Insight & Analysis

A Baltic hub of the fintech future

Published: Sep 2018

Conference season is under way and treasury professionals will look for updates on how the great disruptor blockchain is progressing. A conference last week in Lithuania’s capital of Vilnius offered some insights.

This year’s conference season moves into top gear this week, as EuroFinance’s international treasury management event takes place in Geneva with Money 2020 (Las Vegas, 21st-24th October), Sibos (Sydney, 22nd-25th October) and Association for Financial Professionals (Chicago, 4th-7th November) among the heavyweight annual events over the next six weeks.

Treasury’s increasingly automated future will be a major topic on the agenda at each conference, although some lower-key events this year focusing specifically on fintech have offered snapshots on the rate of progress.

Among these is Lithuania’s annual #Switch event, now in its fourth year, held last week in the capital city of Vilnius and dedicated to discussions on blockchain technology, artificial intelligence (AI) and cybersecurity. Also on the agenda was the recent growth of controversial initial coin offerings (ICOs) that are funding blockchain start-ups and attracting investors despite the attendant degree of risk.

Having heard the gospel of blockchain and its potential for several years now, some treasurers might be starting to suspect that the hype dwarfs the reality. However, several European cities are convinced that the transformative technology will be the bedrock of the Fourth Industrial Revolution and are in contention to be the region’s ‘Crypto Valley’ in which blockchain achieves critical mass.

Vilnius certainly regards itself as a contender, although rather than compete directly with cities such as Berlin it has positioned itself as the gateway to Europe for countries in the Baltic region and beyond, keen to participate in the blockchain revolution.

A pro-fintech government

A distinct characteristic of Lithuania is the enthusiasm of the government for getting involved in the promotion. Several of its ministers are young enough to be part of the tech generation – Vilius Šapoka, Lithuania’s minister of finance is 29 and economic minister Virginijus Sinkevičiu 27. This has helped a more interventionist approach than in many other European countries and a relatively relaxed attitude towards cryptocurrencies and crypto trading.

“Two years ago, the Bank of Lithuania and the Ministry of Finance agreed to create a strategy for promoting Lithuania as the premier Baltic fintech hub, says Jekaterina Govina, the central bank’s head of innovation and fintech strategy coordinator.

“We legislated to make the remote customer onboarding process legitimate and a newcomer programme was established for entrants into the fintech market. Companies wishing to set up operations in Lithuania have the services of a dedicated project manager, who can help fast-track the licencing process.

“The second step of the programme was allowing fintechs to link up to the payments system run by the BoL – a move that was initially opposed by the banks, but which quickly developed into a collaborative environment in which they work with fintechs.”

The enthusiasm for blockchain extends to Lithuanians still in their teens – unlike most finance and tech conferences, #Switch 2018 had a huge contingent of delegates aged under 21. Much of this is due to demographics – Lithuania is a small nation, but also a shrinking one.

Last year it was home to 35 fintech start-ups and attracted €500m in funding via ICOs; exceeded only by the US and China. The capital also shows signs of a building boom, thanks to the country’s business-friendly credentials. So it’s a surprise to learn that since breaking away from the old Soviet Union in 1990, Lithuania’s population has steadily declined – from 3.7m to less than 2.9m. The country’s future economic success is very much contingent on both blockchain and artificial intelligence (AI) fulfilling their promise to transform business life over the next few years.

Reasons for optimism

Fortunately for both Lithuania and its rivals for the fintech crown, the mood music supports their optimism.

“The topic of automation is coming up in every conversation and how innovation is impacting the corporate landscape,” says Alex Young, head of corporate sales for GTS EMEA at Bank of America Merrill Lynch. “So far it’s not necessarily treasury that’s feeling the greatest effect, but key treasury business partners such as shared service centres (SSCs). There is a lot happening in back offices, where robotic process automation (RPA) of more routine tasks and enablement of more complex processes is now underway.

“Better cash flow forecasting is a pre-eminent challenge for treasury. Big data, machine learning and predictive analytics capability are being introduced to unlock more effective solutions. Corporates often don’t have full access to information for a number of reasons, including the organisational structure, the ‘siloing’ of various departments and data protection considerations.

“There’s an increasing need for a single source within the organisation that has access to all of the available information; particularly as 90% of the world’s data has been generated over the past two years alone. The challenge is to tap into it and use the data that is relevant more effectively. Some treasury departments have started evaluating potential use cases and deploying AI capability. Enterprise resource planning (ERP) companies are increasing their ability to capture and utilise greater levels of data. Increased integration with treasury management systems (TMS) is another way corporates are looking to expand access to useful data”.

While BofAML supports the global payments innovation (gpi) initiative, Young sees blockchain as still very much at the proof of concept stage. “There have been a number of successful tests in determining the areas in which the technology will be most useful,” he notes. “In addition to payments and trade finance, it could also be applicable in regulation and the know-your-customer (KYC) space, with multiple banks utilising distributed ledger.

The new technology also underpins another of this year’s key topics, the growth of real-time payments, with schemes launched in 27 different countries and under development in a further 16. Real-time payments (RTP) is also now picking up in the US, having been launched there in late 2017.

“The move away from batch processing to real-time payment flows poses a challenge to treasurers of how to manage their liquidity position as real-time becomes more prevalent,” says Young. “We’re seeing it increasingly in the business-to-consumer (B2C) space. A number of countries are considering phasing out automated clearing house (ACH) processing and moving to real-time.”

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