Latvia: The EU’s Next Fintech Hub?

Latvia, a small Baltic country, is rapidly emerging as a potential fintech hub in the EU. The country is taking real strides to attract innovative financial companies, and it's worth exploring what sets Latvia apart.

A Regulator Open to Innovation and Collaboration

One of the most significant factors contributing to Latvia’s growing appeal as a fintech hub is the proactive stance of its regulatory authority. The Bank of Latvia (Latvijas Banka), which oversees the financial sector, has demonstrated a forward-thinking and open approach to fostering innovation. Unlike jurisdictions where regulatory processes can be formal, the Bank of Latvia actively promotes the country as a welcoming destination for new companies and ideas.

The regulator positions itself as a partner rather than an adversary to businesses. This collaborative approach is evident in how the Bank of Latvia engages with fintech companies, offering an open platform for dialogue and discussion.

The regulator has announced that they offer a unique opportunity for candidates to receive comprehensive feedback and discuss the application process before officially submitting their licensing documents. This level of support is unmatched among EEA regulators, where engagement is typically limited to a formal one-hour meeting.

Mārtiņš Kazāks, Governor of the Bank of Latvia, emphasised the importance of this approach in his opening speech at the Fintech Latvia Forum: "We are excited to start working on a new fintech strategy that aims to grow Latvia as a successful fintech hub in Europe. Our value proposition is based on a friendly and supportive ecosystem, prioritising access to capital, developing world-class talent, and fostering deeper collaboration with stakeholders to build Latvia’s competitive position. And let’s be ambitious: we’re not just aiming for a seat at the table; we’re aiming much higher!"

Additionally, the Bank of Latvia has invested in creating sandbox environments and innovation hubs where fintech companies can test new products and services in a controlled setting. This fosters innovation while ensuring that regulatory oversight keeps pace with technological advancements.

EKS System Readiness: A Game-Changer for Fintech

Another critical component of Latvia’s fintech ecosystem is the opening of its Electronic Clearing System (EKS) to non-bank payment service providers (PSPs). This move enables electronic money institutions (EMIs) and payment institutions (PIs) to directly process euro payments within the Single Euro Payments Area (SEPA) framework. This system is similar to the Bank of Lithuania's CENTROlink, which also serves as a direct gateway to SEPA.

Latvia has successfully completed the necessary technical preparations to accommodate new participants in its EKS system. The system is now accessible to authorised EMIs and PIs holding EEA licenses for credit transfer services.

This access enables companies to offer instant payments and SEPA credit transfers directly on behalf of their customers, eliminating the need for commercial banks as intermediaries. By reducing reliance on traditional banks for correspondent services, payment processing becomes more efficient.

The Introduction of a New Crypto License in Latvia

Keeping pace with the global trend of integrating cryptocurrencies and blockchain technology into mainstream financial systems, Latvia has introduced a new crypto license, providing a clear regulatory framework for businesses operating in the crypto space. As of 2 January 2025, the Bank of Latvia has officially started accepting applications for the EU MiCA license. 

The new crypto license represents a significant step forward in legitimising and regulating activities such as cryptocurrency exchanges, wallet services, and token issuance. By introducing this framework, Latvia aims to attract crypto companies seeking a reliable and transparent regulatory environment. The license also establishes a structured pathway for compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, ensuring businesses uphold high standards of integrity and security.

According to insights shared during the session "Licensing QA - Insights from the Bank of Latvia" at the eCom21 event, companies in Latvia have the unique opportunity to obtain two licenses under a single legal entity, such as an e-money or payment institution license combined with a crypto license. This dual-licensing capability further enhances Latvia’s appeal as a fintech hub, offering businesses greater flexibility and opportunities to expand their services.

So, what do you think - could Latvia become a leading fintech hub in Europe?