Fintech finds its promised land in Lithuania

In October 2022, the British company Revolut left the United Kingdom to settle in Lithuania, on the shores of the Baltic Sea. The fintech (financial technology) company was moving its operations to the territory of the European Union once and for all, due to the increasing difficulty of serving the Old Continent’s market as a consequence of Brexit. “We have always focused on our customers and understand that no one likes the unknown,” stated Revolut spokesperson Ieva Elvyra Kazakevičiūtė shortly before the company’s U.K. departure. Along with it, there are already 263 companies that are part of the fintech sector, which employs more than 7,000 professionals in a state of barely 2.8 million inhabitants.

“We are the first country in Europe to issue digital banking licenses,” says Diana Girdenyté, director of Investment Projects at the state agency Invest Lithuania. This milestone is possible, she adds, thanks to the fact that the country has managed to build “the largest hub of fintech companies in the EU member states. Lithuania is also the tenth-best country for these companies in the world ranking, prepared by the Global Fintech Index, whose client portfolio exceeds 25 million users.”

The capital, Vilnius, ranks second among medium-sized cities in attracting foreign investment, as reflected in fDi’s European Cities of the Future 2022 report. In addition to Brexit, the massive relocation of Belarusian companies — citing security reasons above all — starting in 2020, and Lithuania’s strategy to position itself as the gateway to the European market for American-origin start-ups has given the entire innovation sector wings. Since the beginning of this year, the country has already had three “unicorns” (companies valued at more than $1 billion) — Vinted, Nord Security, and Baltic Classifieds Group. In addition, it has put all its efforts into leading the innovation sector in Europe to become a true global benchmark in the digital banking sector.

Lithuania has very flexible regulation, together with an increasingly avant-garde digital infrastructure — the cost of broadband access is one of the most competitive in the world. It also has prestige in terms of cybersecurity — the country is currently in sixth position in the Global Cybersecurity Index. These are some of the elements that explain the growth of emerging companies in the financial sector in the Baltic state. In 2016, the country only had 82 fintech-related companies, a figure which has tripled in just six years. Of the current 263, about half are of national origin, and in 2022 they raised financing worth €67.9 million ($72.7 million), multiplying the figures obtained for 2020 by four. The rest of the fintech companies have come mostly from the United Kingdom (33), the United States (16), and Estonia (8). 34% of all of them are mainly dedicated to the payments field.

The big question is whether a small country can really carry out such ambitious growth plans. In a continent like Europe there is fierce competition — with huge players like Paris, Berlin, and Stockholm — not only in the financial sector, but as a hub of international innovation at all levels. The intentions, at least, point in this direction. Among the novelties that have been presented this year is Tech Zity, destined to become, in the words of its founder and director Darius Žakaitis, the “largest hub in all of Europe.” What is still today an abandoned textile factory from the Soviet era will have the capacity to house nearly 5,000 workers from companies specializing in innovation and technological development.

“In addition to the transfer of part of the offices of already well established companies in our country, the objective is to attract start-ups from the rest of the country and, above all, international talent.” The planned investment exceeds €100 million ($107 million) in capital “of 100% private origin,” according to Žakaitis. The goal is that the first phase of the project will be completed by the end of 2024.

So far, the numbers are favorable: the main indicators show notable growth in recent years. In fact, during the last five years, and despite the outbreak of the pandemic, the country’s fabric of innovation has experienced unprecedented growth. “The value of the technology sector has multiplied by 17 in just three years,” the Minister of Economy and Innovation, Aušrinė Armonaitė, a member of the socioliberal Freedom Party (Laisvės Partija), told EL PAÍS. This small Baltic republic — which, along with Poland, is the only country in the world that has a border with both Russia and Belarus — has 1,000 technological start-ups already, and boasts of being the second ecosystem in Europe in terms of growth.

Biotechnology and health

In addition to the financial sector, the country is also focusing its strategy on the biotechnology and health sciences sectors. Kilo Health is an example. According to Ilona Bernotaité, Director of Personnel, they are “the digital well-being company with the second-highest growth rate in Europe.” At present, they have already exceeded five million users, they have tripled their number of employees in less than four years to reach the current 800, and they had a turnover of more than €230 million ($246 million) in 2022.

But it is in the area of ICT where there have been more success stories. According to Eurostat data, Lithuania had 52,200 workers doing jobs related to the information and communication technologies sector in 2022. The Wix development unit (webpage manager), the engineering hub of the cloud services company Chronosphere, and Raydiant, the digital solutions platform, are some of the most recent success stories.

Lithuania wants to present itself to Europe as the alternative to Ireland as a digital platform. Its advantages are based on much more competitive prices, slight tax advantages, and cheaper labor. The country already occupies the eighth place in the tax competitiveness classification within the OECD, according to the International Tax Competitiveness Index 2022, and is taking over from Estonia, a self-described “unicorn nation” and which, until now, had led the way in terms of innovation in Eastern Europe. In addition to obstacles such as the complexity of the language and its location at the eastern end of the continent, we will have to see how external factors such as the war in Ukraine end up affecting the country’s development. Its proximity to Russia, Belorussia, and Ukraine and their political volatility pose a threat with consequences that are increasingly difficult to forecast.

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