FINTECH IN THE BALTICS

FinTech Discussion July 2021 INTRODUCTION

GLOBAL IN FINTECH Global investment in financial FinTech companies exploited the technology companies (FinTech) chaos to offer more efficient, innovative rebounded in H2 2020 after a slow start to and instant compared to the year caused by the Covid-19 pandemic. traditional banks. Since then, FinTech has gathered increasing momentum. Q2 2021 was the largest funding quarter on record ($30.8 billion of global investment), beating Q1 2021’s previous record by 30% (CB Insights) driven by from Venture Capital Funds (VC’s) and Private Figure 1: Telegraph operations room. Equity Firms (PE). Source: Western Union The History of FinTech Total Global Investments and Deal Count in FinTech Industry

FinTech found its roots in the mid- 120 108.3 1200 19th century when the transfer of money by telegrams and morse code was 100 1000 invented. Western Union can be 80 800 considered one of the pioneers of FinTech; in the 1870s they established a telegraph 60 50.6 600 network which allowed people to perform 40.3 41.6 40 33.5 30.5 400 electronic money transfers between New 24.8 21.8 19.9 19.7 21.3 York, Chicago, and Boston. 15.4 15 20 9.9 12.1 13.7 200 More recently, we saw the democratisation of the financial services 0 0 industry following the Global Financial Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Crisis (GFC) of 2008. Retail consumers and 2017 2018 2019 2020 businesses that were impacted by the crash of the global financial system lost Deal Value (in billions USD) Deal count faith in traditional banks and turned to alternative financial service providers. Figure 2: Global investment activity in FinTech industry. Source: KPMG. Pulse of FinTech H’2 2020.

1 FINTECH SEGMENTS

THE MAIN FINTECH SEGMENTS Payments Lending Asset Management The Payments segment includes firms that The Lending segment includes companies Asset Management encompasses trading provide alternative payment methods, that provide lending/credit services, organisations, Robo-advice and personal including blockchain and cryptocurrency- including and factoring. wealth management. related transactions. Accessing financing for new Currently, with today’s low market The segment is mostly driven by the businesses, particularly in emerging interest rates, consumers are looking for simplicity of providing payment solutions markets, is a major challenge that FinTech alternative ways to make the most of their compared to other segments which financing platforms are helping to solve; money. As a result, FinTech platforms require more complex technological drastically improving the time and ease providing access to alternative investment solutions. Currently, focus has shifted with which financing can be sourced. The solutions have been gaining popularity. towards expanding product capabilities FinTech space has become the main arena The segment is shifting to providing and offering more complex solutions to where lending companies are competing. opportunities for consumers to invest in support B2B end-to-end transactions. Increased competition has, in turn, driven real asset classes, such as real estate, efficiency within the industry and made it energy and infrastructure. more attractive to businesses seeking finance. Other FinTech Segments

Total Global Investments in FinTech by Segments (bn. USD) These include InsurTech, which provides 2 ultra-specialised services to customers 2.8 2020 0.3 including social and P2P 14.5 19.7 insurance. PropTech companies provide 0.5 innovative crowdfunding solutions for 4.7 2019 0.4 property ownership, data-driven financing 14.3 105.9 and screening solutions. In addition, 0.4 FinTechs operating in Open Banking and 6.9 2018 0.7 Financial software areas have gained much 28.2 52.4 interest recently (especially in Europe, 0.1 since the PSD2 directive was issued in 5.2 2017 0.2 2018) but do not hold a large market share 11.2 17.7 yet. Most of these provide technological solutions such as API tools that allow third 0 20 40 60 80 100 120 parties to access consumers’ financial data Cybersecurity Blockchain/Cryptocurrency WealthTech RegTech InsurTech Payments in order to provide more efficient financial Figure 3: Global Investments in FinTech companies by segments. Source: KPMG. Pulse of FinTech services than traditional financial H’2 2020. institutions can offer. 2 FINTECH IN THE BALTICS

