Many countries are positioning themselves as a destination for fintechs seeking EU-wide licenses as the U.K. leaves the EU. Following Brexit, U.K. electronic money and payments institution licenses across the EU won’t be passportable across the EU.
The market for European fintech attracted a total of $8.5 billion in investment in 2019, according to U.K.-based
Over the last 35 years, the Irish government has pursued a policy of attracting foreign financial services and technology firms, with successes including Mastercard (whose European technology hub is in
In 2019, the Department of Finance announced its “Ireland for Finance 2025” strategy, which aims to turn Ireland into a top-tier global location for specialist international financial services by 2025. Attracting technology firms has been a great success for Ireland, according to Karen Cullen, head of the Department of Finance’s international financial services, risk and compliance unit.
“Our use of English and our common law framework make our jurisdiction very accessible,” she said. “When French or Italian fintechs are expanding internationally, they look to Ireland for marketing to English-speaking countries. For example, Italian prepaid card issuer
Ireland has a dedicated minister of state in charge of fintech policy, and the government-owned Irish Development Agency (IDA) courts foreign fintechs with grants, R&D facilities, and support with the inward investment process. “Ireland has a significant fintech sector with over 300 companies operating in areas such as payments, digital banking, blockchain, regtech, and AI,” said Katie Thurston, the IDA’s vice president of financial services.
The Central Bank of Ireland (CBI), which is responsible for fintech licensing, offers an online application process and an
However, the Irish regulator isn’t a ‘light touch,’ warned Andrea Dunlop, chair of the London-based Emerging Payments Association. “Some may find the CBI more challenging than the U.K.’s Financial Conduct Authority to deal with, but that isn't always a bad thing,” she said.
Currently, 16 firms hold Irish e-money institution licenses, of which 14 have been granted since early 2019, while a further 10 firms hold Irish payments institution licenses. Foreign fintechs with an Irish base include U.K.-based payments-as-a-service provider
“We established Dublin as our European hub to ensure we could continue to operate across Europe and serve our global customer base of e-commerce businesses regardless of regulatory changes triggered by Brexit,” said Payoneer’s de Courcy. “Ireland also provides access to a sophisticated financial services ecosystem with the deep pool of staff, managers, professional advisers and service providers that we require as we grow our operations.”
While Ireland is a good choice for many established fintechs, high operational costs mean it might not be the best location for a startup, Dunlop said. These costs include higher salaries and expensive Dublin offices. “For a startup, it might make sense to look at other EU countries such as Lithuania,” she said.
Lithuania has aggressively courted fintechs, attracting firms such as
“Lithuania is the EU’s largest fintech hub and is globally recognized as one of the most attractive jurisdictions for the fintech industry,” said Ieva Dosinaitė, a partner at Lithuanian law firm Ellex Valiunas. “At the end of 2019, 115 e-money institutions and payment institutions were operating in Lithuania plus five specialized banks including Revolut.”
An important draw for Lithuania has been the Bank of Lithuania’s
Bank of Lithuania provides advisory services and newcomer support as well as a regulatory sandbox and the LBChain blockchain lab. Once licensed, fintechs have direct access to CENTROlink, the central bank’s payment system, which allows participants to execute payments in all 34 SEPA countries without intermediaries.
“The fact that the licensing process takes about six months and the availability of full access to CENTROlink put Lithuania on the map for foreign investors,” said Dosinaitė.
The Bank of Lithuania’s fast-track approach to licensing has obvious appeal as Britain’s EU exit nears, said James Black, a partner at London-based law firm Hogan Lovells International. “The early front-runners — Ireland and the Netherlands — scored some successes initially with larger fintechs, but have fallen behind in popularity as the race approaches the finish line,” he said.
Black thinks the reason for Lithuania’s popularity may be due to differing priorities for different types of firms. Larger fintechs with better resources might be better at planning ahead and accepting a longer licensing process in return for an Anglophone culture, geographical proximity, and an influential regulator. “But, for smaller firms, time to market would be a decisive factor,” Black said. “My impression is that this has swayed things in favor of Lithuania more recently.”
The Bank of Lithuania wants to foster innovation in the financial sector, and boost competition in the payments and banking sectors to benefit consumers, said Rūta Merkevičiūtė, head of Bank of Lithuania’s payments market supervision division. “We also wanted to create an ecosystem, including competence centers for AML/counter-terrorism financing and financial innovation,” she said.
Recent money-laundering related scandals across the Baltics have led local regulators such as the Bank of Lithuania to implement more stringent compliance standards, according to Dosinaitė. “The Bank of Lithuania, when assessing a licensing application, pays particular attention to AML and risk management,” she said.
After considering Ireland, Luxembourg, and the Netherlands, Curve’s executives decided on Lithuania as their post-Brexit European base and obtained a Lithuanian e-money institution license in October 2020.
“We chose Lithuania as a gateway to Europe because of the ease of business, its welcoming culture and world-class AML standards," Shachar Bialick, Curve’s CEO, said in a press release.
The Netherlands has been proactive in attracting fintechs such as U.K.-based digital remittance firm
“Since the Netherlands’ implementation of PSD2 in 2019, we’ve seen a significant increase in PSPs and e-money institutions entering the Dutch market,” said Tobias Oudejans, a spokesperson for the Dutch central bank, De Nederlandsche Bank (DNB). “We had around 40 PSPs and e-money institutions active here in 2018. In 2019 we added 19, and between January and June 2020 we added nine.”
For Azimo, DNB’s deep understanding of fintech was a draw, said Azimo’s chairman Michael Kent.
"Outside of London, Amsterdam is one of the best places to establish and grow a fintech company in Europe,” he said. “It offers a culture open to innovation, access to talent, a thriving banking sector, and a strong regulator. Crucially, being licensed by the Dutch central bank guarantees us continued operation across the EU.”
A unit of the Dutch Ministry of Economic Affairs and Climate Policy, the Netherlands Foreign Investment Agency (NFIA) advises foreign companies on establishing and rolling out their international activities in the Netherlands.
“The agency’s finance and fintech team has strong connections with Dutch banks, regulators and legal services providers,” said NFIA strategic advisor Michiel Bakhuizen. “Since 2019, we’ve helped 30 finance and fintech companies establish offices in the Netherlands. Currently, we’re in contact with over 140 fintechs, both Brexit- and non-Brexit-related.”
Some fintechs have acquired licenses in several European countries as well as in the U.K.
“Obtaining multiple licenses provides maximum organizational resilience in unknown Brexit scenarios,” said Jay Wilson, an investment manager at U.K.-based venture capital firm AlbionVC. “Also, the competition for tech talent in satellite geographies is often less intense.”
U.K.-based mPOS payments processor SumUp has operations and e-money institution licenses in Ireland, Lithuania, and the U.K. The licenses allow the company to carry on processing payments and issuing e-wallets across Europe, said spokesperson Arsenia Nikolaeva.
“Our Irish office, which we aim to expand further, will become a key regulated hub through which significant aspects of our business across the EU can be conducted without interruption,” Nikolaeva said. “Our Vilnius office is a hub for operations in the Baltic states and houses employees in business development, compliance and data protection. The criteria for setting up in Lithuania was the country’s openness to innovation, its talent pool and governmental support.”
