And here lies a lesson for regulators and central banks everywhere: by encouraging FinTech development with a supportive framework, they can play a part in growing successful, sustainable digital economies.
As the Digital & Payment Card Yearbooks outline in detail, all three Baltic countries boast highly developed digital economies, including digitised public services and a 90%+ rate of banking transactions done online.
The triple-digit surge in online payment transactions post-Covid, the emergence of FinTech sandbox playgrounds, and the rapid uptake of Smart ID are just some indicators of the frenetic pace of innovation.
And this combined momentum in the Baltic region is making positive waves across the rest of Europe.
Smart-ID, a home-grown Baltic scheme, is serving as the template for digital ID initiatives elsewhere.
Available as a free app, Smart-ID allows access to e-services including government and banking services, and eliminates the need for passwords and codes.
Signatures given with Smart-ID are legally binding, recognised in all EU states and have the same legal effect as handwritten signatures.
As a method of enabling financial inclusion, it’s been hugely successful.
Such is its ease of use that Baltic banks have begun phasing out PIN code cards in favour of Smart-ID authentication for payments.
In fact, a 2020 pan-Baltic survey from Swedbank found that Estonians trust biometric ID, fingerprint or facial recognition as the most convenient and secure way to use mobile banking.
Innovations like these have come to market quickly thanks to the warm welcome given to FinTechs by regulators in all three countries.
Nurtured by supportive central banks and welcoming sandbox environments, budding FinTechs have gone on to do great things, and in the wake of Brexit, established FinTechs are flocking to the region as the main gateway into Europe.
The best-known example is Revolut, which in May 2020 launched as a specialised licenced bank in Lithuania, and received a full banking licence by the ECB in December 2021.
Lithuania has become the favoured launching pad and destination for FinTech and e-money firms, as seen by the number of UK payment card portfolios that migrated to the country from the UK after Brexit.
This had an immediate and direct impact on payment transaction volumes in the country – the combined impact of the Covid-19 pandemic, plus card portfolio migration from the UK, led to a 32% jump in card payments, a 127% rise in cross-border payments, and a 200% increase in remote online card payments in 2020.
Meanwhile, Latvia’s Ministry of Finance, the Financial and Capital Market Commission (FCMC) and industry bodies have joined forces to develop a national start-up support policy, and a specific FinTech strategy to support the rapidly-growing vertical.
Lithuania’s central bank is also an enthusiastic proponent of using central bank digital currencies, and has used its LBCoin digital coin project as the test component for a possible digital euro.
This culture of promoting collaboration instead of competition serves as a much-needed lesson for the rest of Europe’s regulators, who all too often view FinTechs with suspicion and take a heavy-handed approach to legislation.
By following the Baltic example, Europe’s digital economy can encourage budding entrepreneurs to fulfil their potential, and produce the innovations that are needed to aid financial inclusion for the good of everyone.
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