GLOBAL FINTECH-RELEVANT RATINGS The Baltic states of Estonia, Latvia and government support mechanisms report Europe’s Hidden Entrepreneurs, Lithuania have become a hub of FinTech including favourable regulatory Estonia is Europe’s number one hotspot activity, giving rise to, among others, stars frameworks, as well as a strong talent pool for technology entrepreneurs, with Latvia like Wise (formerly TransferWise), of highly skilled IT and finance specialists, third and Lithuania seventh. Global TransferGo and Monese. The key factors and the early adoption of digital FinTech-related ratings rank the Baltic behind this success include a culture for technology into business infrastructures. countries among the top countries to start startups and innovation fostered by According to the World Economic Forum’s a business in. Another key reason why the Baltic region is Global ratings Lithuania Latvia Estonia able to produce great FinTech companies is 2.71 million 1.88 million 1.33 million the small local market. FinTech companies Population (68.2% urbanisation) (68.4% urbanisation) (69.3% urbanisation) in the Baltics are able to test their early- stage technologies and receive feedback to Global urbanisation 56.2% of population rapidly improve their products or services. 3.82 million 1.79 million 2.65 million Therefore, the time from the idea to the Mobile connections (141.2% of (135.3% of (141% of population) market is significantly shorter than in population) population) larger markets. Mobile connections 109.4% of population (globally) As demonstrated in Table 1, in the Baltic 2.22 million 1.67 million 1.21 million countries there are more devices Internet users (82% of population) (88.9% of population) (91% of population) connected to the internet than there are people. By comparison, global smartphone Internet users 4.66 billion (59.5 % of population) penetration is estimated to have reached (globally) WiFi speed rank 1 - 3 78% in 2020, according to data published 4 49 10 by Statista. People in the Baltics use Vilnius – 6th among Riga – 34th among the Tallinn – 14th among smartphones extensively and are more Global FinTech index the best cities for best cities for FinTech best cities for FinTech likely to use online FinTech services and FinTech in Europe in Europe in Europe apps. Rank of doing 11 19 18 business Ease of starting the 34 26 14 business Ease of paying taxes 18 16 12 Table 1: Statistics and Global rankings of Baltic states (2020). Sources: Datareportal; Findexable; World Bank 3 FINTECH IN THE BALTICS

FINTECH IN THE BALTICS BY NUMBERS There were more than 530 FinTech Number of FinTech companies by country companies in the Baltics in 2020. Lithuania is a 250 230 leader in this field, with more than 43% of Baltic 210 215 FinTech companies headquartered there. In the 200 170 context of the EMEA area, Baltic FinTech 141 companies comprise circa 7% of overall FinTech 150 91 companies in the region (Statista). This share of 100 84 75 the market is high given the Baltic market has a 66 population of 5.9 million in 2020, approximately 50 0.02% of the population of the EMEA region. 0 The most popular FinTech segments in the 2018 2019 2020 Baltic states are Payments and Lending (in line Lithuania Latvia Estonia with the global trends) accounting for 40% of registered FinTech companies, mainly driven by a Figure 4: Number of FinTech companies by Baltic countries. Sources: Invest Lithuania; transition from traditional banking services. Swedbank Latvia; Startup Estonia, Finance Estonia. According to the Global Consumer Banking Study by EY, approximately 40% of consumers have Baltic FinTechs by segment (number of companies, 2020) decreased their dependence on traditional 94 banking services because of efficiency benefits 100 provided by FinTech companies. The Payments 80 69 segment is mostly driven by transaction speed, 64 lower fees and the flexibility to make 60 46 43 transactions at any time to any location. The 30 40 27 24 25 27 26 Lending segment’s growth is driven by the 21 21 10 number of new companies (mostly SMEs) which 20 9 seek financing and working capital but cannot 0 meet the requirements of traditional banks Payments Financial Lending Digital Banking Other (World Bank). As interest rates have been software (Blockchain & floating around zero for several years, P2P and Crypto, other lending platforms have gained pace by Lithuania Latvia Estonia cybersecurity, providing opportunities for individual lenders to investments) earn attractive returns. Figure 5: Number of Baltic FinTechs by segment. Sources: Invest Lithuania; Swedbank.lv; Startup Estonia, Finance Estonia.

