The fintech industry in Latvia has enormous opportunities lying ahead – this was one of the insights at a recent forum held by the Financial and Capital Markets Commission (FCMC) and the Investment and Development Agency of Latvia (LIAA), with LPB Bank as one of the participants Staņislavs Siņakovičs, head of Sales and Regional Development Department at LPB Bank, offers his comments.
“We are happy that our regulator teamed up with the LIAA to hold an event like this – it is a positive signal for the market and potential investors still considering entry and licensing in Latvia, and is especially useful for businesses that lack information about the progress our country has been making. Fintech development will remain a priority in the coming years; participants of the forum have mentioned their plans for next year to implement cryptocurrency licensing – a major topic of discussion throughout the world,” Siņakovičs noted.
Many companies shared their experiences at the forum, and discussions revolved around several burning questions in the field: what Latvia has accomplished in fintech so far and where it should focus its efforts next; the role of the state, regulation and financing origination in the development of fintech; innovative technology in the financial industry, and a variety of other essential topics. Many acknowledged the significant potential and advantages that Latvia has for fintech development.
A gathering of recognised European players and start-ups
The first fintech forum brought together multiple industry leaders and up-and-comers. A number of them were companies with ties to Latvia and headquartered throughout Europe (including the United Kingdom, Estonia and Lithuania) that have accumulated considerable experience in the field. “We hope that this trend, coupled with the active involvement of the FCMC’s Financial Innovation Department, will encourage entrepreneurs to consider our country more closely,” Siņakovičs added.
“The entrepreneurs gathered at the fintech event expressed a lot of interest in regulating Markets in Crypto-Assets (MiCA). Participants admitted that supervision and licensing of players in the crypto market are necessary, and a number of states already have these in place. As of yet, Latvia does not, but bringing greater organisation to the market is necessary for developing the fintech industry – including cryptocurrency exchange points, exchanges, and market participants. Now is a good time for Latvian fintech regulators to consider the experiences of other countries so far. As we do this, we should not miss the opportunity to foster a competitive market instead of instituting excessive restrictions. Everyone needs to understand what participation in this market entails clearly. Then, every player can feel secure, and the attitude of business to the industry will be different. Currently, the level of risk remains high, and precise knowledge is necessary for risk management and effective cooperation with crypto assets companies. We hope and expect that Latvia will introduce crypto assets regulations in the nearest future,” commented Siņakovičs on the developments ahead.
Investments in fintech exceed USD 132 billion
“With fintech on the rise globally, the amount of investment in the industry was over 132 billion U.S. dollars in 2021, according to “CBS Insights”,” Siņakovičs stressed that the analytics company has published data on the 250 most promising companies in the field. “The top 250 fintech start-ups and well-funded unicorns [breakthrough successes] have attracted around 74 billion dollars worldwide since 2016, across nearly 1200 financing deals.”
“Latvian specialists have also been gaining experience, and LPB Bank has asserted for a long time that this is a high-priority field in financial markets, investing considerable resources and technologies in the development of new services, as well as in the acquisition and dissemination of knowledge,” Siņakovičs observed.
“With each event like this that takes place, both the country and the private sector stand to benefit – through information exchange as well as capital origination. We are open to participation and happy to present our experiences at forums held by the LIAA and the FKTK, as well as other industry events. Internationally, Latvian fintech capabilities are not widely known, although we feel the support from the state through holding such events. Likewise, the competition within Latvia is also increasing. LPB Bank currently has a leadership position.
Informing the industry is one of our main objectives. We recently participated in Money20/20 in Amsterdam – the most prominent finance industry event in Europe – and drew the interest of government bodies in joint participation in the future,” Siņakovičs said.
Representatives of LPB Bank at this pan-European forum saw that the regulatory institutions take similar approaches in Estonia and Lithuania with their respective industry players. “This would be both engaging and very useful – supervisory bodies and the LIAA could inform European companies about the types of licenses and pathways to securing them, accomplishments in Latvia so far and plans for the foreseeable future,” Siņakovičs added.
Many fintech services in development and testing
“Talking about trends, I would like to point out that some of the services I am talking about are at the development, testing and planning stages. Some of them are already available as part of our pilot projects,” Siņakovičs explained.
LPB Bank focuses on crowdfunding, Open Banking, and virtual IBAN – a way for a financial institution to generate virtual IBANs for its clients as unique payment details for their incoming and outgoing transfers.
“A virtual IBAN is a sub-account within a current bank account. The difference is that a virtual IBAN points to a different physical account. A vIBAN may be linked to a single account, which is useful for subdividing cash flows. Virtual IBANs will be helpful for companies that receive payments for various services and require additional details (e.g., agreement number, month etc.). It is used with trading platforms, crowdfunding platforms, and cryptocurrency traders with large customer bases, enabling them to quickly and easily group dissimilar transfers, compared to holding a single account with one account number for all incoming payments. We are currently testing this service and its attractiveness to various fields,” Siņakovičs said about new developments at the bank.
LPB Bank is researching industry needs and challenges
“With the fast pace of development in fintech services, the bank needs to understand what is required in this sector by its participants; the bank needs to know their objectives and challenges. Clients are looking for a so-called “support bank” that they can trust to safeguard their and customers’ funds on secure, segregated accounts. The Open Banking payments initiation functionality with access to SEPA instant payments is very similar to acquiring service for payment cards. Many merchants already support it as a payment method. Online shops in Latvia and abroad accept card and bank transfer payments and offer ready-made payment orders for customers’ banks, allowing confirmation via Smart-ID or another means of customer authentication. We are considering this service at the moment,” Siņakovičs says about current plans.
Despite a wide variety of offerings in the financial services sector, a few financial institutions provide one-stop support in a Banking as a Service (BaaS) format. With LPB Bank, a fintech company can connect to European payment systems for regular SEPA, SEPA Instant and TARGET transfers. Integration costs are significantly reduced for clients who choose LPB Bank, and infrastructure maintenance requires fewer human resources and capital expenditures.
On the other hand, companies that choose multiple service providers incur more significant financial and labour overhead for reviewing commercial solutions, coordination, testing, implementation and support. In most cases, technical integration takes more IT resources and time – for both the vendor and the client.