Lithuania's Fintech revolution: an opportunity for cross-border payments

Lithuania took its first steps into the world of financial technology for a rather pragmatic reason. Back in 2016, the Bank of Lithuania, dissatisfied with the low competition between incumbent banks, decided to push for digitalization and innovation, making the regulatory framework understandable and appealing both to local and foreign disruptors. Fast-forward to today, and Lithuania already hosts over 230 Fintechs, the majority of which focus on the areas of digital banking and cross-border payments. One might ask, why a country with a relatively small economy (Lithuania’s GDP is around €46 billion) is so heavily involved in this field?

Like many in the region, Lithuanians have a high appreciation for the benefits that open borders bring, as these benefits were unavailable to several generations. When the population started actively travelling, studying and working abroad, moving money across borders in an efficient and safe fashion became an important part of the lives of many people. Western Union and other legacy networks had a relatively low market penetration level in Lithuania, so the gap was quickly filled by the likes of TransferGo (founded by Lithuanians in the UK) and Revolut. The latter took the country by storm, most likely thanks to the receptiveness of Lithuanians to new technology. Despite its relatively small population, in 2018, Lithuania was Revolut’s third largest market.

So, on the one hand, you had a population eager to adapt new money transfer methods, and on the other, you had a regulator ready to make the business environment as welcoming as possible. It did so by allowing the submission of all documentation in English, rolling out a newcomers programme, introducing a regulatory sandbox, a proprietary blockchain platform (LBChain), and a number of RegTech solutions, while providing non-banks with access to the CENTROlink payments system. The latter feature means that payments institutions can have direct access to around 50,000 banks and branches abroad. This business-friendly environment was one of the main contributing factors behind Lithuania attracting tens of Fintechs every year. The attractiveness of Vilnius and Lithuania as a whole is only going to increase after the inauguration of the AML Centre of Excellence - a joint entity set up by the Bank of Lithuania and partners. This is expected to happen in 2021.

And the Fintechs (together with other payments providers) are using these advantages to the fullest. As of today, CENTROlink services are used by 136 payment service providers established in 14 European Economic Area (EEA) countries. Their number increased by a third since 2019. In 2020, more than 95 million payments were made compared to 43 million in 2019, within CENTROlink with their value reaching almost €170 billion (€88 billion in 2019).

Fintech is synonymous with convenience, and nothing says convenience like instant payments. In 2020, the volume of instant payments conducted via CENTROlink increased four times to more than 12 billion EUR. On average, more than 260,000 payments, the value of which exceeds 460 million EUR, are made daily through the infrastructure provided by the Bank of Lithuania.

Of course, transaction volume via CENTROlink is only a part of the picture. The country’s Fintech sector has multiple success stories, with such prominent companies as the aforementioned Revolut, SumUp Payments, Curve, Mambu, Railsbank and others having established their branches that focus on crucial areas like R&D and product development in the Lithuanian capital. According to Findexable, Vilnius is currently among the top four fintech hubs globally as well as the most attractive destination for FDI in terms of tech start-ups. In addition to having a talent pool of 38,000 ICT specialists, a large part of whom have experience in Finance, Lithuania can also boast one of the most multilingual talent pools in Europe. The average number of languages spoken per person is 2.7, and 97.3% of the population speaks at least one foreign language. This is especially convenient for companies that provide support to customers across Europe and beyond.

For a long time, the Lithuanian Fintech sector was driven by international companies, but several strong players have emerged in recent years. One of them is Ondato - a company that provides a complete compliance management suite to financial institutions. Another one is Kevin. - a startup that has recently launched a PSD2-compliant API tool that cuts out credit cards as the middlemen in mobile payments.

To its credit, the Lithuanian Fintech ecosystem did not suffer any major losses in 2020, many companies even managing to significantly increase their revenue thanks to a massive uptick in e-commerce. Trends come and go, but one thing is certain - Lithuania’s Fintech hub is here to stay.