When it comes to global powerhouse financial markets, a city that has always centred the discussions is undoubtedly London. The English capital has traditionally had the lion’s share of successful financial organisations and consistently ranks as the best city for finance in the world, (second – on occasion – to New York), and you could easily prophesize that it will always be the financial king of the Europe.
While this might be true, the rise of financial technology markets and organisations has left the finance industry prone to disruption and the cities investing in fintech are likely to seriously bolster their positions in finance realms. London has done a pretty good job at keeping a steady ship for fintech companies thus far, but with Brexit on the horizon, there might be potential for other neighbours to build their status as fintech hubs.
One country that is doing exactly that is Lithuania, which has been in the process of executing a huge effort to entice a range of fintech companies – both old and new – to set up business in the country. A report by Invest Lithuania suggests that the country is home to a total of 117 fintechs (including Barclays, Danske Bank, and popular UK start-up Revolut), with 35 new companies setting up shop in 2017. These aren’t bad figures when considering the population of Lithuania – at roughly 2.8 million – is just over a third of the size of London. It also has 31,500 people employed in IT, with about 1,870 of those in fintech alone.
Why is Lithuania attracting fintechs?
If there is one thing that financial institutions – including fintechs – love, it’s a good regulatory environment, and the Lithuanian government has made significant strides in making it easy and cheap for a wide range of fintechs to set up shop, with minimal red tape. It assures the fastest issuance of e-money or payment licences to fintech institutions with a turnaround of three months, which is impressive given the fact that many of its euro neighbours have delivery times of up to 12 months.
The bank of Lithuania has also set up a regulatory sandbox, allowing financial companies to test ‘’Innovative financial products or business models in a live environment, with real consumers.” Essentially this sandbox works as a closed environment for fintechs to test services, with no regulatory sanctions for the 1st year of operation. It is one of the only sandboxes of its kind to be set up in Europe and will prove a tantalising prospect for some organisations looking to branch out, or become established, in Europe.
We may even be seeing the effects of Brexit uncertainty when mapping the migrations of fintech companies to Lithuania. As the Business Times reports, UK-operating fintech companies are increasingly opting to set up branch offices in Vilnius as a sort of insurance policy if Brexit negotiations prove tumultuous for London-based organisations. The Central Bank of Lithuania detailed this potentially reactionary Migration, stating – as of February 14, 2018 – that it was assessing the fintech license applications of over 100 companies who wanted to set up shop in Lithuania, including 24 from the UK.
In regards to other benefits, fintechs in the country also enjoy direct access to the Single Euro Payments Area (SEPA), which reaches 34 countries, and are able to issue their own IBANs through the Bank of Lithuania. As well as this, the government also launched a new start-up visa program designed to encourage new business in the area, serving as another lure for start-ups who don’t want to deal with heavy regulatory restrictions. In this sense, Lithuania has basically marketed itself as the fintech ‘gateway to Europe’, and it has a strategically positioned, technologically capable and relatively stress-free regulatory and operational environment to back up the claim. It has even tried to take advantage of the increasingly massive Chinese opportunity, by welcoming Chinese companies and investment.
The Blockchain capital of Europe?
As part of Lithuania’s fintech boom, the country has also been narrowing down on the blockchain segment, instituting a range of initiatives in a bid to become the blockchain capital of Europe. Its first key movement in accomplishing this was the launch of a dedicated not-for-profit Blockchain hub last year.
The Blockchain Centre Vilnius (BCV) specialises in blockchain education and ‘start-up acceleration’ catering to entrepreneurs, developers, investor and regulators from around the world. It calls itself the ‘one-stop shop for technical, legal, and financial advisory services, with a special focus on helping blockchain start-ups reach their business goals’. The organisation says it plays a key role in connecting blockchain stakeholders in Asia, Australia (who also have blockchain centres), and Europe.
Since being established last year, BCV has made its mission quite clear. Speaking ahead of the centre’s first anniversary conference, CEO Eglė Nemeikštytė said, “When we opened a year ago we had an ambition to raise a flag of Vilnius as a European capital of blockchain and send the message to the world that Lithuania is a country where innovative technologies are more than welcome. Today, Blockchain Centre Vilnius is among those who are taking part in shaping a European blockchain future.”
Overall, the centre says it has helped to attract €5 million of investment, has hosted delegations from over 40 states and organised over 70 education events in various formats. The organisation is also one of the founding members of the International Blockchain Association (IBA), which is an independent, self-regulatory organisation for the blockchain industry. The IBA was organised by the European Commission, which views blockchain as a ‘transformative’ technology and has expressed a desire for the EU to take the lead, describing blockchain as important technology for the next-generation of the internet.
In terms of private investment, Nemeikštytė says that there has been an increase of interest from ‘traditional companies’ from the energy and transportation sectors, who are looking to learn about how the technology can be used to increase efficiency and profitability in their processes. As well as this, the Lithuanian government has even suggested using blockchain in its own public services. On public investment, Lithuanian Vice-Minister of Economy said, ‘’We believe that blockchain adoption brings us a great opportunity to run digital transformation for the governmental sector. As for the next steps, we are planning to review a pipeline of governmental projects for the public services and see if blockchain can bring additional value here. I think this is going to be an exciting exercise.”
Is it worth making the move?
At a glance, operating a fintech business in Lithuania is certainly an attractive prospect. With relatively low corporate and personal income tax (some of the lowest in the EU), a healthy per capita talent pool of IT specialists, and an impressive range of incubation and fintech growth initiatives, the country is doing a huge amount to make it easier for local financial technology companies and is attracting a growing ecosystem of both new and established players.
Start-ups can particularly find a lot of value in the country, with office rental costs at approximately €16 per square metre and a reduction in regulatory restrictions via the sandbox. Blockchain organisations will also be able to take advantage of a blockchain-orientated sandbox – known as LBChain – at the end of 2019, courtesy of the Bank of Lithuania.
For larger fintech organisations, Lithuania is worth keeping an eye on, especially for those London-based organisations fearing a no-deal Brexit. While Vilnius obviously couldn’t compete city-to-city with the British finance mecca, there might still be some big gains to be had from setting up shop in a city – and country – on the rise.