Estonia has many record-breaking stats, yet the success of its FinTech industry still stands out significantly. With 2.3 FinTech unicorns per million capita, Estonia is an indisputable FinTech leader in Europe. Its ground-breaking companies like Wise and Monese have changed the way people send and receive money internationally.
Where does this success stem from? It all comes back to the strongest pillars of Estonia, argues The FinTech Report Estonia 2023 by TalTech School of Business and Governance and FinanceEstonia. So let’s dig into what it reveals.
Technology and people
According to the authors, Estonia’s FinTech success is attributed to two main resources: technology and people. The digital infrastructure in Estonia is advanced, and the government encourages digital innovation. Besides, the younger population is attracted to the possibilities of technology, making IT-related careers and education a popular choice.
Looking at this sector more closely, it is seen that innovative technology is a kinda must-have part of local FinTechs. The majority of respondents marked the use of blockchain, Big Data Analytics, artificial intelligence (AI), or Open Source Computing (APIs). In addition, cybersecurity and automation/robotics have been used as well.
The strong working digital infrastructure with supportive regulations provides a solace that any type of FinTech can grow on. And so it happens. The most frequent type of FinTech in Estonia is digital asset exchange, followed by digital lending, enterprise technology provisioning, digital payments, WealthTech, and digital capital raising.
As mentioned, Estonia is the leader of FinTech unicorns per capita in Europe. But the fact that a country with a tiny population is producing 5% of 61 European FinTech unicorns is very impressive on its own.
Furthermore, the report confirmed that the Estonia’s FinTech sector has a lot more to offer. A significant amount of new companies are entering the market every year while the old one’s revenues grow and successful exits are delivered.
On the rise
At the end of 2022, there were 264 FinTech companies registered in Estonia – that is a 23% increase compared to the end of 2020. Despite the fact that most of the FinTechs in Estonia are new and, therefore, often not in the profit-making phase yet, the income generated by Estonia’s FinTechs has also increased substantially. Unless the rise of newcomers in the sector has slowed down lately due to the sticker regulatory landscape and the market’s focus on companies with a clearer path to profitability, the sector’s impact on the economy is improving. With reaching €400M in 2022, there has been a huge 42% increase in income compared to the previous year.
Estonia’s FinTechs have increased their capabilities in providing products and services on a B2C or B2B basis. Makes sense in a country where everybody has a digital ID card, a good internet connection, and 99% of all transactions are done digitally.
The report provides further evidence of the flourishing FinTech field. An unwritten rule of the Estonian startup scene is that the companies here have been founded with the aim to go global (and taking advantage of the local market’s tinyness that offers no other options to succeed). Following this rule, most Estonian FinTechs have an international outlook – 72% operate both locally, in Estonia, and worldwide.
Doing business. Easily
But what do people working in FinTechs themselves value about Estonia? When rating different factors, the ease of establishing a company and good quality digital infrastructure are valued the highest. Although the results were quite similar to the ones in 2021, they are witnessing stability in the Estonia’s FinTech sector over the recent years.
FinTechs are putting a great emphasis on Estonia’s reputation, knowledge of the local entrepreneurial environment, regulatory clarity, availability of skilled workforce, and no-corruption business culture. The world’s best tax system (with 0% corporate tax on retained and reinvested profits), e-services, startup ecosystem, and personal network have been seen as the decisive advantages of Estonia’s business environment for finance technology companies. On top of that, there’s support from the government. As of now, The Estonian Ministry of Finance and the Ministry of Economic Affairs and Communication are working on a strategic plan on how to overcome the challenges that FinTechs face.
Overall, the future of Estonia’s FinTech does seem promising – most FinTechs in Estonia anticipate growing numbers of employees and increasing revenue in the coming years. The Estonia’s FinTech wonder is far from being over.