Lithuania. the Fastest EU Entry- Point for Your Fintech

Lithuania. The fastest EU entry- point for your Fintech.

Contents

Lithuania in brief ...... 3 The fastest EU entry-point for your Fintech ...... 4 Recent stories about Lithuanian Fintech ...... 5 Successes so far ...... 6 A perfect storm for a Fintech revolution ...... 10 #1 European Union single market ...... 10 #2 Flexible and forward-thinking regulation ...... 10 #3 Future-ready payment infrastructure ...... 12 #4 A young, dynamic talent pool ...... 13 What gives Lithuania the edge? ...... 15 #1 Inspiring startup communities ...... 15 #2 A business-friendly environment ...... 18 #3 Great quality of life ...... 20

Lithuania in brief

Capital: Vilnius

Size: 65,300 km2

Population1 2.8 million

Labour Pool1 1.5 million

Unemployment1 7.1%

Official language: Lithuanian

Widely-spoken English, Russian, foreign languages: German, Polish

Currency: Euro (EUR)

Real GDP growth: 1st in EU for GDP growth since 20002: in 20161: 2.3% in 20171: 3.8% In 20181: 2.9%

1 Source 1: Statistics Lithuania, 2018 2 Source 2: Eurostat, 2017

The fastest EU entry-point for your Fintech

Lithuania is fast becoming the new Fintech hotspot of the region, with its well-defined legal framework for Fintech companies, streamlined relocation policies, stable business and political environment, and high quality of life. It boasts a fast developing community of local as well as foreign Fintech companies, plus legal regulations for Fintech businesses that have recently been substantially improved.

“Lithuania can offer startups from non-EU countries access to the European market faster than other EU members.”

Mantas Katinas, Managing Director at Invest Lithuania

The diversity and size of the market is best illustrated by the first Lithuanian Fintech Map that includes 120 companies divided into 12 categories (see Figure 1).

Figure 1 Lithuanian Fintech Map 2017. Source: Rise Vilnius

Recent stories about Lithuanian Fintech

'It's a big opportunity': Lithuania has a plan to benefit from Brexit Britain's future relationship with the European Union remains up in the air and finance firms fear they could lose passporting rights, which allow them to sell services across the 27 member bloc. To hedge against this risk, many businesses are setting up licensed subsidiaries in other EU countries.3

This Country Wants a Piece of London’s Fintech Lithuania has been in the shadow of neighboring Estonia when it comes to embracing all things tech, while Latvia next door has been plagued by a string of money-laundering scandals in recent years. But with Brexit weighing on London, Europe’s traditional finance hub, and Bitcoin taking off, the country is targeting a global Fintech market that’s attracted more than $125 billion of investment since 2010.4

How One Government Is Cutting Red Tape To Inspire Competition And Disruption “There were no threats to competition, so banks didn’t have to invest in improvements. We realized there’s enormous discontent in the public arena with the industry. How do you instill competition in a market so concentrated?,” asks Marius Jurgilas, a member of the board of the Bank of Lithuania. Jurgilas realized the country could offer something bigger and more valuable than it had been marketing: not just 3m domestic customers, but access to the European zone and its 450m customers.5

3 http://uk.businessinsider.com/lithuania-Fintech-brexit-2018-2 4 https://www.bloomberg.com/news/articles/2017-12-20/this-country-wants-a-piece-of-london-s-Fintech 5 https://www.forbes.com/sites/amyguttman/2017/07/31/how-one-government-is-cutting-red-tape-to-inspire-competition-and- disruption/#33427a0842ab

Successes so far A total of 117 Fintech companies were operating in Lithuania in 2017

Revolut is a platform that allows its users to exchange currencies/transfer at interbank rates, send or request money and split bills through your contacts and spend with a MasterCard at the best available rates. All this is done with a convenient mobile app. Revolut is also one of several companies that have applied for a specialized bank license. This Lite license is tailored for challenger banks that do not wish to provide investment or fund-related services, and instead focus on such services as payments and issuing of e-money.

