Lithuania is looking to attract FinTech companies
Of all the cities lining up to poach London’s business post-Brexit, Vilnius might seem the most unlikely. Yet the Lithuanian capital has much to offer financial firms, from liveability and local talent to cutting-edge fintech regulation. Euromoney visits a small city with big ambitions.
Ever since the UK’s Brexit vote in June, cities across the continent have been lining up to lure financial firms away from London. All the usual suspects – Paris, Frankfurt, Dublin, Amsterdam – have rushed to make the case for becoming Europe’s new banking centre.
One of the very first pitches, however, came from a more unlikely source. A week after the referendum, hundreds of UK-based banks, hedge funds and fintech firms received a letter from a Lithuanian poker player-turned MEP.
“You must be thinking about where to relocate your EU operations,” wrote Antanas Guoga – or Tony G, as he is known at the tables. “I would like to invite you to explore Vilnius.” And, for anyone who was unsure where that was, he helpfully added: “The capital of Lithuania.”
At first glance, a former Soviet city of half a million people in the northeastern corner of Europe seems an unlikely spot for a global financial hub. Yet, as Guoga pointed out, Vilnius has already attracted a clutch of big tech and banking names. Barclays, Danske Bank and Nasdaq have large operations centres there, while Uber chose the city for its first IT development centre outside Silicon Valley.
So what does Vilnius have to offer? “Great prices and great quality of life, together with a multilingual talent hub of hard-working, tech-minded and creative high-achievers,” according to Guoga.
He added: “Vilnius is open, flexible and business-friendly. We will get you everything you need.”
As a publicity stunt, the letter was highly effective. Journalists desperate for Brexit news were understandably amused by the idea of Vilnius setting itself up as a competitor to London or Frankfurt. But could an obscure Baltic capital live up to the hype? Two months later, Euromoney travelled to Lithuania to find out.
One thing that is immediately apparent from a quick tour of the city is that Guoga’s talk about its liveability is justified. Leafy, low-rise and elegant, Vilnius is relatively free from traffic, but packed with hipster coffee shops, bars and high-quality restaurants.
English is spoken everywhere and, unlike the other Baltic centres, Riga and Tallinn, there is almost no trace of Lithuania’s Soviet past. There is, however, plentiful evidence of Vilnius’s recent success in attracting western business. Over the past decade, shiny new glass buildings emblazoned with the logos of global blue chips have sprung up all along the north bank of the narrow Neris River.
Easily the most eye-catching of these is Barclays’ Lithuanian headquarters, an elliptical 14-storey structure that towers over the sprawling red roofs of its neighbour, the University of Educational Sciences.
The UK bank was the first big player to set up in Vilnius, establishing a shared service centre in 2009. At the time, Lithuania was in the middle of a particularly sharp post-financial crisis recession, which saw the economy shrink by nearly 15% in one year. The country was also still off the radar for global firms.
Mariano Andrade Gonzalez, chief operating officer of Barclays Lithuania, says this was one of the main factors that attracted the bank to the country.
“We looked at Poland and Ukraine, but we chose Lithuania because of the high quality of the talent pool and the lack of competition,” he says. “It was relatively easy to ramp up.”
Barclays has certainly done that. From humble beginnings as a technical support centre for the bank’s staff, Vilnius has over the past six years been transformed into one of its key global operations and development hubs.
Top choice
Today, the riverside tower and a second location to the northeast of the city centre house dozens of teams covering functions from change management and mobile development to cybersecurity. Since 2014, Vilnius has been designated as one of Barclays’ two global human resources hubs, along with Chennai, and one of four global attack monitoring teams is based here.
“We can’t show you it,” says Gediminas Mikaliunas, head of workspace and user experience. “It’s in a secret room on a secret floor.” Sadly, he appears to be joking.
Euromoney does, however, get to see some of the less sensitive parts of Barclays’ offices, which in true tech style are lavishly equipped with whiteboards, beanbags and adjustable-height desks. The staff is young – the average age is 29 – and, apparently, hyper-fit. Gonzalez notes proudly that 15% of his employees ran the Vilnius marathon this year.
Some come from outside Lithuania, but many have been trained up by Barclays, which has worked with local universities to ensure a ready supply of skilled talent for the bank’s more rarefied divisions.
Vilnius University now offers a masters degree in cybersecurity, thanks in part to Barclays’ efforts, and has also helped the bank set up training programmes for mainframe and iOS operating systems. The iOS app for Barclays’ Pingit mobile payment system was developed in Vilnius.