4 FINTECH IN THE BALTICS

RECENT FINTECH DEALS There has been an increase in companies are still relatively early stage, expanded and received international investment and M&A activity in the Baltic most investment comes from local VCs recognition and financing. The latest deals FinTech market as investors are drawn to and angel investors investing below €1m. are presented in Table 2 below. the growth potential of Baltic FinTech Nevertheless, the Baltic region has companies. As the majority of these generated several start-ups that have Company Country Bidder/Investors/ Deal type Deal value/Funds Date Comment name Financial advisor raised 4Finance Latvia Aalto Capital (Advisor) EURO bonds €150 million 2021/07 Refinancing of the bonds was made by refinancing making use of the amend & extent mechanism. Wise Estonia D1 Capital Partners, Sale of secondary $319 million 2020/07 To existing and new investors at a $5bn (Formerly Lone Pine Capital shares valuation; a 43% increase in value since TransferWise) May 2019.

SME Finance Lithuania European Investment Investment (Debt €80 million 2020/11 First wave of funds received H1 2021. 70% Bank financing) of proceeds will be allocated to SMEs, the remaining 30% will be issued to midcaps. BitFury Latvia/ Korelya Capital Financing round $80 million 2018/10 Second round of financing for this Ukraine European, Asian Naver (Equity financing) cryptocurrency mining start-up. To invest Group, Macquarie in new hardware and software for Capital, Dentsu governmental structures. Fortumo Estonia Boku Inc. Acquisition $41 million 2020/07 Acquired by Boku, a mobile payment and Holdings, Inc identity solutions provider, merging two major Direct Carrier Billing platforms. Mogo Finance Latvia Signet Bank AS and Bond issuance €30 million 2021/03 Completed the largest ever bond issuance Group Aalto Capital (Advisor) (Debt financing) by a private company on the Nasdaq Riga Stock Exchange. 71.4% of issuance allocated among existing bondholders. TransferGo Lithuania Hard Yaka, Vostok Financing rounds $17.5 million 2018/12; To develop operations in 11 new countries Emerging Finance, Revo (Equity financing) (2018); 2020/06 (Southeast Asia and Africa). Capital, Practica Capital $10 million (2020) Creamfinance Latvia Capitec Bank Series B financing €21 million 2017/03 Chosen by South African bank Capitec as a round (Equity strategic partner for its “Smart Data” financing) customer credit scoring solution. Table 2: Biggest recent Baltic FinTech deals. Sources: TechCrunch; FinTech Baltic; Bank of Lithuania; Invest in Estonia; Business Wire; CrunchBase. 5 FINTECH IN THE BALTICS

THE LARGEST FINTECH PLAYERS IN THE BALTICS The Payments and Lending FinTech FinTech business that was established in revenue CAGR from 2016. Furthermore, segments are the most mature segments Estonia in 2011 and is currently valued at Lithuanian FinTech Paysera, which serves in the Baltics; the largest FinTech players in over $8bn. Latvia and Lithuania have not Baltic e-commerce companies, has the region operate in these segments. yet produced any FinTech unicorns but recently announced its expansion into Some of the biggest companies are have the potential to achieve this in the Spain which is due to significantly boost its presented in Table 3. The region currently future. For example, Mogo Finance, a revenue and operations. has one unicorn: Wise (formerly, Latvian lending FinTech in 2020, reported TransferWise). Wise is a money transfer revenues of more than €100m, a 36%

Company name Country Segment Operations KPI Size/ Comment of origin value Mogo Finance Latvia Lending Issue secured car loans Loans issued €650 million Over 200,000 customers globally and over Group and unsecured (since 1,400 employees. Acquired 3 consumer consumer loans in 14 inception to lending companies in 2020 in Albania, North markets worldwide. 2020). Macedonia, and Moldova. Wise Estonia Payments Worldwide money Revenues £9 billion Revenues grew 70% 2019-2020. Wise (TransferWise) transfer and (FY2020). continues to launch new products remittance services. worldwide and in 2020 attracted 107,000 new business customers. The company completed a direct listing in July 2021. TransferGo Lithuania Payments Worldwide money Value of €677 million Customer base recently hit 2 million. Raised transfers, currency payments more than €27m to date, most recently to exchange. processed fund expansion into 11 new markets in (2017). Southeast Asia and Africa. Paysera Lithuania Payments E-commerce payments Value of €580 million Serves the majority of Baltic e-commerce and money settlement payments sites (more than 12,000). In 2020, Paysera services. processed helped many Baltic businesses to enter e- (2020). commerce, fueling rapid growth in transfer value and revenues.