InstaReM is a Singapore-headquartered cross-border payments company. Founded in 2014, InstaReM is licensed as a Money Services Business (MSB) in Singapore, Hong Kong, Australia and Canada. It powers local payments to more than 50 countries across the globe. InstaReM has created a unique payment mesh in Asia, which is being leveraged by financial institutions, SMEs and individuals to make fast low-cost cross-border payments. In 2017 the Bank of Lithuania issued an approval for the Electronic Money Institution (EMI) licence to the company. The company plans to officially open its Vilnius office in spring of 2018.

TransferGo is an online digital money transfer platform established by a group of young Lithuanian entrepreneurs. Transfers are around 10 times cheaper than via banks and cash bureaus and convenient because of same business day delivery and a guaranteed destination amount without any extra charge.

BLender is a cloud–based social lending platform headquartered in Israel. It was launched in October 2014 and since then has become the fastest growing company in its sector. The platform is fully mobile and web-based, technologically sophisticated, yet simple and easy to use.

BLender is creating a blue ocean strategy by altering the boundaries of the existing P2P lending market. BLender started its activities in Lithuania in 2016.

SAVY is a virtual lending platform, implementing the peer– to–peer or marketplace lending model which was developed in the UK in the middle of the last decade. Internet users who are looking to invest money lend directly to other users who wish to borrow money. They do this through SAVY’s platform, which acts as an intermediary. The platform not only brings together lenders and borrowers, but also reduces the risks for both sides. The SAVY platform started its activities in Lithuania in 2014 and is managed by UK-registered company New Chartered Limited. Currently, the Lithuanian team consists of 14 specialists. The platform has already lent €2.6 million from its establishment in Lithuania.

FinBee is a peer-to-peer lending platform providing services to individuals and companies in Lithuania and the Czech Republic since 2015. By connecting lenders with trustworthy borrowers, the company aims to provide substantial returns to investors, while ensuring low-interest rates to borrowers. Individuals and companies have borrowed more than €8.2M via FinBee as of November 2017.

Simplex is an Israeli financial technology and cybersecurity start-up that provides online businesses with fraudless credit card processing. The company has chosen Lithuania as the location for its global supervision and sales team and plans to employ around 20 experts in sales and support, fraud analysis, marketing, information technologies, data analytics, quality supervision, and finance in the next two years. Its Lithuanian division will handle the sales of Simplex’s services within the domestic market, as well as the supervision of its global operations.

SpectroCoin.com is a Bitcoin exchange and payment processor. The team is made up of professionals in IT and Finance sectors with experience from institutions such as Bloomberg LP and Cambridge University to name but a few.

The company is actively involved in research projects with leading academic and professional bodies.

CoinGate is a Bitcoin payments company, specialising in software solutions that help online businesses and retail shops to accept payments in Bitcoin. The company offers integration with e-commerce shopping carts, a powerful fully customizable API, and retail POS apps for iOS and Android. Contis is a pan-European E-Money Institution, regulated by the FCA, and Issuer of Visa Europe and Visa certified processor. For major brands across the EEA, it provides alternative banking, and full ‘end-to-end’ Visa card payment solutions. These services are already being used by major brands in the Nordic and Baltic regions, such as the airline airBaltic.

Harbortouch is one of the main providers of point-of-sale (POS) payment solutions. Established in 1999, the company is now servicing approximately 300,000 businesses in the US in its 17 years in business. Annually, approximately €10.5 billion of payments are made through the Harbortouch system. The company currently employs around 400 people. Harbourtouch’s Vilnius office, established in 2017, is the company’s first unit outside the US market. Its functions will be to develop Harbortouch’s product design and development functions, as well as functioning as a global call center.

Revel Systems, a US technology company, providing innovative POS payment solutions and valued at more than €500 million, is further strengthening its position in Lithuania. The company has opened a new office in Vilnius that is double the size of the previous one, entrusting new functions to the local team so that the Lithuanian division is now Revel Systems’ second biggest in the world. deVere Group provides professional advice to clients and investors all over the world. Founded in 2002, the company is today one of the largest firms of its kind in the world offering specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and €11.3 billion under advisement.

