The Baltics are on the move when it comes to fintech. Each of the three Baltic states – Estonia, Latvia, and Lithuania – is highly digitalised, has phenomenal internet speeds, and has a strong local workforce of skilled and educated people. The zone’s relatively small size means its regulators are approachable, and it has numerous private and public sector initiatives to bolster the ecosystem.
Lithuania grew its Fintech number from a handful to over 250 in a few years. Estonia is renowned for having the most unicorns per capita in the world and a strong IT sector. And Latvia has emerged victorious from a comprehensive AML crackdown that makes it one of the best choices for compliance expertise.
However, deciding which Baltic state to set up a new Fintech in isn’t a simple “Yes” or “No” question. Although outsiders tend to consider the Baltics as a single entity, each state has its own unique history and know-how.
Which Baltic state should you choose for your Fintech?
A licence in the Baltics is passportable to the rest of the EU, and foreign Fintechs looking for a European base often think first of Lithuania. After Brexit, Revolut moved its headquarters there. By the end of 2022, 32 other UK Fintechs had their headquarters in Lithuania, as well as 16 US companies.
The massive influx of Fintechs means the Lithuanian regulator must now keep their eye on risk, so licence approvals are fewer. “New entry into the Lithuanian market is more difficult than it used to be,” says Rūdolfs Eņģelis, a partner at Sorainen, a full-service business law firm with offices in all three Baltic states. “We’ve learned valuable lessons while advising numerous licensees on what works best, and these lessons can be applied universally in the other Baltic regions.”
“In the professional market, the Baltics have a good general knowledge of compliance topics, especially in Latvia,” says Eņģelis. “For new businesses wanting to gain a licence, that’s probably the most important test to pass.”
High interest in crypto licensing
Since the emergence of MiCAR—Europe’s crypto regulation—Sorainen has been receiving more and more requests for assistance with crypto licensing applications. Now that Europe has officially recognised crypto assets, mass adoption has a better chance of occurring.
“Estonia has its advantages for crypto companies because of the building blocks it has put in place,” says Eņģelis. “It’s also an excellent choice for firms working in capital markets because Estonia’s capital market is the most developed.”
At the same time, Estonia has also seen its share of hiccups in the crypto-sector, so potential entrants might also want to consider Latvia, which emerged from recent crackdowns with a “clean slate,” an enthusiastic regulator, well-organised crypto industry, and a dedicated association—the Latvian Blockchain Association.
How Sorainen advises companies
Sorainen obtains no advantage for recommending one state over another. It has offices in Riga, Vilnius, and Tallinn. The firm looks at the company’s business model, compares it to the current market and recent experiences, and then advises what it feels is the best move for the particular Fintech. That might mean choosing a different state, modifying the business model, or improving compliance.
“Right now, Latvia is probably the best place overall for new Fintechs,” Eņģelis says. “But that comes with a caveat: The regulator is only interested in companies that can prove they know what they’re doing. It’s a question of quality rather than quantity.” Yet the other two Baltics should also not be overlooked. Lithuania is still at the top of the Fintech scene, even if new entries may prove complicated to achieve. And Estonia is also keen to showcase its Fintech abilities.
Sorainen has seen it all. Last December, Chambers and Partners recognised Sorainen as a Tier 1 FinTech Law firm in Lithuania for the fifth year in a row. The firm has been in the Fintech ecosystem from the beginning of the “Baltic Boom”—when the licensing pace was lightning-fast—to now, where compliance should be the top priority for all Fintechs.
“It’s a great time to move to the Baltics,” says Eņģelis. “As the market expands, regulators will likely become more picky. Setting up a relationship with the regulator early and showing that you’re serious about compliance will give you better chances in the future.”
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