Mikaliunas says this flexibility is one of the key advantages of working in a small market such as Lithuania: “You have great collaboration from the government and from the education system, so you can shape the future of the services you want to deliver.”
Barclays is also looking to tap into a growing pool of local fintech talent in Lithuania and its former Soviet neighbours in eastern Europe, including Belarus and Ukraine. In July, the bank chose Vilnius as the location for its seventh Rise centre.
Formerly known as Barclays Escalator, Rise is a global network of fintech communities designed to allow the bank to foster development in areas such as artificial intelligence, virtual reality, blockchain technology and big data away from the constraints imposed by strict compliance requirements. Other venues are located in New York, London, Manchester, Tel Aviv, Cape Town and Mumbai.
“It’s a way for us to engage in a completely different model of innovation,” says Gonzalez. “We draw up a list of problems that Barclays wants to resolve in each location, then we approach venture capital firms and ask what they have in their portfolios.”
In Vilnius a top priority is artificial intelligence, which Barclays sees as the future of technical support for its global workforce.
“We are investing heavily in moving from old-style telephony to modern digital channels, from online portals to chatbots and robotic process automation,” says Mikaliunas.
Housed in an airy building just across the river from Barclays’ Lithuanian HQ, Rise Vilnius has 50 working spaces, a café (you can order and pay for your latte in advance on your mobile, naturally) and a conference hall.
At the time of Euromoney’s visit, the latter is hosting Lithuania’s first ever fintech conference. Organized by the central bank and finance ministry, the event includes panels on topics such as payment innovations and blockchain, with speakers from as far afield as Israel and Hong Kong.
A highlight of the morning session is the signing of a memorandum of understanding between the central bank and Revolut, a start-up offering cut-price cross-currency transfers and payments. Set up by two former Credit Suisse bankers, the firm is based in London but plans to open a second office in Vilnius.
Nikolay Storonsky, CEO and co-founder, says the choice of location was driven partly by the need for an EU base – he is not convinced that the UK will retain passporting rights after Brexit – but mainly by Lithuania’s progressive approach to fintech regulation.
“We’ve never seen in any countries such a push for innovation,” he says. “Regulators are usually more like policeman.”
Payments and e-money firms can get licensed in less than three months in Lithuania, much faster than even in other tech-friendly jurisdictions. From January, they will also be able to apply for a restricted banking licence, similar to that introduced in the UK in 2013, which will drastically reduce capital requirements (to as low as €1 million ($1.07 million)) for firms involved in basic transaction banking.
Still more important for Revolut, says Storonsky, is the fact that non-banks in Lithuania can already get direct access to the Single euro payments area (Sepa) infrastructure.
“We’re ahead of even the UK on this one,” says Marius Jurgilas, a board member at the Bank of Lithuania. “Mark Carney has said they’re looking to do this in two years’ time.”
Lithuania has also passed laws this year regulating peer-to-peer lending and crowdfunding; legislation on remote identification is being prepared. Other fintech-friendly initiatives include the creation of a regulatory sandbox for start-ups, whereby 45 other Lithuanian state institutions – including the tax inspectorate – have agreed to waive sanctions in a firm’s first year of supervision.
Blockchain
Policymakers are particularly keen to take a lead on blockchain. Local venture capital firm Nextury Ventures hosted a blockchain and bitcoin conference in Vilnius in April, in conjunction with the mayor’s office, and Jurgilas says the central bank is in talks with several bitcoin exchanges about the possibility of issuing them with e-money licences.
“They are looking for a regulator who would be willing to give them a stamp of approval,” he says. “We understand that we would be sticking our head very high, but we are ready to do that.”
He is eager to stress that the central bank’s enthusiasm for innovation is as much about cutting costs for consumers as it is about making life easier for start-ups. Lithuania’s banking sector is highly concentrated; three lenders, SEB, Swedbank and DNB account for more than 90% of the market.
“The general perception is that banks are overcharging their clients, so there is huge pressure on politicians and regulators to improve competitiveness,” says Jurgilas. “That’s why we are keen to embrace fintech.”
At the same time the push to liberalize financial regulation is in line with broader efforts to position Lithuania as a business and tech-friendly jurisdiction. A more flexible national labour code was introduced in September, while visa restrictions for skilled workers and start-ups have recently been relaxed as part of a drive to attract tech talent from eastern Europe to Lithuania.