At its Vilnius office, the company initially plans to provide global services in electronic money and prepaid cards, as such it will initially be hiring specialists with experience in the Fintech sector. Eventually, it plans to develop software in Lithuania as well. These new services will be mostly aimed at travelling individuals and expats who regularly visit countries that have different currencies.

International Business Settlement (IBS) constructs a global cross-border payment clearing and settlement network with regional clearing circles, realizing a rapid, safe and low-cost direct payment channel between local currencies and Chinese Yuan (CNY).

Based on the recently released Lithuania Fintech Report 2017, a total of 117 Fintech companies were operating in the country in 2017, with 35 of “The bank of lithuania is them being registered last year. The overall responsible for the financial market number of startups grew by nearly 43% year-over- development, thus we decid ed to year. The reasons behind choosing Lithuania were roll out the red carpet for new multifold: a growing talent pool, hassle-free entrants to inspire competition in regulation, flexible banking infrastructure, and the ability to access half a billion customers in Europe the financial sector” Marius Jurgilas, Member of the Board of the Bank of Lithuania

A perfect storm for a Fintech revolution

The rapid development of Fintech in Lithuania is part of a wider trend, with the country’s ICT sector going from strength to strength. Driven forward by top ICT talent and world-leading infrastructure, Lithuania now boasts an established community of globally-oriented ICT companies, from global brands through to innovative new start-ups. With a strong, dynamic community already established in the ICT and Fintech sectors, and with streamlined migration policies making it easier than ever to relocate operations, Fintech in Lithuania is perfectly positioned for further success. 4 core values that make Lithuania a superb location for growth for Fintech companies: 1. European Union single market 2. Flexible and forward-thinking regulation 3. Future-ready payment infrastructure 4. A young, dynamic talent pool

#1 European Union single market

Newcomers can all benefit from the positive regulatory environment, creative and tech- savvy workforce, and access to the 512 million-strong European market and more than 23 million small and medium enterprises (SMEs). And, being a part of the EU market, Lithuania is able to issue a license valid in 28 countries faster than anyone else.

#2 Flexible and forward-thinking regulation

Supported by a strong commitment from the Bank of Lithuania and the Ministry of Finance, The BoL issued 32 Fintech licences Lithuania is stepping up its efforts to become a in 2017 alone, nearly twice as many regional hub for Fintech companies – as in 2016, when 17 licences were especially in the area of payments and issued. electronic money. A prime example of this is the recent major review and reform of the More: regulatory framework surrounding Fintech companies. Regulatory changes which have already been brought in include: • Sandbox regime: A commitment from the Bank of Lithuania (BoL) to provide advice and support for startups, and to withhold from issuing sanctions, during their first year of operation. The BoL (Lithuania’s main supervisory body for the banking and payments industry) has agreed not to impose sanctions on payment and e-money or other financial institutions during their first year of operation. This reflects an understanding that developing a truly disruptive innovation sometimes requires

time to adapt for regulatory requirements. With this attitude in place, the BoL is keen not only to help startups create useful new products for the local market, but also to enable them to develop strong global business models. • Testing business solutions in the real marketplace. Companies developing maiden solutions in the field of Fintech will be able to test their products in Lithuania – the result of public consultations with the aim of enabling companies to create a customized regulatory environment for financial innovations (regulatory sandbox). The Bank of Lithuania will oversee the companies’ operations and offer consultations. Companies operating in the regulatory sandbox will be eligible to certain reliefs pre- agreed with the regulator. • Fast licensing: e–money or payment institutions licensed within 3 months. The Bank of Lithuania can now issue a licence for a payment or e-money institution within 3 months – as compared to 5 to 12 months in other major Fintech jurisdictions. • Remote identification / authentication. Changes in the KYC procedure allow the use of electronic means for the remote identification of clients. This means that user outreach for companies operating from Lithuania is no longer be limited by geographical boundaries, nor by the existence of physical branches of the company. • Instant payments infrastructure though Centrolink. CENTROlink – a payment system operated by the Bank of Lithuania – turns a new page in the Lithuanian history of payment services. Joining the first wave of the pan-European adherence to the new scheme, the Bank of Lithuania has opened up the possibility for financial institutions to offer their clients the most cutting-edge innovation in the field of payments – instant payments, available 24/7/365, including weekends and holidays. • Crowdfunding. Law on crowdfunding activities eliminates unfavourable regulatory obstacles that previously prohibited the establishment of such platforms in Lithuania. Platforms from other EEA countries will be able to easily operate within the region upon the approval of the Bank of Lithuania, greatly easing cross-border financing activities. • Peer–to–peer (P2P) lending regulation. Limits on investment amounts came into force to ensure stable and well managed growth for the booming P2P sector. With positive signs in the market, the Lithuanian authorities are now responding to the calls from businesses to ease limitations for P2P platforms. • Newcomer Programme. The BoL follows the one-stop-shop principle when meeting and consulting potential financial market players. Prior to setting up a company or launching a financial product, investors can check whether their plans are in line with the applicable regulatory requirements ([email protected]).

