21 June 2018
The creation of financial systems is in the Baltics mainly driven by the younger generation
Zanda Brivule-Jansone, CEO of Worldline Baltics
In the long run, PSD2 will lead to more competition in the payments industry, that is clear. But, it is difficult to predict exactly what this ultimately means for banks, fintechs and consumers.
With the acquisition of First Data Baltics, Wordline has gained a leading financial processor in the Baltic States, which is one of the fastest growing economies within Europe. According to research carried out by the World Economic Forum Lithuania, Latvia and Estonia are all three in the top seven most innovative countries in Europe, with Estonia ranked first. And this particular region is the domestic market of new-born Worldline Baltics.
The Baltic countries are at the forefront of embracing new digital (payment) technologies. With the Baltics’ relatively small population of six million, it is fairly easy to be agile. The government also supports innovation, by keeping bureaucracy to a minimum and promoting entrepreneurship. For example, the Estonian government is already working on laws on the liability of robots and artificial intelligence.
We asked Zanda Brivule-Jansone, CEO of Worldline Baltics, about her and Worldline Baltics’ views on the trends and developments in the Baltic banking sector.
What do you think are the reasons why the Baltic States are so innovative?
Brivule-Jansone: “There are several reasons for this. One reason could be that, after becoming independent in 1991, the Baltic States detached from previously existing Soviet systems and their limitations. Over the years, the Baltics have built up their own financial and IT industry. In addition, the process of creating financial systems is mainly driven by the younger generation, who often tend to be more creative and free of stereotypes. In Estonia, for example, Prime Minister Jüri Ratas is 39 years old and National Digital Advisor Marten Kaevats is 32 years old.”
As for innovation, Scandinavia has always set the benchmark and functioned as an inspiration for other European countries. Also for the Baltics: an example of the influence of Scandinavian innovation on the Baltics is the development of Skype – a joint venture of Swedish and Estonian programmers. Do you think Scandinavia is also a pioneer in the Baltic banking industry?
Brivule-Jansone: “I fully agree with the statement that Scandinavia serves as a reference framework in the banking sector, as the Nordic banks dominate the banking sector in the Baltic States, thereby spreading their values and experience into the Baltics.”
In countries such as Sweden and China, contactless payments and mobile wallets have already made a breakthrough. The Baltic States are also at the forefront of innovation and could follow relatively soon. What is your view on this development?
Brivule-Jansone: “At the moment, at 80 percent of the payment terminals contactless payments can already be made, via various tokens such as cards, telephones or watches. From the end of last year up until June, the number of contactless payments rose by 500 percent, resulting in a significant proportion of the total number of card payments. Baltic merchants and consumers consider contactless payments to be a positive innovation and embrace it. This service has promoted itself, with transaction speed as the main driver.”
In Sweden, the society is heading towards a cashless existence. However, there are mixed feelings on completely getting rid of coins and notes. Are these doubts also expressed in the Baltics?
Brivule-Jansone: “There is certainly a part of society that will be unable or uninterested to use new payment methods or get rid of cash. How quickly a cashless society is embraced varies from country to country. A large cultural and economic development like that does not only depend on individuals, but also depends on the economic landscape. For example, the proportion of Baltic people participating in the grey economy – the legal part of an economy that is neither taxed nor monitored by any form of government – is high. These people are not eager to switch to a completely cashless society.”
In November last year, nearly 600 payment service providers (PSPs) from eight countries, including all Baltic States, launched SEPA Instant Credit Transfer. This service was launched to promote instant payments within and between European countries and prevent the market from becoming fragmented. Shortly after the launch, Bank of Estonia’s Deputy Governor Madis Müller expressed the hope that all banks in Estonia would introduce instant payments within a year.
We are now six months down the line. Has the appeal by Governor Madis Müller had any effect in your opinion?
Brivule-Jansone: “Currently, two banks, Citadele Bank and SEB, have launched instant payments in the Baltics. Furthermore, there are no mandates for the handling of instant payments in the Baltic States, but some banks have already set up an immediate clearing and settlement system. As an instant payment service could benefit both consumers and businesses, it is expected that all major players will support SEPA in the short term.”
Another important subject in the payments industry is the PSD2, a regulation that makes it possible for authorised third parties to access customer information that was previously only accessible to banks. Various European countries are currently working on implementation of the law. In addition, European banks and service providers have to comply with the Regulatory Technical Standards (RTS) by September 2019. This standard sets criteria for the security of access to payment accounts, one of which is Strong Customer Authentication (SCA), a security measure for identification.
Estonia was one of the first few countries to have implemented PSD2 in the law. What does the landscape in the Baltic States look like with regard to PSD2?
Brivule-Jansone: “Estonia was one of the first countries to implement PSD2, but in terms of practical implementation Estonia levels with other European countries: since banks should open their accounts from September 2019 and are in no hurry to provide this information until they are politically required to do so. Parties that operate in the payments industry are now preparing themselves for the moment that customer information becomes available upon request. This does not only involve upgrading IT systems, but also entails looking for new business models and making use of the possibilities offered by PSD2. As far as SCA is concerned, this is already standard procedure with payment organisations in all three Baltic countries.”
What do you expect the long-term effects of PSD2 to be?
Brivule-Jansone: “In the long run, PSD2 will lead to more competition in the payments industry, that is clear. But, it is difficult to predict exactly what this ultimately means for banks, fintechs and consumers.”
The innovative nature of the Baltic States has created a need for IT-talents, but unfortunately, the Baltics have experienced a wave of emigration. To what extent does the shortage of talent interfere with technological payment developments according to you?
Brivule-Jansone: “In the Baltic States there is a shortage of skilled employees and this sometimes puts additional pressure on projects. In general, however, in today’s connected world it is possible to attract and use resources from outside the Baltic States, from both the East and the West.”
Fintech start-ups are popping up everywhere in the Baltic States. Do you believe this changes the payments industry in the Baltics?
Brivule-Jansone: “Given the relatively small size of the Baltic market, most of the fintech companies based in the Baltic States focus on payment markets outside the Baltics with their activities. This means that fintechs seem to have little impact on the local market. This shows, above all, what we discussed earlier, which is that innovation dominates in the Baltics.”