Rise Vilnius
Tech, Foreign media

Red Herring: Fintech is king of Lithuania’s tech revolution

June 05, 2017

Asked to name Europe’s financial technology hubs, you might take a while to reach Lithuania. But something special is happening in the Baltic state, and it’s backed by a startup ecosystem that is one of the continent’s fastest-growing.

In 2004 Lithuania, a small nation of three million people sandwiched between Poland, Latvia and the Russian exclave of Kaliningrad, joined the European Union. Since then it has been attracting a raft of tech institutions and nurturing some big-money startups. Among them, a significant fintech scene has emerged.

Major companies like IBM, AIG, Western Union and Nasdaq have presences in Lithuania alongside tech giants like Google. Financial brands from Hong Kong, Singapore, Israel, the UK and more have set up shop in the country. There is no shortage of reasons why.

Lithuania ranks eighth of 25 European states in economic freedom. The Word Bank places it 21st of 191 countries worldwide in doing business, and the World Economic Forum ranks Lithuania 35th globally in its Global Competitiveness Report.

These metrics will soon rise thanks to a fast-track visa program for non-EU nations that began in February. The move, targeted to increase Lithuania’s entrepreneurship, precipitated a courting of Ukrainian startup founders keen to switch country amid their own’s ongoing turmoil.

The move follows on the heels of neighbors Latvia and Estonia. The latter has become known worldwide for its e-residency scheme, whereby companies can be founded in the country without being physically present. Latvia recently passed a new tax incentive to bring in more young tech startups.

But it is far from the genesis of Lithuanian tech progress. The country now homes around 450 startups that provide roughly 2,500 jobs. Lithuania hosts 13 of the largest 20 IT companies in the Baltics, boosted by a forward-thinking government and pedigree in high-tech achievement.

Under Soviet rule Lithuania became known as a center for laser technology and bioscience, the latter of which now accounts for 1% of GDP and is growing at almost 25% annually. Last year businessmen, scientists and the government signed an agreement to make Lithuania the European hub for health and biotech innovation by 2020.

But it is fintech that has taken the strongest grip on the country’s tech scene. TransferGo, WoraPay, Blender, Simplex and IBS are just a few of a small but growing clique of firms taking advantage of strong local talent, low wages and public pledges.

“The key to fintech’s success in Lithuania has been the strategic and responsive decisions made by the Bank of Lithuania,” Gediminas Koryzna, director of business development at Invest Lithuania. “At the end of last year, the Central Bank of Lithuania made a commitment to the fintech sector by announcing it will provide preliminary answers to e-money and payment institution licence enquiries within one week, the fastest turnaround in the EU.”

Lithuania is the only jurisdiction in the EU to have a special-purpose banking license, allowing the foundation of a bank with registered capital of just €1m ($1.1m). Its citizens can also access the Single Euro Payment Area (SEPA) via the Bank of Lithuania’s API, allowing them to avoid services fees by commercial banks. It now takes just three days to found a startup.

Vaidas Adomauskas first imagined WoraPay, a payment platform, while waiting to pay for food at a restaurant. Now it is backed with almost $1m in funding and is headquartered in London–which many believe to be Europe’s fintech capital. “Lithuania has great talent, fastest internet, big mobile phones penetration which gives good ground for fintechs,” he says.

Capitalizing on the Lithuanian fintech craze, Rise, the Barclays-backed Rise coworking franchise, opened a location in capital city Vilnius last year. It has 50 working spaces, an auditorium and conferencing facilities for entrepreneurs trying to get a foothold in financial tech.

Rise Vilnius is the bran’s seventh location behind London, New York, Tel Aviv, Cape Town, Manchester and Mumbai. Its community events manager Kamile Sulcaite says the move came thanks to Lithuania’s “great infrastructure, compact size of the country, agility, good life quality, talented people and growing potential to become a center of fintech in Europe.”

But Rise, and fintech, are not Lithuania’s only strong points. The country has been churning out successful startups for years–and they’ve won some big funding rounds. Serious A and B-round investments have been made in local companies such as Vinted ($27m, December 2015); Trafi ($6.5m, March 2015) and Yplan ($24m, November 2014 – it was acquired by Time Out Group in October 2016). More recently, Oberlo was bought by $15m.

They have been helped not only by the government but low wages: most Lithuanian tech salaries fall within the $15,000-$27,000 range. Rent and other overhead costs are also low.

In Vilnius Tech Park locals also have a state-of-the-art center in which to ply their trade. The 8,000sq m complex, built on the edge of the capital’s historic old city, is one of the largest spaces in the Baltics dedicated to tech. “We see teams from Ukraine, Russia, Latvia, Belarus coming in for our events,” says Vilnius Tech Park corporate partnerships manager Monika Poskaityte. “So I’d say we’re on the right path. We just need to continue working, as Vilnius Tech Park has been launched for only half a year.

When Grand Duke Gediminas founded Vilnius in the 14th century, he started out by sending four letters to different cities in Europe inviting talent to come,” she adds. “In the central reception of Vilnius Tech Park you can find an excerpt from this letter, reminding that the city was founded on the grounds of attracting and enabling talent and innovators.

“The city has run through a lot of good and bad times throughout the history, making its residents business minded, hard-working, creative and eager to work on big ideas. So I’d say entrepreneurship and innovation is a part of city’s DNA.” Vilnius was recently ranked as Europe’s most cheerful capital–98% of residents registered themselves as ‘happy’, ahead of Copenhagen and Stockholm.

Local venture capitalists might still “take risks very cautiously,” Adomauskas says. But the EU offers considerable funds to exciting business models. And Lithuania’s government has set aside over $750m in funds running up until 2020, via bodies such as Enterprise Lithuania and the MITA Agency for Science, Technology and Technology.

The ease of founding a Lithuanian startup is almost comparable with ten years ago, says MITA’s chief specialist Jurga Trotiene. “In six years we helped to establish more that 100 startups and spin-offs in Lithuania,” says Trotiene. “We have a special program called the ‘R&D Commercialization Program’, in which we provide grants for spin-off companies of approximately €20,000 ($22,300).”

MITA has also forged partnerships across Scandinavia, Silicon Valley and even China, where it has an agreement with Shanghai Science and Technology Park.

So far, so rosy. But Lithuania faces significant roadblocks in its path to tech success. Firstly there is its education system, which is often out-of-date and produces too few IT graduates to sustain the country’s rapid growth. This could be a significant “challenge going forward,” says Koryzna, adding that Invest Lithuania is “working hard to ensure that neither foreign investors nor local companies face a lack of IT talent… Last year, financial support for IT study programs grew by 50%.”

In addition to its raft of tech-friendly moves, the Lithuanian government is also considering a tax scheme to incentivize investment in risk-filled businesses. And a host of VC funds is due for launch in 2018. Combine that with an uptick in foreigners taking advantage of its progressive visa rules, and Lithuania looks set to continue its impressive tech renaissance. And fintech will lead the charge.

Source: Red Herring

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Aistė Žebrauskienė
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    Aistė Žebrauskienė Press Officer
    Thank you!

    Thanks for reaching out to us, this means a lot! We will get back to you shortly.

    Meanwhile, we invite you to discover what’s new in the Lithuanian business landscape.

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