In addition to the changes already made, a number of other Fintech-friendly legislative initiatives are due to come into force by the end of 2018. These include:

• A full regulatory sandbox regime: advice and support for startups as well as promise to withhold from issuing sanctions, during their first year of operation, will be complemented by prepared testing environment for innovative financial businesses and will allow them to test their new product or solution with limited users and for limited time without some usual requirements. • LBChain platform-service: Bank of Lithuania started R&D project that aims at creating technological blockchain platform, that will allow companies to build their financial products or solutions on blockchain platform, run by the Bank of Lithuania. • Open banking: Bank of Lithuania believes in open banking phenomena, is evaluating its potential and open API technology, that will foster competition and catalyze Fintech innovations in Lithuania.

#3 Future-ready payment infrastructure

• Non-banks can have direct access to SEPA (Single Euro Payments Area). The Bank of Lithuania via its infrastructure and CENTROlink – the pan European retail payment system – allows EU payment and e–money institutions to obtain technical access to SEPA payments. • Fintechs can have their own IBAN accounts. All payment and e–money institutions operating in Lithuania are entitled to and can allocate their own IBAN (International Bank Account Numbers). With this tool in place, accounts opened with payment and e–money institutions are becoming equivalent to conventional bank accounts. • Specialised banking licence (“lite” banks). The initial capital requirement for setting up a specialized bank in Lithuania offering the basic range of banking services is the smallest in the Eurozone and amounts to EUR 1 million. This is five times less than the requirement applicable to banks offering a full range of banking services, including investment services. • Other BaaS options. As an alternative to the own systems and connections to banking system, Fintechs can use Banking-as-a-Service (BaaS) platforms, such as the one developed by Contis Group, which is available through their subsidiary in Lithuania. • Scandinavian banks offering market-leading banking IT systems. SEB, Swedbank, Luminor, and Danskebank – Lithuania’s four biggest banks – boast some of the most advanced IT banking systems in the world. Several Fintech startups (TransferGo, MokiPay, MobilePay) have already taken advantage of this by building their products on top of the infrastructure of these banks.

#4 A young, dynamic talent pool

Lithuania’s talent pool of 1.5 million prospective employees has the highest education level in the EU. It is also in the top seven EU countries for the number of young people. And for many of these highly skilled and ambitious young specialists, their dream jobs are in the IT and financial sectors.

Highly skilled population Languages spoken6 Proficiency in English among young 84% English (77%) professionals7 Russian (76%)

50% Speak at least two foreign languages8 German (20%)

84 Polish (10%) 1st in 56% of population with higher EU education9

1st in for share of women working in the high EU tech sector10

There are over 31,500 professionals11 working for more than 3,093 enterprises12 in Lithuania’s ICT sector:

• 11,200 developers in Lithuania (6,300 in Vilnius alone)13; • 69% of the population aged 18–35 say they would like to work for an international company; • 92% of people aged 18–35 identify continuous learning and development opportunities as the most important factor when choosing an employer.

