Lithuania: Building a Fintech Success Story from a Regulatory Point of View

Posted on May 22, 2020 by Martynas Pilkis, Adviser to a Member of the Board of the Bank of Lithuania

The ongoing technological transformation in the sphere of financial services has not only improved financial services themselves but also created new opportunities for countries willing to attract innovation. In recent years, Lithuania has emerged as one of the largest centres for fintech companies in the European Union. Regulatory initiatives have been a crucial part of this story. Let us take a look at what made Lithuania one of the fintech hotspots in the region.

The Growth of the Fintech Industry

By the end of 2019, 210 fintech companies were established in Lithuania. This number quadrupled over a five-year period. The key strength of the Lithuanian fintech industry is the conditions for electronic money institutions: right now, Lithuania is the number one jurisdiction in the European Union—one out of six electronic money institutions in Europe is licensed by the Bank of Lithuania, according to the Register of the European Banking Authority.

And while international payments and remittance services are the core competence of the fintech industry in Lithuania, other sectors (such as financial software companies, online investment and P2P companies, to name a few) have also been rapidly growing in recent years.

According to the Fintech Landscape in Lithuania report, this industry currently employs 3,400 specialists. The number of employed people in this sector has been growing steadily over the last couple years. This is in contrast to the whole banking sector (employing about 10,000 employees in Lithuania), which has been rather stagnant in this regard since the crisis of 2008.

The growth of the Lithuanian fintech industry would be far lower if not for the ability to passport financial services across the whole EU market. While incumbent Lithuanian banks are focusing on traditional banking for residents in a small Lithuanian market, many fintech companies extend their activities to other EU countries, using the opportunities of a single market to the fullest.

The Role of Regulator

As competition in the Lithuanian domestic financial market was lacking due to a few winners (mostly Scandinavian banks) taking a very substantial share of the market, public authorities have taken a proactive approach towards developing the fintech industry. The Government declared the fintech industry as one of the top priorities in 2016. What ensued was cooperation among the central bank and the regulator (the Bank of Lithuania), the Republic of Lithuania Ministry of Finance and the Government agency Invest Lithuania, with some input from other institutions (such as the Ministry of Foreign Affairs) as well.

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Modernisation, Fintech, Innovation, Regulations