Contributor Amy Guttman writes about the Vilnius fintech revolution following a visit to the city.
“There were no threats to competition, so banks didn’t have to invest in improvements. We realized there’s enormous discontent in the public arena with the industry. How do you instill competition in a market so concentrated?,” asks Marius Jurgilas, a member of the board of the Bank of Lithuania.
Jurgilas has asked and answered his own question by leading a fintech revolution in the tiny Baltic state, which only became independent from the Soviet Union in 1990. His mission? To establish Lithuania’s capital, Vilnius, as a fintech hub in Europe. Three main Scandinavian banks dominate the market – with, historically, little innovation and excessive transaction fees.
“In their home markets, these banks were leaders in innovation and digitalization. In Poland, one-third of payments are contactless. None of that was here. Why? It didn’t make sense from a cost-benefit perspective,” Jurgilas says.
Yet, new banks entering Lithuania’s small market failed. Jurgilas realized the country could offer something bigger and more valuable than it had been marketing: not just 3m domestic customers, but access to the European zone and its 450m customers.
“We see fintech as a vehicle for instilling competition in the market. We’re cutting the red tape. We’re trying to be as collaborative as possible with market entrants. Instead of just being the policeman, we ask ‘how do we work with them?’”
Jurgilas and his colleagues facilitated founder and investor-friendly policies:
- Easy setup: 3 days to set up a company
- Tax incentives: 4th lowest profit tax in the EU, 3x R&D deduction, government support for foreign investors
- Startup Visa
- Regulation: e-money or payment license in 3 months, video-based KYC (know your customer) and no regulatory sanctions for fintech startups for the 1st year.
Much of the infrastructure was already in place, with a talented, mostly English-speaking labor pool, leading EU broadband speeds and fiber-optic penetration, and low office rents. Talent from neighboring countries is easy to attract thanks to one of the lowest costs of living in Europe, the relatively traffic-free capital, independent coffee shops and a vibrant bar and restaurant scene. Just over an hour’s drive from Vilnius, natural mineral springs supply healing, restorative waters to thermal baths and resorts known for their medical and spa treatments.
Enter a hotel or restaurant in Vilnius and you’ll come across young locals keen to catch up, or even leap- frog the rest of Europe, delivering American-style service with a smile, and a refreshingly open culture for a country only released from the grips of the Soviet Union a few decades ago.
Jurgilas believes Brexit will only bring more business to Lithuania, as firms will soon need to establish two bases in order to continue operating in the EU: one in London and one in Europe.
“It’s a very big problem for startups, who need additional funding to do this in order to save three-quarters of their market.”
One such company is Blender, an Israeli peer-to-peer lending site. To do business within Europe, they need a license in just one EU country. They chose Lithuania for its easy and accessible business environment.
Jurgilas and his colleagues are welcoming Blender and other foreign firms, like Danske Bank, which employs 1500 people in Lithuania, developing apps for the Danish market. He sees both startups and big corporates as crucial drivers in the ecosystem, cultivating and inspiring local talent.
“They are employing people here, paying tax, and they will be a growing business – not just in Lithuania, but globally. The people they employ will grow talent and will go off and start their own businesses.”
And, they’ll help disrupt the banking sector along the way.