6 Source: National Census, 2011; 20-39 age group with higher education. 7 Source: Invest Lithuania’s estimation based on Population Census (2011) 8 Source: Europeans and their languages, 2012 9 Source: Eurostat, 2017 (age group 25-34) 10 Source: Financial times, 2017 11 Source: Research and Higher Education Monitoring and Analysis Centre, 2018 12 Source: Information Technologies in Lithuania 2017 13 Source: Research and Higher Education Monitoring and Analysis Centre, 2018

IT re-training is taking momentum14

Key Competences: Lithuanian ICT professionals have strong competences in the following areas: • Java; • Oracle; • Microsoft (C#, C/C++, Visual Basic, ASP); • Web-based programming (HTML, PHP, JavaScript, CSS, XML). Other well-developed competences in the market include Python, SAP and SharePoint.

• 12,100 IT students currently enrolled at 10 universities and 15 colleges15; • On average, 1,700 IT graduates each year; • 20% increase in IT student pipeline over 2013-201616; • 2x increase in IT study funding in 201717 • 1 Fintech MSc programme, 2 full game development study programs and 6 game development courses at Lithuanian universities and colleges; • More game development study programmes currently in development.

14 Source: Infobalt, 2017 15 Source: Statistics Lithuania, 2018 16 Source: Ministry of Science and Education, 2017-2018 17 Source: Research and Higher Education Monitoring and Analysis Centre, 2018

What gives Lithuania the edge? Lithuania has the right stuff that attract Fintech companies and digital nomads: 1. Growing and open communities 2. A business-friendly environment 3. Great quality of life

#1 Inspiring startup communities

Vilnius, the capital of Lithuania, is a fast- growing startup hub with three exceptionally attractive places for local and foreign startups: Vilnius Tech Park, Barclays Rise and Blockchain center. In addition, several dedicated Fintech associations unite government institutions and businesses. The Fintech Lithuania association is focused on promoting the usage and export of Fintech technology and co-operation between market Rise Vilnius participants. It works closely with the Ministry of Finance, the Bank of Lithuania, the Association of Lithuanian Banks, various companies and institutions as members. Another organization, Fintech Hub LT aims to help companies by creating favorable conditions and working towards making Fintech

as one of the main R&D Strategies for Lithuania.

Vilnius Tech Park

In 2016, Vilnius joined the ranks of London, New York, Cape Town, Tel Aviv, Manchester and Mumbai when it became the next location for Rise, the international financial technology startup network created by Barclays. Rise is also a global virtual community, bringing together startups from all over the world to shape the future of financial services. Read more. Key facts about Rise Vilnius: • 550 sq. meter hub is located in the Vilniaus Vartai business centre in central Vilnius;

• Offers startups workplaces, plus access to a meeting space, and an auditorium to host and live–broadcast a range of different events such as hackathons, mentor events, and creative workshops; • By joining the Rise community, regional startups will have instant access to people, workspaces and talent based in some of the world’s most important Fintech ecosystems, enabling them to grow and scale faster and more easily.

Set to open its doors in the autumn of 2016, Vilnius Tech Park is a hub for startups and other businesses engaged in the ICT industry in Lithuania. Read more. Key facts about Vilnius Tech Park:

• 9,000+ sq meters of office space; • 700+ working places; • 20% is reserved for talent taking its first steps in Vilnius; • 80 000 sq. meters of park surrounding XIX century buildings; • 50+ community of innovative companies, ranging from freelance developers and designers to fast- growing startups and established players.

Europe’s first Blockchain Centre (BC) Vilnius launched in the beginning of 2018, connecting key stakeholders in Asia, Australia, and Europe. Read more.

Key facts about Blockchain Centre: • Access to Global Network of more than 2 000 blockchain entrepreneurs, start-ups, and experts; • Connection to Europe’s blockchain knowledge hub; • Located in a brand – new riverfront office building – just minutes from UNESCO-listed Old Town Vilnius.

