15 Feb 2018 - 0:37
Brexit a boon for Lithuania's 'fintech' drive
Vilnius: Britain's divorce with the European Union is paying off for Lithuania as it strives to become a northern European hub for financial technology, or "fintech" firms, and blockchain-based start-ups.
Jostling with Denmark and Sweden as well as fellow Baltic eurozone states Estonia and Latvia for the favour of digital economy investors, Lithuania has issued 51 fintech licences since 2016, including 32 last year, and another 19 applications are currently under review, according to the country's central bank.
fintech refers to IT companies developing new software, applications or business models for the financial sector, including blockchain-based digital and crypto currencies.
Blockchain technology allows peer-to-peer payment systems and debuted in 2009 as a public, encrypted ledger for the leading cryptocurrency bitcoin.
Companies knocking on Lithuania's door include big names like UK fintech banking startup Revolut, which applied for a European banking licence through the Lithuanian central bank three months ago.
"Nobody knows how Brexit will end but a banking licence in continental Europe allows to mitigate risks," Andrius Biceika, Revolut's head for Baltic states, told AFP.
The UK-based Contis Group alternative payment firm, deVere financial consultants and the Singapore-headquartered InstaRem specialising in cross-border money transfers are also among the companies having won, or bidding for, Lithuanian fintech licences.
The Baltic state's central bank said it was in talks with more than 100 other companies, including 24 from the UK.
Lithuania's central bank first rolled out the red carpet for fintech firms in 2016 hoping to improve competition in its banking sector, dominated by Nordic banking groups like Swedbank or SEB.
That year, Britain's vote to leave the EU presented Vilnius with a fresh opportunity to woo foreign firms eager to find ways to stay in the EU market after Brexit.
"We saw an opportunity, and we took it," said Bank of Lithuania board member Marius Jurgilas.
He said the central bank offers speedy processing and an amenable regulatory environment, now promising e-money and payment licenses within three months, much faster than in most other EU states.
While admitting that London is likely to retain its status as the main European hub for fintech firms, Jurgilas said many companies are eager to take "precautionary measures" with Brexit on the horizon.
Attracting young talent to well-paid jobs is crucial for the nation of 2.8 million, which is struggling to stem the brain drain to richer western European countries.
Mantas Katinas, who heads Lithuania's foreign investment promotion agency, said authorities must now focus on education and more direct flights to London to win British fintech investors eyeing other EU cities as Brexit looms.
Katinas also points to the need for Lithuania to develop e-residency, a kind of global digital identity programme first launched by Estonia in 2014, as another tool for investors.
"Nobody's asleep. Everyone's watching what Lithuania is doing and copies it. Swedes, Danes see that we are doing quite well and also want to hop on this train," he said.
Lithuania's central bank has also joined the drive to attract fintech firms using blockchain technology by announcing plans to launch a platform on which companies may test new code and services.
According to Jurgilas the project "may surpass the financial sector and develop into a technological platform for the whole public sector".
In a separate initiative, European Parliament member and entrepreneur Antanas Guoga launched a blockchain centre in Lithuania's capital Vilnius last month to boost start-ups and establish connections with Asia and Australia.
Lon Wong, president of the Singapore-based NEM.io Foundation and a board member at the Vilnius centre, said the Lithuanian hub could facilitate international talks on industry regulation.
"We are in a very nascent industry where everyone is learning as we progress," he said in an interview.
"Industry experts and regulators around the world should sit down together and understand where the problems are and share this knowledge and therefore improve the industry accordingly," he added.
Regulators will also have to mitigate identity theft risks, and Lithuania's blockchain industry has already become a target.
Two weeks ago, a group of local blockchain experts said they became victims of identity theft after being listed as team members of blockchain startup Prodeum which disappeared with investors' money.
The EU is working on stricter rules to combat money laundering and terrorism financing on exchange platforms for virtual currencies.
Pierre Marro, an EU Commission official, said last month the EU executive will seek talks with European Central Bank and European Parliament this year to get more "legal certainty" in the area.