Steady growth, big names and a focus on AML: Lithuanian Fintech in 2020

Feb 19, 2021
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As a large part of businesses shifted online in 2020, areas like e-commerce and last mile delivery services started playing a more prominent role in our daily lives. Fintech solutions, in many cases operating in the background, help millions to send and receive money, pay for services both locally and across borders, and allow them to get better access to finance without leaving their homes. Lithuania, a prime hub for developing such solutions, saw another year of growth – both in the number of active companies, which increased from 210 to 230, and in terms of homegrown startups, like Ondato, SME Finance and kevin., who managed to raise capital even in such turbulent times.

Growth across multiple domains

According to The Fintech Landscape Report 2020-2021, published by Invest Lithuania, the year was successful for a majority of Fintechs operating in the country. 87% of surveyed companies saw their revenue increase, and over a third saw their revenue more than double in 2020. Among the businesses with the highest revenue growth were Fintechs in the Compliance, Payments and Financial Software sub-sectors.

“Growing revenues helped many Lithuania-based Fintechs to expand their teams. According to our Report, at the end of the year, there were around 4000 people employed in fintech, a 17.6% increase year-over-year. And while a large part of the sector’s companies run modestly sized teams, 35% of them employ more than 10 people,” Gintarė Bačiulienė, Head of Technology Sector team at Invest Lithuania, says.

New international names

Contending for the title of Europe’s Fintech hub, Lithuania has been attracting foreign companies, who benefit both from a business-friendly regulatory environment and a rich talent pool, since 2016. In 2020, there was no shortage of internationally renowned Fintechs joining the local ecosystem. Recent additions include SaaS banking platform Mambu, payment account aggregator Curve, one of the largest money transfer companies in the world Ria Financial, and automated loan provider Saldo Finance. Rockit Vilnius, a Top FinTech and Sustainable Innovation center in Lithuania has mapped all the Fintechs in Lithuania in 2021.

A straightforward licensing process is one of the factors that attract Fintechs that see the EEA as a target market. Ranked number four in the Global Fintech Index Ranking, Lithuania is a leader in continental Europe when it comes to the number of electronic money and payment institutions. Over several years, the Bank of Lithuania has granted 5 special purpose bank bank licences, more than 110 electronic money and payment institution licences.

Brexit and its aftermath for financial institutions is one of the factors that pushed UK-based companies to set up licensed entities in Lithuania. According to the Bank of Lithuania, there are currently 23 UK-founded fintech companies licensed in Lithuania, including Revolut, TransferGo, DiPocket, Curve Europe, and SumUp EU Payments.

Strengthening AML efforts

In 2020, online payments, including cross-border payments increased both in number and value of transactions around the world. Last year, more than 81 million payments were made within CENTROlink (the Bank of Lithuania’s payment system), with Fintechs generating a volume reaching almost €115.8 billion. Both numbers are double of what the system saw in 2019. The number of payment service providers accessing the system has also increased from 85 in 2019 to 117 in 2020. With such impressive growth, the topic of anti-money laundering has never been more relevant.

In October, the country’s government gave the green light to the establishment of the Centre of Excellence in Anti-Money Laundering, which is set up to mobilise public and private efforts in combating money laundering and terrorist financing (AML/CTF) as well as to strengthen the prevention framework. The Centre was established by the Ministry of Finance, the Bank of Lithuania and the country’s commercial banks, while other financial market participants will also be invited to join its activities in the future.

“Our understanding is that to have a healthy and mature financial sector, AML compliance and other requirements should be at the very heart of financial companies. We are all responsible for making “Licensed in Lithuania” trademark as a sign of good quality in terms of compliance and supervision”, states Jekaterina Govina, Director of the Financial Market Supervision Service at the Bank of Lithuania.

The Centre of Excellence in Anti-Money Laundering aims to share information on money laundering and terrorist financing typologies and set up a dedicated information exchange platform, carry out studies, assessments and analyses, prepare guidelines and legislative initiatives to improve the country’s AML/CTF framework in Lithuania, assist businesses in conducting internal AML/CTF risk assessments, and more. It will officially open its doors in 2021.

Homegrown Fintechs go international

According to the Fintech Landscape Report 2020-2021, Lithuanian-owned companies comprise 48% of the total number of Fintechs operating in the country. 2020 saw prominent local players attract investment, help with pandemic relief and tackle new markets.

As Lithuanian SMEs face difficulty in securing financing from traditional sources, non-bank lenders and factoring companies are providing a much-needed lifeline. For example, Vilnius-based SME Finance has secured €80 million from the European Investment Bank. The funds will be used to provide loans to enterprises in the Baltics. Another Lithuanian Fintech Faktoro, struck a €6 million guarantee deal with the EIB allowing it to start awarding working capital loans of up to €25,000 to micro enterprises in Lithuania. Heavy Finance, a marketplace allowing people to invest in mortgage loans backed by heavy machinery, facilitated €2.M worth of loans in 2020.

2020 provided certain challenges for startups attracting funds, but it didn’t stop the process. Lithuanian digital and biometric verification and know-your-customer (KYC) compliance startup Ondato, for example, raised €1.6 million. Lithuanian upstart kevin., the first company in Europe to launch an API tool that cuts out credit cards as the middlemen in mobile payments, raised a similar amount.

As Lithuania is a relatively small market and the licenses issued by the Bank of Lithuania can be easily passported across the EEA, more than 70% of the Fintechs operating in the country see the Nordics and Western Europe as their target markets, with 63% of companies targeting Southern Europe. In 2020, we saw payments provider Paysera enter Spain and Albania, HeavyFinance start offering P2P lending to farmers in Bulgaria, and kevin. enter Poland, Portugal and Finland.

“2020 saw Lithuanian Fintechs rise to prominence and gain market share in foreign markets, while helping local businesses stay afloat by providing access to capital and tools needed to thrive in the digital space. With more VC funding coming in, I am sure we will soon see a unicorn emerge out of Lithuania’s vibrant community,” said Šarūnė Smalakytė, Head of Rockit Vilnius.

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