Table 3: Largest Baltic FinTech players. Sources: Mogo Finance Group; TechCrunch; Paysera; Baltic News.

6 FINTECH IN LITHUANIA

LITHUANIA

The majority of FinTech newcomers in Number of transactions and transaction value executed by Electronic Lithuania are in the Payments and Lending Money Institutions (EMIs) and Payment Institutions (PIs) segments. However, financial software products 81.4 and services are on the rise. In 2020, 16 of 39 new 140 81 FinTech companies registered in Lithuania were 120 71 primarily focused on financial software 100 115.8 61 innovations, such as application programming 51 interfaces (APIs) which increase the convenience 80 30 41 and efficiency of using financial services. Other 60 31 innovations included automatic credit scoring 40 21 solutions which provide access to financial services 8.5 44.7 20 3.3 6.6 to underbanked consumers. 1 2.8 11 0 13.4 1 The Lithuanian FinTech landscape is becoming 2016 2017 2018 2019 2020 more and more international, as the number of companies with headquarters outside of Lithuania Value of transactions executed by EMIs and Pis, billion EUR increases. Approximately 63% are still Number of transactions executed by EMIs and Pis, millions headquartered in Lithuania, with 48% funded Figure 7: Transactions and transaction value by EMIs and PIs. Source: Bank of Lithuania. locally and 15% funded with foreign capital. Registered FinTechs in Lithuania by HQ location 2020 actual revenue growth vs 2021 revenue growth expectations of Lihuanian FinTechs (% of companies responded) 13% 40% 35% 35% 30% 30% 26% 26% 24% 24% 25% 20% 17% 63% 14% 15% 12% 13% 10% 4% Lithuania 5% Outside of EU (UK, USA, IL, HK, etc.) 0% Other EU countries <30% 31-100% 101-300% >300% Nil/decline Figure 6: Distribution of HQ of FinTech companies 2020 Revenue growth 2021 Revenue growth expectations registered in Lithuania. Source: Invest Lithuania, Figure 8: Revenue growth and growth expectations for 2021. Source: Invest Lithuania 2021. 7 FINTECH IN LITHUANIA

LITHUANIA (CONT.) Lithuania’s growing number of another funding round in the next few (Invest Lithuania). Initial Coin Offerings FinTechs are creating an increase in years, and 12% said they aimed to raise (ICOs) and Series C funding rounds or demand for funding in the near future. over €5m. The most common funding type above are rare in the Lithuanian FinTech 42% of surveyed FinTech representatives in Lithuania is revenue funding, while Seed landscape. in Lithuania said they were planning funding is the second most popular option Lithuanian FinTechs to Watch:

Latest deal/investment/ Company Core business Comment portfolio

Rent-to-own operator (customer lives First independent rent-to-own operator in Europe. €10 million property portfolio in a rented preferred dwelling until The portfolio is valued at €10m with expectations (2021). the down payment is collected). to grow it to €25m in the next few years.

€1.5 million raised from In 2021, the company plans to enter 15 new API tool for direct payments. European business angels markets, and to serve 80% of electronic payments (2020). users in the EEA by 2022.

The company was founded in 2020 and provides P2P lending platform which provides €5 million loan portfolio loans to farmers. Developed a multi-million EUR Heavy Finance heavy machinery-backed loans. (2020). loan portfolio and expanded into Bulgaria in the first year of operations.

