“Banks nowadays are in stiff competition for human resources with fintech. The financial technology sector often offers higher pay. Still, the prospects of many such start-ups are difficult to forecast – they are as likely to occupy a solid niche as they are to go bust. Stable companies in Latvia are only a handful. Primarily, fintech players active in Latvia are headquartered in foreign countries – the United Kingdom, to name one – despite maintaining offices in Riga and employing staff in Latvia,” began Siņakovičs.

Each Baltic state has its particular strengths.

To drive development in the fintech sector, like all of Europe, Latvia should enable the provision of all essential services at a single financial institution. “The fintech industry is rife with incoming experts from IT who are well-versed in software issues and project management but tend to have less knowledge regarding finance. This creates a situation where a package of banking services that can offer everything such clients may need is essential,” Siņakovičs explained. “People often get used to a certain standard of service, where people with client service experience and banking education can deliver a lot essential of added value to financial technology providers – in the form of skill and know-how.”

Staņislavs Siņakovičs believes that Latvian specialists would prefer to work for local companies if the regulations, working environment and salaries were competitive with offerings abroad. Estonia has been more robust in marketing, with their local fintech companies selling at a high profit on the global market to international acclaim.

“After the recent tax reform, there is no difference between Latvia and Estonia, but information about this is sometimes lacking. Estonians have stronger licensing and permit issuance for virtual currencies, which is essentially non-existent in Latvia. Latvians are more active in terms of their financial institutions and electronic money companies. Talking about our northern neighbours in Estonia, fintech and crypto came to their market before they did in Latvia. Estonia has been a more active player and has earned a good reputation. Latvia is catching up: changes in taxation according to the Estonian example, the FCMC and the LIAA taking action to develop fintech. We have undeniable potential and the advantage of labour – many residents, work for companies in Lithuania or Estonia. This means that fintech could take root in Latvia very soon.”

In the financial technology industry, Latvia has been outpaced by Lithuania as well: it launched electronic money institution (EMI) licensing earlier, and the regulations it maintains are gradually becoming stricter. “Latvia can do it all, as well or better than its neighbours; we used to lack the motivation to pursue our plans, but now we hope that these matters will be resolved more quickly as the authorities display interest in the development of this space,” Siņakovičs noted.

Virtual financial solutions: a high-demand technology

In 2021, according to McKinsey, the fintech sector grew into a $7 billion market in the United States alone. It is expected to triple in the next 3–5 years; in the coming decade, the worldwide market could be valued at $20 billion.

So-called embedded finance has been a growing challenge to the European financial sector. It involves using a financial solution developed by a licensed financial institution by a client (a non-financial fintech player) for a fee. The “buy now, pay later” (BNPL) model is gaining steam, with interest-free loans and deferred payments directly provided to clients by the merchant, not by a leasing company or some other financial institution.

Another example is virtual currency companies looking to issue branded payment cards linked to virtual currencies via Mastercard or other card organisations. “In this case, they turn to a fintech company that will give a white-label card bearing the logos of the virtual currency company and the issuer.  Fintech companies such as Revolut are also popular, issuing single-use virtual cards for secure purchases.

Virtual IBAN greatly facilitates the recognition process allowing easy and safely sort of various payments from a single account. A virtual IBAN will be useful for companies that receive payments from many buyers when the provision of services requires the indication of additional information, without which the system cannot recognize the client (agreement number, customer id, etc.). It is in high demand among trading platforms, crowdfunding providers and virtual currency traders with increased clients.

“Such solutions require a financial license and a partner with financial infrastructure in place – a bank is the best and most well-recognised provider of services like these. The Bank can provide the necessary connections to major payment systems and open accounts. The most significant advantage is that all these services are delivered to partners by a single entity. If they had to connect to multiple individual vendors, these companies would have to spend more time and money,” Siņakovičs commented on current market trends. “.