Other hip work spaces for startups Vilnius has more than a few great coworking spaces. Take a tour here. This video tour will walk you through the new look 15+ and feel and co-working spaces that are now available. Other Innovative places include: co-working spaces

• SEB innovation center is a meeting space for individuals with innovative mind-sets and enterprises seeking to expand their business through innovation. • Pakrante is a centre for Art and Education devoted to establishing close cooperation between artists, thinkers, researchers, and other cultural actors through interdisciplinary programs and residencies; • NAMAS is a hub founded by the popular performance space and “art factory” LOFTAS. It offers cozy co–working spaces for creatives, located 10 minutes from the Old Town; • ISM University’s Innovators base is a popular location for entrepreneurs and already hosts a number of startups; • Talent Garden, or “Tag”, is a recently launched co–working space in Kaunas. Already dubbed “the most creative space in Kaunas”, Tag is popular with the city’s startups and freelancers; • KTU’s Startup Space is an incubator and co–working space founded in 2012 in Kaunas. The unique space offers access to resources of Kaunas University of Technology and magnificent network for a faster startup development. More than 50 startups have been established since KTU “Startup Space” was founded.

#2 A business-friendly environment

LT PL UK Corporate profit tax 0-15% 19% 19%

VAT 21% 23% 20%

Dividends 0-15% 0-19% 7.5-38.1%

Personal income tax 15% <32% 0-45%

employee 9% 12% Social security 35% total tax paid by employer 31.18% 13.8%

IT & Software Engineering (gross monthly) salaries* in Lithuania18

*Note: Years of experience: Junior up to 2, Middle: 2-5, Senior: 5+

18 Source: Alliance for Recruitment, Strategic Staffing Solutions, 2018

Ranked alongside Ireland, Germany, Switzerland for its business environment, Lithuania can also guarantee a competitive cost to quality ratio. • Office rent in Lithuania is the lowest in the CEE region; • Staffing costs are 4 times lower than the EU average; • 4th lowest profit tax in the region.

Financial incentives available for foreign investors:

• Employee training and qualification grant

• R&D grants that make innovation work19

19 Note: Depends on company size.

#3 Great quality of life

Lithuania’s vibrant cities, set in unspoiled nature and full of green spaces, are the ideal places in which to spend more of your money and time on the things that matter to you. With some of the EU’s most affordable living costs, you can have the lifestyle you deserve, whilst minimal traffic, effective public transport and e– Government solutions make living in Lithuanian hassle free.

• Cost of living: According to the Mercer Cost of Living Index 2016, Vilnius is one of the EU’s five least expensive major capitals for expatriates20. With rents in Central Vilnius barely one-fourth of what they are in London and lunch prices half that of Paris and Rome, the lifestyle you deserve is yours for the taking in Vilnius.

Average Living Costs21 Vilnius Berlin Paris London Median Rent in City centre 414 € 658 € 1082 € 1893 €

Lunch 5.30 € 8.10 € 13.50 € 14 €

Movie ticket 6 € 10 € 10 € 15 €

5 km taxi ride 3.90 € 11 € 7.80 € 9 €

• Lifestyle: Lithuania’s cities offer leisure activities to suit every taste, from high– end culture to exhilarating sports to lively nightlife. The New York Times ranked Vilnius alongside Copenhagen, Barcelona and Cape Town as a hip and well–managed place to live. According to a European Commission survey, an astonishing 98% of residents are happy with life in Vilnius22.

20 Source: Mercer’s Cost of Living Ranking, 2017 21 Source: Teleport.org 22 Source: Quality of Life in European Cities 2015

• Hassle free: As a relatively small country, Lithuania is a laid back, hassle free place to live; small queues, no major traffic jams, quick access to services in the city and quick, effective transport links across the country. And with a huge variety of e–government services, used by 99% of businesses, dealing with paperwork is simple and easy. In fact, Lithuania is ranked 1st in the EU for the usage of e-government solutions.

• Nature at your doorstep: Vilnius has the best air quality of Europe’s capitals and major cities, according to the European Green City Index 2015. And all of Lithuania’s major cities are situated with easy access to pristine nature; verdant forests, tranquil lakes and stunning coastlines.

• Easy access to the rest of Europe: Lithuania’s international airports in Vilnius and Kaunas offer regular flights to all major European destinations, with flight-times of 2–3 hours only. Moreover, there is a well–developed network of international rail and bus services.

OLEG VOLKOV | Press Officer | Marketing and Communication Department [email protected] | Tel. +370 616 73149 Upes str. 23, 08128 Vilnius, Lithuania www.investlithuania.com