Table 4: Lithuanian FinTechs to watch. Source: NUMAI; EU-startups; Bank of Lithuania

8 FINTECH IN LATVIA

LATVIA The number of Latvian FinTech transfer services provided by FinTechs companies operating in the FinTech companies has been growing steadily in both to individuals and businesses. industry are small-scale; approximately recent years. FinTech has now become the The Blockchain and Cryptocurrency 71% of registered FinTechs have teams of most popular start-up industry in the area has slowed down recently and 10 or less employees (see Figure 10). country. refocused its scope since the ICO boom. However, a survey by Swedbank showed The largest FinTech segments in Latvia This segment is mostly represented in that most Latvian FinTech companies are the Payments and Lending segments, Latvia by the leading player, BitFury, which (88%) are seeking to expand their teams in in which approximately 50% of active is among the biggest crypto startups in the the next year. Latvian FinTechs are involved. The Lending world. Approximately 85% of surveyed segment has long been dominant in the The Latvian FinTech scene is Latvian FinTech executives expect to see Latvian FinTech scene, whereas Payments dominated by companies involved in B2B fast revenue growth in 2021. Almost a is a steadily growing segment in Latvia and or mixed B2B/B2C while the B2C business third of them believe that their companies the wider Baltic region as a consequence model holds a minority share in the could increase revenues 1 to 3 times over of more efficient and cheaper money Latvian FinTech market. Most of the the next year.

Latvian FinTechs by business model Revenue growth expectations by Latvian Latvian FinTech companies by team size companies 3% 9% 12% 9% 29% 12% 9% 32% 20% 12% 21% 71% 29% 32%

B2B & B2C Pure B2B B2B2C 0 1-100% growth <10 10-50 >50 P2P Pure B2C 100-300% growth 300-700% growth >700% growth Na

Figure 9: Revenue growth expectations by Figure 10: Latvian FinTech companies by Figure 11: Latvian FinTech companies by Latvian FinTech executives. Source: Swedbank business model. Source: Swedbank Latvia team size. Source: Swedbank Latvia Latvia 9 FINTECH IN LATVIA

LATVIA (CONT.) According to the FinTech report published by Biggest Latvian FinTech growth opportunities Swedbank Latvia, Latvian FinTech companies believe the biggest opportunities for success are in the Open Banking and Wealth Management areas; 50% of 20% respondents selected these 2 segments. 38% 6% However, in order to scale operations and achieve high revenue growth, there are obstacles that Latvian 6% FinTechs need to overcome. In particular, attracting 9% qualified and suitable talent, building partnerships 9% 12% with established players, and complying with international regulations. Open Banking Wealth Management Instant Payments Insurance Digital Currencies Personal Finance Other Figure 12: Survey of Latvian FinTech executives: What are the biggest expansion Latvian FinTechs to Watch: opportunities?. Source: Swedbank Latvia

Latest deal/investment/ Company Core business Comment portfolio

Recently expanded its operations to Vietnam and € 92.5 million loan portfolio issued more than 3 million EUR worth of loans in Consumer lending. in 2019. the last year. Plans to enter the Philippines market with new products under the VAMO brand in 2021.

Offers customers an all-in-one banking data API for € 2.1 million financing round Banking data API. banking, lending and financing apps in over 31 (2021). markets.

Offers loan-related services to the unbanked. It € 1 million financing round Jeff Data-driven loan brokerage platform. plans to offer a free credit scoring service and (2020). expand to Southeast Asia in the next few years.

Table 5: Latvian FinTechs to watch. Source: FinTech news; Finextra; EU-startups 10 FINTECH IN ESTONIA

ESTONIA Average net Income of Estonian FinTechs by segment (millions, EUR)

Estonia has attracted FinTech startups 1.6 1.4 from around the world due to its 1.4 pioneering E-residency program. It allows 1.2 anyone from around the world to apply for e-residency in order to access Estonia's 1 transparent and digital business 0.8 environment. Applicants can establish a 0.6 company online and sign all the necessary 0.4 0.25 documents digitally in approximately 15 0.17 0.2 0.08 0.08 0.1 minutes. Once the business chooses to 0.02 establish or relocate their operations to 0 Estonia, they are eligible to apply for -0.2 -0.05 Startup Status. This allows the company to Lending Financial Digital Payments Insurance Digital WealthTech Others hire talent from all over the world and software asset capital receive residency permits for all exchange raising Figure 13: Net Income of Estonian FinTech companies by operations segments. Source: Finance employees with ease. Estonia (2021) Estonian FinTechs to Watch: Latest deal/investment/ Company Core business Comment portfolio The company facilitates payments and provides flexible financing solutions for merchant’s Payment solutions to merchant’s customers in the e-commerce market. Their € 19M Net loan portfolio customer (buy now, pay later, instant revenues have grown 3.75x (to €7 million) during (2020). payments). the year 2020. Currently they operate in Estonia and Lithuania and plan to launch a branch in Latvia in Q3 2021. The company provides loans for car purchases to € 2.2 million financing round underbanked customers in Africa. It is expected Secured car loans. (2020). that the company will have a 100,000-car portfolio by 2024.

