Lithuania, the European Union’s fastest-growing fintech hub, is seeing an “evolutionary” shift away from traditional banks with surging transactions for e-money and payment companies.
The Baltic country, whose financial industry is dominated by Nordic lenders like SEB Bankas AB and Swedbank AB, joined the global push to shakeup traditional banking four years ago by offering simplified, fast licensing covering all 27 EU members.
The initiative has taken off: Lithuania ranks fourth in the world for fintech ecosystems. Outgoing Central bank Governor Vitas Vasiliauskas said fintech transactions gained a larger share last year, though he acknowledges money-laundering risks after scandals in neighboring Latvia and Estonia involving illicit cash from the former Soviet Union.
“The ecosystem for fintech is there, which means we can expect some changes in competition for financial services,” Vasiliauskas, who also sits on the European Central Bank’s Governing Council, said this week in an interview. “We need additional time for bigger changes because fintechs have to grow stronger. But in the field of payments, from year to year, we see an evolutionary decreasing role of the banking sector and an increase for fintechs.”
Some of the growth is due to the pandemic prompting people to do more of their shopping online — a trend that’s also helped Lithuania’s logistics sector and buttressed the economy. But rising volumes are also being generated by companies like Revolut Ltd, which relocated to Lithuania in the wake of Brexit.
The share of transactions administered by fintech companies rose to 27% last year from a previous 11%, according to the central bank. That’s more than tripled the total volume for payment and e-money institutions to 51 billion euros ($60 billion) in the fourth quarter. Use of cards rose during pandemic by 32% and accounted to 64% of total payment transactions.
The central bank, which provides its fintech-licensing services in English, has so far registered 132 electronic and payment companies and in 2021 expects to add newcomers more quickly than elsewhere in the EU, where the U.S. currently leads the market of fintech innovation.
Lithuania’s fintech expansion isn’t without risks. While it avoided the scandals that hammered the reputations of the other two Baltic nations, the industry creates challenges in the field of supervision, according to Vasiliauskas who steps down April 7.
“Can we avoid risks?” he said. “We can expect some mistakes but if you want to achieve something, you have to take a risk. But for the moment, I’m quite satisfied.”
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