Vilnius’s mayor, Remigijus Simasius, says the initiative is already showing results: “Entrepreneurs and IT specialists from Belarus, Ukraine and even Russia are starting to move here.” He notes that more than two dozen Russian gaming start-ups have set up shop in Vilnius.
Daumantas Dvilinskas, head of local payments firm TransferGo, says bringing in talent from outside Lithuania is becoming a priority as more and more companies move to Vilnius.
“The market is getting saturated,” he says. “We only have a few thousand people graduating with tech degrees in Lithuania every year, and every firm that comes here wants to hire thousands.”
Recent arrivals such as AIG and Nasdaq, which opened an ‘innovation hub’ in Vilnius last year, are ramping up rapidly, while established players such as Barclays, Western Union and Danske Bank also continue to expand. Western Union now employs more than 2,000 staff at its European regional operations centre in the northern Baltupiai district.
“Every company I know that has invested in Lithuania, especially in shared service centres, has exceeded their most optimistic prognosis in terms of expansion,” says Simasius.
Niche
Despite these successes it would be hard to say that Vilnius currently qualifies as even a regional financial centre. So, is it really credible to expect UK banks and fintechs fleeing Brexit to relocate en masse to a remote corner of the Baltics?
Clearly not, says Bank of Lithuania’s Jurgilas.
“We are not dreaming of having the headquarters of Goldman Sachs in Vilnius just because we have some nice parks,” he says. “We are fishing at the bottom. We have something to offer in a very specific niche.”
Far from looking to compete directly with London, he sees the UK capital as a key partner for Vilnius in its fintech development drive.
“Seed capital isn’t located in Lithuania,” he says. “If you want investors, you need to jump on a stage in London.”
This is also the message from Jeremy Browne, a former Liberal Democrat minister in the UK’s coalition government, who now holds the thankless post of special representative to the EU for the City of London.
In opening remarks to a packed auditorium at the Vilnius fintech conference, he says London’s goal is to work with, rather than against, cities such as Vilnius before and after Brexit.
“We’re not here to see what we can take from Lithuania,” he says. “We want to help you realize your ambitions by providing access to the scale and expertise that London can offer.”
Even the ebullient Guoga, who made headlines in July when he applied to run as a pro-European candidate to replace Nigel Farage as leader of Britain’s nationalist UK Independence Party, admits that global banks will not be moving their front office staff to Lithuania. “For now,” he adds.
At the same time, he says, the Brexit vote offered a great opportunity to “reach out and tell people that Vilnius exists, that Barclays is here and is happy, and that we have a lot of smaller companies working in the fintech space”.
This highlights the fact that the biggest challenge for globally minded policymakers in Lithuania is still the country’s international reputation – or, rather, its lack of one. Outside emerging Europe, many people have not heard of Lithuania, and, Guoga notes, those that have often tend to confuse it with Latvia.
“When we started thinking about developing a financial hub in Vilnius, we immediately realized that what we’ve been doing wrong is that no one knows about this opportunity,” says Jurgilas. “They don’t know that we have such a wealth of tech talent here, that all the innovative payment development IT guys are based here.”
As more and more firms move to Vilnius, however, the message is gradually reaching a wider audience. “The fact that Nasdaq has set up here has really helped with Americans,” says Guoga. “Previously they thought Lithuania was a just a backward place somewhere far away that they probably wanted to avoid.”
(There is clearly still work to be done on brand recognition in the US – an American tech journalist at the Vilnius conference tells his hosts how delighted he is to be in the Balkans.)
The famous Brexit letter has also produced results, according to Guoga.
“We’ve had hundreds, thousands of replies,” he says. “We even had a response from HSBC.” He adds that he hopes to bring a “fairly big” hedge fund to Vilnius “fairly soon”.
He is confident that Lithuania’s capital – of which he is chief investment officer – has a very bright future. For fintechs in particular, he insists, Vilnius is “number one”.
He says: “If you are a start-up with 20 staff, and you want to be able to talk to the central bank and compete all over the world from a eurozone country, we are the best place in the world.”
Never one to underplay his hand, Guoga adds: “If we start now and work really hard, maybe in 20 to 25 years we can be half the size of London as a financial city.”
It is a bold call, but then again, post-Brexit there is all to play for in Europe. There seems no reason why Vilnius should not be able to take a share of the spoils.
Source: Invest Lithuania
