion dollars’ worth of loans — analysts have gone as far as to label our current age as the Chinese Century.
Much less, however, has been written about Chinese involvement in Europe but this is not to say it is a region outside of the interest of The Red Dragon.
Just last week Prague featured as the venue for a key China Investment Forum, chaired by the President of Czechia, Miloš Zeman. The event was not only attended by roughly 100 guests from Czechia but also 150 delegates from other Central and Eastern European countries plus 250 representatives from China itself. Whilst potential future investment within more traditional industries such as energy, transportation and infrastructure was on the agenda, fintech was the emergent sector which dominated discussions.
In particular, the Lithuanian delegation led by Marius Jurgilas, a board member at the Bank of Lithuania, made headlines after proclaiming that it was increasingly ready to welcome Chinese fintech firms and act as a gateway for access across not only the rest of Central and Eastern Europe but also the European Union.
“We have already established close ties with Asian authorities regarding maintaining regulatory flexibility and are building bridges for fintech businesses in the region,” Jurgilas said. “Banks, electronic money and payment institutions can all gain easy access to Europe’s fast-paced payments market via infrastructure provided and maintained by the Bank of Lithuania.”
Collaboration between the Bank of Lithuania and the Chinese sector is certainly not new with the bank signing a co-operation agreement with the China Banking Regulatory Commission in 2015. Since then, the Bank of Lithuania has already issued four electronic money institution licenses and one payment institution license to Chinese companies. Jurgilas also revealed that there are a further ten Chinese companies looking to join the bank’s central payment system Centrolink. In addition, Lithuania is constructing a fintech coordination center for the 16+1 organization in Vilnius and plans to hold a fintech conference in the city in October 2019.
The Chinese embrace of Lithuania as a key European fintech market is certainly no anomaly, however, with the country having long-established itself as a fintech superpower.
According to the Lithuania Fintech Report 2017, a total of 117 fintech firms were operating in the country employing over 2,000 people — a rapid increase from 45 companies in 2013. A report produced by local consultancy firm Versli Lietuva, revealed that the Baltic state saw a 305% increase in ICO investment over the past 18 months, with up to $570 million raised. The same report also detailed that cryptocurrency transfers involving Lithuanian firms reached a whopping $762 million between 2017 and 2018. Major companies including IBM IBM -1.31%AIG, Western Union WU -1.73% and Nasdaq have established a presence in the country, alongside tech giants like Google and domestic success stories such as CoinGate, Debifo and Bankera — which raised $100 million in its initial ICO in Lithuania earlier this year.
Lithuania already ranks tenth in Europe in the Index of Economic Freedom, the World Bank judged it to be the 16th out of 191 countries globally in its Doing Business Index 2018 while the country also finished 41st in the World Economic Forum’s Global Competitiveness Report.
For many in the country, however, this is just the beginning as Brexit is set to bring a wealth of opportunities to the Baltic nation. United Kingdom-headquartered start-up Revolut has already announced that it has set up a subsidiary office in the country to combat the UK leaving the EU.
“I cannot deny that,” said Jurgilas, when he was recently asked if Lithuania saw Brexit as an opportunity.
“We are not saying that we will be attracting top firms from the fintech hub of the world, which is and always will be London, to the new booming financial sector in Lithuania, no,” he said. “But there is a huge flow of firms — and we want to participate in that flow — who want to hedge the risk of Brexit.”
So, why is Lithuania such a booming fintech hub and why are globally renowned firms increasingly choosing to headquarter there?
Favorable Regulatory Environment
The explosion in the number of fintechs choosing Lithuania as their new hub can be attributed to the creation of a regulatory sandbox by the Bank of Lithuania, with submissions to enter having opened on October 15. Available to both existing authorized financial institutions and start-ups, the sandbox aims to provide a platform for firms to test innovation before bringing a product to market, ensuring no crucial errors when it falls into the hands of consumers.
In addition to this, fintech firms are not subject to regulatory sanctions within the first year of operating within the country while remote video Know Your Customer (KYC) rules are in place which allows firms not based within Lithuania to open an account in the country without maintaining a physical presence there.
Government Policy
Lithuania’s government under progressive and euro-centric President Dalia Grybauskaitė has also sought to introduce new laws and tax relief to the benefit of start-ups. Its corporate tax rate is the third-lowest in the EU and its personal income tax rate is the second-lowest in the union, while start-ups are able to obtain an e-money or payment license in just three months, the quickest in the EU. Furthermore, its initial capital requirements for “lite” bank licenses — for challenger banks — are five times smaller than in other EU countries and can be obtained in just six months, ideal for start-ups. Even for more traditional, established banks, the country currently only demands a $1.14 million investment — again, the smallest in the EU in order to encourage financial houses to relocate.
Lithuania’s government has also set aside $750 million in funding through organizations such as Enterprise Lithuania and the MITA Agency for Science, Innovation and Technology for start-ups. In the previous six years alone, MITA has helped to establish over 100 start-ups in the country through its “R&D Commercialization Program” which has provided grants for firms of up to $22,300 and helped to foster innovation across the country.
Lastly, Grybauskaitė’s government has recently approved a “Startup Visa” for entrepreneurs to ensure that relocation to the country from outside the EU is as easy as possible. More established firms can apply for the EU Blue Card program to obtain residency for highly-skilled non-EU citizens.
Talent Pool
Lithuania is also home to an extremely tech-savvy workforce, with 31,500 IT professionals in a country of just 2.9 million people. Out of these individuals, the level of English language proficiency is at 84%, ideal for start-ups looking for a hub with which to launch a product across the continent.
Furthermore, the country is ranked as the eight best in the entire world by Bloomberg for the percentage of graduates enrolled in higher education, with a large number of students undertaking “innovation degrees” in subjects such as science, mathematics or computing, thus meaning that the country has a ready-made workforce suited to the needs of many incoming foreign fintech firms.
Verified Vilnius
“After my first visit to Vilnius I just felt that this city is a small version of Silicon Valley and this was absolutely unexpected,” chimes Jared Isaacman, the CEO of Harbortouch, the touchscreen point-of-sale (POS) system firm that has opened an office in Lithuania’s capital. “The city, its infrastructure, the prevalence of technology made an impression on me,” Isaacman continued.
While even the greatest Lithuanian fintech advocate may concede that its capital has some way to go before it rivals the Californian behemoth of Silicon Valley, it certainly is an advantageous location to base a start-up if a firm is looking to operate across Europe.
The Mercer Cost of Living Index found that it is one of the five least expensive cities in the EU and average office space in Vilnius is only $17.14 per sq/m. When compared to $26.28 in Berlin, $34.27 in Amsterdam, $47.98 in Stockholm and $153.09 in Central London, it is not difficult to understand why a start-up may look favorably upon the city. The city also has the fastest public Wi-Fi connection in the entire world for both average upload and download speeds, according to a study by telecommunications company Ooma.
