The fintech sector is booming all over the world, and in Europe in particular – it's one of the region's largest investment categories, receiving around 20% of all VC investments.
Last year, Europe minted 19 new fintech unicorns, and, in the first half of 2022, European fintechs have already raised over 13.2 billion USD in funding. To put that in perspective, the entire global fintech market was valued at 2.8 billion USD in 2016.
Better technologies, tighter regulations, and growing consumer familiarity with digital solutions are pushing up demand and adoption, creating a fertile environment for financial innovations to thrive. The pandemic also served as a major catalyst for the adoption of digital technologies and services, including financial applications and mobile banking services, the use of which increased by 72% since early 2020.
Latvian fintechs are keeping pace with these global trends. It's one of the fastest growing sectors in the country, with 118 of ~400 startups in 2021 being fintechs – a 57% increase compared to 2019.
Not just quantity, but quality, too – Latvian fintechs are making waves on the European stage. Local success story Sun Finance was ranked by the Financial Times in the top 3 of Europe's fastest growing fintechs two years in a row. Mintos continues to dominate Europe's peer-to-peer lending scene. And four of Latvia's nine soonicorns (startups with high potential to become unicorns) are fintechs.
“Latvia shines in LendTech,” highlights Nikita Goncars, Co-founder and CEO of agricultural sector crowdfunding platform Lande. “Our biggest success stories – Mintos, TWINO, Nordigen, Altero, Jeffapp – are all more or less connected to lending. In terms of crowdfunding and P2P lending, we're still the biggest player on the continent and that's a huge accomplishment for Latvia. On top of that, Europe's new European Crowdfunding Service Providers (ECSP) regulation offers even more opportunities. A Latvian fintech – CrowdedHero – has already been granted the first license, becoming one of the first platforms of its kind in Europe".
Among the chief reasons why Latvia has such a healthy fintech scene are, according to the fintechs themselves, its infrastructure and opportunities for innovation (43%), as well as the ease of doing business (36%). This is the product of targeted and systematic state support and friendly regulations.
How the government supports fintechs
Fostering Latvia's fintech scene is a core priority of the government and its efforts manifest through a variety of support instruments aimed at creating a frictionless environment for developing new ideas. Helping entrepreneurs is the Financial and Capital Market Commission (FCMC) – the pathfinders to legally compliant financial and technical innovation.
The FCMC's Innovation Hub hosts seminars and consults fintechs on everything from licensing and supervision to anti-money laundering and beyond. A place to find answers, get assistance with navigating regulations, and sort out documents, among other things, it's a one-stop shop for both new and experienced founders to ensure their products see the light of day.
According to Vitālijs Zalovs, CEO of investment platform Esketit, “one of the main advantages Latvia has over others is that it doesn't shy away from introducing new things. For example, by breaking ground in P2P platform licensing, Latvia has gained invaluable knowledge that has since benefited dozens of local startups and catapulted them to the global stage. The FCMC is also becoming more experienced in working with startups and more sensitive to their time limitations. Support and licensing used to be too slow, sometimes taking years. But it's much better now”.
Another initiative by the FCMC, the Regulatory Sandbox is a place to test innovative ideas and business models and their legal viability in the context of Latvian and European financial regulations. For instance, through collaborative modeling, the FCMC guided TWINO (EU's 3rd largest investment platform) into becoming a licensed investment brokerage company – the first such in Latvia, establishing a precedent for legally compliant P2P platforms.
Latvia hosts various specialized fintech events and seminars throughout the year, attracting professionals from all over the world to share their stories and connect with the local ecosystem, thus fostering international collaboration and experience exchange. For example, September 2022 will see Riga host the Fintech Forum to talk about industry development, innovative technologies, fintech regulation, and more.
General startup benefits
Fintechs can also take advantage of broader startup support mechanisms that aren't necessarily industry specific. Latvia was named the most startup-friendly country in the world by Index Ventures thanks to its attractive employee stock option policies, tax incentives, and accessibility.
Latvia's generous Startup Law – low social tax, no individual tax, and government co-financing for highly qualified specialists – is highly appealing to European and local startups. So are the available funding for international competitiveness promotion and the innovation vouchers offered by the Investment and Development Agency of Latvia.
The combination of these various support mechanisms ensures that fintechs get every opportunity to put their idea to the test, and the best solutions rise to the top.
“Favorable tax conditions for startups, a forthcoming and proactive Financial Capital Market Commission, and a skilled and experienced workforce,” – these are the three main advantages of Latvia's fintech scene says Mārtiņš Puķe, CLO of Gravity Team – an automated crypto trading firm. “First, no income tax on reinvested profits helps accelerate growth. Second, the FCMC is putting in a tremendous effort in fostering fintech development in Latvia, making it easier to hit the ground running, through, for example, consulting and advising before and during licensing processes. And third, Latvia's IT and financial talent pool is filled with experienced professionals, meaning that companies can find the necessary human resources at all stages of growth".
The early stages of Latvia's fintech growth were slowed by the complete revamp of Latvia's financial system. Now, with the ecosystem healthier and more robust, new businesses can operate in a safe environment that is more stable than ever before. Accordingly, the growth in both the number and size of Latvian fintech startups has been explosive.
Spurred on by favorable business conditions, a skilled workforce, and streamlined infrastructure, local and global fintechs increasingly choose Latvia to bring their products to life.