With favourable business conditions to grow, Lithuania is a home for many technology startups and established companies. One of the fastest developing sectors is fintech. Although 2020 was a challenging year for the country’s economy and business, financial technology companies have shown resilience and stable growth, ROCKIT wrote in a press release.
“At the beginning of 2020, it looked like another stable growth and purposeful year for a fintech sector in Lithuania. But very soon, things took a different turn. While the economy had to adapt to new, constantly changing conditions, fintech companies had opportunities to find new perspectives, ensure leading positions in creating digital financial infrastructure, and supporting the business community. That is why the sector’s resilience remained very high. Although the COVID-19 pandemic took most of the attention this year, it is important to highlight other aspects that impacted ecosystem development. They are strategic partnerships between fintech and banks, fintech themselves, favorable regulations, new investments in the region and the importance of cybersecurity”- said Šarūnė Smalakytė, head of Fintech and Sustainable Innovation centre ROCKIT.
Lithuanian fintech took a leading role
Each year, the Ministry of Finance creates an annual Fintech development plan to accelerate its progress and solve the most significant challenges. This year started as usual until the whole world was struck with the global pandemic. To control the damage done to a business, the Lithuanian government initiated an economic stimulus. But according to Greta Ranonytė, Chief Specialist of Financial Markets Policy Department at Ministry of Finance of the Republic of Lithuania, Lithuanian fintech were the ones supporting the economy and continuing to push digital innovations in the country.
“Fintech solutions have been a major help to broaden and speed up loans to SMEs, including the loans supported by the government in response to the pandemic. The pandemic has only accelerated the inevitable shift to the digitized world with fintech taking the lead,” explained Greta Ranonytė.
This year, the Lithuanian government also worked on strengthening the law of preventing money laundering and terrorist financing, facilitating KYC (know your customer) procedures for both businesses and users, paving the way for open banking using non-cash payments in schools.
Lending and alternative finance role in 2020
Lithuanian financial service sector is divided into traditional and non-traditional institutions; however, traditional banks still dominate most of the market share. Mindaugas Mikalajūnas, CEO at SME Finance, explained that fintech isn’t replacing traditional banks but instead creating niche products and complementing existing financial services in the market. The traditional financial market could benefit from the rapidly developing fintech, and according to Mr Mikalajūnas, this year, Lithuanian financial technology companies have shown impressive growth.
“We are growing ten times faster than our competitors. To understand, SME Finance, a P2P lending platform, grew its market share from around 20 million euros to 200 million euros during a couple of years. The biggest banks keep the same market share but don’t grow as fast; only 1-3% per year.” explained Mr Mikalajūnas.
CEO at SME Finance emphasized that for fintech to establish in Lithuania and continue growing, they need better conditions and financing because of challenges breaking through the biggest banks in the market and getting a fair share of the pie.
“We are not competing with the biggest banks. We are creating new market shares for the new segments, new customers, fast-growing companies, and the companies that don’t have hard collateral. We have tailor-made solutions for them.” told Mindaugas Mikalajūnas.
Partnerships and collaboration are crucial for small and medium Fintech companies to establish in the market. Collaborations between traditional and neo-banks also facilitate the transition to the digital world and help service providers introduce a wider range of products and secure services.
A stable year for investments
Against all the odds, investments in Fintech startups have also increased in 2020. This year, fintech has been attracting the biggest share of acquisitions than other technology startups such as artificial intelligence-powered projects. According to Jonė Vaitulevičiūtė, Partner at Startup Wise Guys, the number of investments show a great trend for Fintech startups.
“We should pay attention that 14 million out of the 34 million total that has been invested in our startups went for 11 fintech. Knowing that we have great stars in artificial intelligence as well as deep tech startups, but still, almost more than one-third of the investments went to fintech.” Jonė Vaitulevičiūtė shared positive trends.
She also added that this year might have been the most stable year for venture capital companies. Investments in fintech were more significant in the first half of 2020 compared to the first half of 2019. However, the sizes of the rounds decreased. Still, only because many startups delayed their investment cycles, “Startups went for a short bridge round for accelerator round instead of going for a larger seed and serious investments. That, I think, benefited angels and accelerators.” explained Jonė Vaitulevičiūtė.
Improvements needed in cyber-security
Despite a stable and prosperous year for fintech in Lithuania, there’s room for improvement. As more companies transition to digital environments, the threat of cyber-attacks increases. According to Vilius Benetis, CEO at NRD Cyber Security, Lithuanian financial institutions are being attacked every week. And even though fintech embraces new technologies, often traditional banks are better prepared to withstands cyberattacks. He contributed to the idea that to improve the Lithuanian financial sector’s cybersecurity situation, a collaboration between banks and neo-banks is crucial.
“Sometimes, even fintech is not competing with the banks in cybersecurity. There are so many success stories worldwide when banks cooperate on cybersecurity just because they are targeted and hacked similarly. So better to join the forces, think and share the ideas on how to be more resilient and build the competence and resilience in the sector.” told Mr Benetis.
The fintech landscape in Lithuania is promising, and the year is not yet over. Many investments and projects will be finalized only in the last weeks of the year. With 2021 approaching, fintech can expect more acquisitions, new partnerships, and better conditions to grow and expand to international markets.