€ 1.7 million financing round The company offers credit solutions and financial Consumer lending. (2020). advice to underbanked clients in Latin America.

Table 6: Estonian FinTechs to watch. Sources: tech.eu; Techcrunch; Finance Estonia 11 FINTECH IN ESTONIA

ESTONIA (CONT.)

The FinTech industry in Estonia is market is relatively small, an increasing executives feel some degree of dominated by firms operating in the number of Estonian FinTech companies are uncertainty. Lending segment (the unicorn, Wise, is focused on serving international markets. A currently headquartered in London; thus, it survey by Finance Estonia (2021) showed is excluded from the Estonian statistics). that more than 60% of FinTech Distribution of total FinTech income by FinTech TalTech and Finance Estonia report that representatives are operating segments in Estonia (2019) approximately 43% of total Estonian internationally. Currently, Estonian FinTech sector income in 2019 was FinTechs mostly serve European countries, generated by Estonian Lending FinTechs. but many businesses plan to expand into 17% Furthermore, in Estonia, around 84% of North America, North Africa, Middle East assets in the FinTech sector are held in the and East/Southeast Asia in the coming Digital Banking and Lending segments. years. 43% 12% According to TalTech’s 2021 report, the FinTech representatives in Estonia Lending segment outperformed other agree that the most common revenue FinTech segments in 2019 in terms of source is the commission fee paid for their average net income per company, which services. The biggest challenges that 12% was around 4x higher than the second best- Estonian FinTechs face are and will be performing segment (Financial Software). sourcing IT specialists and ensuring 16% The Estonian FinTech sector is still in its compliance with a rapidly changing early stage of development. Around 70% of regulatory landscape (Finance Estonia Estonian FinTech companies are relatively survey, 2021). In 2019, Estonian authorities Lending Payments small and, according to research from toughened regulations related to virtual Digital Banking Digital asset exchange TalTech and Finance Estonia, only 30% of assets, mostly targeting cryptocurrencies. Estonian FinTechs reported a positive net The new regulation resulted in increased Figure 14: Distribution of total FinTech income by income in 2019, demonstrating that most fees for virtual currency activity licenses. FinTech segments in Estonia. Source: TalTech and Estonian FinTech companies are still in the Also, it issued requirements that the board Finance Estonia (2021) development phase. However, the of the company has to be located in (https://taltech.ee/en/news/FinTech-report-estonia- Estonian FinTech sector has grown Estonia. Finally, if the international FinTech 2021) substantially in recent years. TalTech’s firm would like to operate in Estonia, it Finance Estonia 2021 report noted the total would have to open a branch with an net profit generated by Estonian FinTechs address in Estonia (FinTech Baltic). in 2019 had grown almost 800% from 2017 However, as the new government has (€64m in 2019 and only €8.3m in 2017). recently come in, the regulations may Due to the fact that the Estonian change. As a consequence, the FinTech 12 IMPACT OF COVID-19

