How to enter a new market faster as a Fintech company

By now, most of us are tired of reading about how many industries have been wiped out or affected by the pandemic.

However, some sectors have since recovered and are even showing growth. In Fintech, 2021 was a record year for investments – $132 billion across the board, according to market analysis firm CB Insights. With the increasing flow of digital services, these investments make Fintech a formidable growth industry.

To learn about how FinTech is developing in Latvia and how a FinTech player can effectively start operations and create a market segment, we spoke with Staņislavs Siņakovičs, Head of Sales and Regional Development at LPB Bank.

Fintech in Latvia: what’s new?

As in any other country, the FinTech sector in Latvia has made a lot of news – some very promising, others less so. In 2018, Latvia was on the verge of being greylisted by Moneyval. This could have resulted in a downgrade of the entire country’s financial rating, but thanks to proactive efforts by the Latvian state authorities, Latvia escaped the gray list. However, it led to a decline in the economic prestige it had once enjoyed.

Staņislav’s Siņakovičs

“There has also been good news. In a relatively short time, Latvia managed to turn around the entire financial sector and meet strict AML requirements. If someone still sees our country as an unreliable regional financial center, the only explanation is a gap in awareness. We as a bank are actively involved in industry events, including Europe’s financial giant, the Money20/20 fair We work with FCMC and with European partners to strengthen Latvia’s financial and technological reputation on the international stage.

notes Siņakovičs, a Fintech collaboration manager who is well acquainted with the situation in the industry.

He adds that Latvia’s neighbours, Lithuania and Estonia, provide significant state support to demonstrate and promote their respective Fintech sectors globally. This support is both systematic and centralized. For many years, Lithuania has been a global leader in the number of financial services licenses issued – these are required for the operation of credit institutions, payment institutions (PIs) and electronic money institutions (EMIs).

Although Latvian Fintech cannot yet boast of being a top performer or enjoy significant support from the national government, Siņakovičs believes that the industry is rich in technical awareness, knowledge and experience and can deliver financial technology services at the highest level.

“In a way, the devastating loss of financial reputation positively promoted regulatory improvements. Latvia is now an example with its anti-corruption and compliance provisions and market-driven practices in internal control. This makes Latvian financial service providers good partners for companies and investors across worldwide. After noticing interest from the market, we have developed a Banking as a Service (BaaS) concept, which is now our strategic growth priority along with e-commerce solutions. Although a wide range of financial services is available in Latvia, LPB Bank is currently the only bank that offers a complete BaaS offer.

Staņislavs Siņakovičs emphasizes.

How LPB Bank helps Fintech players launch operations in the market quickly?

The last thing any company wants is to waste its money, and time delays can often lead to companies losing a significant part of their initial investment or requiring more funding than planned. With LPB Bank, Fintech companies and start-ups can roll out brands to end users in record time.

“An entrepreneur always has a choice – to build an internal infrastructure from scratch or rely on the existing ready-to-launch solutions. Both options have their strengths and weaknesses, and the challenge is to satisfy a company’s business strategy, experience and scope of operations. Business owners and managers may understand that having a dedicated infrastructure provides independence, freedom and flexibility – but it will take 1-2 years and at least as many millions of euros to implement. An entrepreneur who relies on already available solutions may spend less and plan to enter the market earlier. So we have developed a comprehensive infrastructure for non-banking businesses. Those who choose our BaaS solution do not need to integrate dozens of fragmented products and services or evaluate available vendors for each. We can guarantee faster and cheaper market entry for PIs and EMIs operating under their financial licence. Time to market can be as short as a few months.

Siņakovičs explains the advantages of the LPB Bank offer.

Which services has LPB Bank included in its BaaS solution?

With Banking as a Service, LPB Bank provides all the essentials for payment companies (of the PI, EMI or PSP type) to start serving their customers as soon as possible. The bank supports securing accounts, Visa, Mastercard and Apple Pay acquisition services, addressable BIC connectivity for SEPA, SEPA Instant and TARGET2, virtual IBANs, and will soon also support BIN sponsorship. To connect to LPB Bank’s payment infrastructure and use these services, a payment company gets access to the bank’s API for fast and secure integration.

Of course, this is not the last step in establishing cooperation. For onboarding, a Fintech entity must undergo an enhanced due diligence procedure.

“The technical side is the easy part. The longest and most labor-intensive part of the process is so-called onboarding. This is where a company presents its business model to us, talks about its customers, where they live and what they do, what the expected average value per payment is, where the company sees its risks, and so on. We also examine the company’s AML and other procedures, followed by a live video demonstration. This is where the potential customer presents their customer lifecycle “live”, from registration in the payment system to sending a payment . The purpose of such an in-depth analysis is to verify that a payment institution did not stop preparing appropriate documentation, but does everything it says and can implement its business model effectively. At that point, we will be able to connect the client to our infrastructure.”

says Siņakovičs about establishing cooperation with a client.

LPB Bank verifies whether a potential customer’s business model is viable with this introduction process. With the expertise the bank has gathered so far, the bank can offer solutions and recommendations to develop a business effectively.

“An important service with BaaS is the protection account. Regulators in most countries require customer accounts to be kept separate from company funds, and a payment institution cannot receive a financial license without having collateral accounts. Another important aspect of accounts is the addressable BIC within the Single Euro Payment Area (SEPA). It connects a payment institution to international payment systems and allows it to carry out its customers’ payments via its own unique BIC as well as to assign unique IBANs to its customers.

In the spring of 2022, our customers gained access to other important service connections to SEPA Instant and TARGET2. Instant payments mean financial institutions transfer transfers within seconds. The customers of a payment entity can make instant payments between accounts in banks that are members of European instant payment systems.
Soon we will launch virtual IBANs – a subtype of regular bank account numbers. The difference is that a virtual IBAN is a uniquely allocated reference to the central main account. A virtual IBAN will apply to companies that receive payments for various services and require additional details (agreement number, month, etc.).

Payment institutions’ marketing teams can use BIN sponsorship for brand recognition. LPB Bank will soon complete its formation and launch our processing center, expanding our payment card processing capacity. We expect to roll out BIN sponsorship in the first quarter of next year. With access to this service, our customers will be able to issue both virtual cards and plastic cards under their brands, connected to a card processing solution. They do not need to contact Visa or Mastercard directly: we are already a member of these payment systems and can connect our customers as an intermediary. This saves customers both time and money.

Different service providers have narrower specializations in terms of card issuance, a range of available payment currencies, etc. If a payment institution becomes a customer of several providers, it will pay thousands of euros to connect and monthly subscription fees to each. A broad customer base is necessary to recoup such expenses. It also requires resources to support the complicated infrastructure with multiple integrations. Large companies can afford to go this route, but we recommend BaaS to start-ups and small and medium-sized companies. The one-off fee to a single service provider is much lower, and maintenance of the payment infrastructure will require fewer human and financial resources.”

Staņislavs Siņakovičs explains.

For advice on how to use BaaS, please fill out the feedback form on LPB Bank’s website or write an email to [email protected].