THE IMPACT OF COVID-19 ON THE FINTECH INDUSTRY The FinTech segment has remained further. In addition, the pandemic saw an either be due to FinTech companies taking resilient to the impact of the Covid-19 increasing number of corporate customers a more conservative approach to loan pandemic relative to other industries. The drawn to FinTech companies over origination due to the economic risks digital element of FinTech, as well as the traditional banking institutions. presented by the pandemic, or due to fact that it provides an alternative and On the other hand, Covid-19 did consumers being forced to spend less and direct route to financial services has proven negatively impact the global FinTech save more. Bloomberg recently estimated popular among consumers. The pandemic industry in a number of ways. The number that consumers in the world’s largest has helped to establish FinTech as a of late customer payments increased, as economies amassed $2.9 trillion in extra sustainable industry. well as the number of defaults on loans. The savings during Covid-related lockdowns. FinTech companies seized the pandemic also led to a reduction in the opportunity and exploited the increase in number of new loans issued. This could consumer demand for digital services along with advancements in digital innovation. Global FinTech Market by Various KPIs during COVID-19 (yearly change) Despite the pandemic, the number of global Transaction volumes 11% Number of transactions FinTech companies has skyrocketed over 13% Number of fundraisers 10% the past few years – in the end of the year Number of unique corporate customers 15% 2019 there were approximately 12,200 Number of "proofs of concept" 14% companies, while in 2020 it reached 20,925, New customers/users 22% and according to latest data available, the New borrowers/issuers 10% Retention of existing customers/users number is still growing strong, as in 29% Repeat borrowers/issuers 10% February 2021 there were more than Investment by retail investor 6% 26,000 FinTech companies worldwide Investments by institutional investors 3% Positive impact (Statista, 2021). Delayed payments -1% Number of new loans issued -1% Negative impact According to the survey made by CCAF, Number of claims 9% World Bank and World Economic Forum Non-payments 9% (see survey) the most positive impact Default on outstanding loans 9% caused by Covid-19 is the retention of Arrears or late-repayment 14% Contractual disputes with clients or users 2% existing customers/users, followed by the Time to value 11% growing number of new customers attracted to FinTech companies. These -5% 0% 5% 10% 15% 20% 25% 30% 35% factors have led to an increase in the Figure 15: COVID-19 impact on FinTech market. Source: CCAF, World Bank and World Economic number of transactions handled by FinTech Forum (2020) (https://www.jbs.cam.ac.uk/faculty-research/centres/alternative- companies, which is expected to grow finance/publications/2020-global-covid-19-FinTech-market-rapid-assessment-study#_ednref1)

13 CONCLUSION

CONCLUSION The global FinTech industry has shown early July 2021 on the London Stock Baltic states provide access to the resilience during the Covid-19 pandemic, Exchange (LSE). It became the first Baltic- European market and have lower living and global investments regained pace at originated FinTech company listed on the and operating costs than other EU nations. the end of 2020 and into 2021. According LSE and achieved a $11 billion (£8 billion) This is why a number of UK FinTech to KPMG analysis (2021), Payments and valuation, beating the $6-$7 billion market companies have chosen the Baltic region Lending segments will maintain the expectations from earlier months of 2021 as their home after Brexit. The Bank of dominant position, especially in the (Reuters, 2021). It is London’s biggest tech Lithuania reports that there are already 20 emerging markets. In the upcoming years, float to date with a current market UK-funded entities with electronic money these segments should experience high capitalisation of £9 billion (20.07.21). licenses operating in Lithuania, including M&A activity, as it is visible from the past The Baltic states are proving to be a established market players such as Revolut several years that the market is maturing. global hub of FinTech innovation and and Yapily. KPMG (2021) reports that the number of activity due to favourable conditions for The outlook for the Baltic FinTech mature players and deal values has been hosting local and international FinTech market is very positive. In a survey growing steadily (in 2020, the global companies. A supportive regulatory and conducted by Invest Lithuania and median FinTech M&A value was approx. political environment in particular is Swedbank Latvia, FinTech executives said $60M, while in 2019 and 2018 it was $55m attracting young and fast-growing FinTechs that international expansion will be a top and $37m respectively). Moreover, in the to the region. This is evident from the business priority. Secondly, Baltic FinTech next few years we should observe an growing investment activity into FinTechs companies are likely to focus on the Open increasing number of FinTech IPOs, as the in the region, as well as the increasing Banking area in the next few years due to number of FinTech unicorns continues to scale of operations of the Baltic FinTech the shift towards e-commerce which is grow (in Q1 2021 alone there were 20 new landscape. It is expected that in the driving a growing number of online FinTech unicorns, while in 2020 that upcoming years, the number of foreign- transactions, monthly subscriptions and number was 19). Estonian FinTech Wise capital FinTech startups in the Baltics will new digital marketplaces. (formerly TransferWise) went public in increase. This is due to the fact that the

14 Aalto Capital FinTech Discussion July 2021

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