Voice of the Industry

How Open Banking is transforming the lending industry of the Baltics

Tuesday 4 October 2022 08:00 CET | Editor: Vlad Macovei | Voice of the industry

Rolands Mesters, Nordigen's CEO, runs us through the current lending landscape in the Baltics, the benefits of Open Banking for lending, and why both banks and lenders should embrace the initiative.



The Baltics are known for being a fintech hub and promoting innovation. The main drivers behind this phenomenon include a supportive regulatory environment, a culture of modernisation, a talent pool of highly qualified professionals, and the integration of digital tech into business infrastructures. One of the most popular fintech segments in the region is lending, with its subset alternative lending having various benefits in comparison to its traditional counterpart, including more lenient credit assessments and faster delivery times. Alternative lenders utilising Open Banking can further improve their lending assessments, making them more time-efficient, accurate, and overall more attractive to the end-user. Alternative lenders are embracing Open Banking, leading to a shift in the financial industry towards more efficient procedures, removing the need for printed documentation and manual processing, as well as creating more financing opportunities for underserved communities, such as SMEs and thin-file clients. Open Banking will lower the cost of innovation, allow fintechs to improve client engagement and gain a lasting competitive advantage over competitors.

The lending landscape in the Baltics

The Baltics have been long known as a technological startup hub, with Estonia, Lithuania, and Latvia continuously facilitating cutting-edge financial innovation. Entrepreneurs and regulators in this area have created an environment that has encouraged creativity, advanced technology, and attracted top international talent. 

This region's most popular fintech sectors are payments and lending, with 40% of registered financial technology companies in the Baltics falling into this category. EY’s Global Consumer Banking Study found that almost 40% of customers have reduced their usage of traditional banking services and products due to the unparalleled efficiency advantages that fintech firms offer. Consumers have jumped on the trend, with businesses following suit. 

SMEs are often underserved by traditional banks and lenders due to existing rigid risk assessment procedures. Alternative lenders can meet the needs of smaller businesses by turning to financial data sourced through Open Banking to perform accurate risk and credit analysis. In addition to lending firms, options like P2P investment platforms have been on the rise, allowing private investors and lenders to connect with small-scale business ventures and entrepreneurs to conduct mutually beneficial partnerships. 

Advantages of using Open Banking in lending

Open Banking refers to secure financial data sharing between banks and third-party service providers through APIs, at the request of the client. Open Banking and lending go hand-in-hand, as loan applications depend on credit and risk assessment procedures, which Open Banking can facilitate and significantly improve.

While lenders typically require a wide range of documentation and data from credit agencies, making the process time-consuming and laborious, Open Banking allows alternative lenders to connect directly to bank accounts to source necessary information. While being convenient, this procedure also allows lenders to access the most accurate, up-to-date information possible, which is often not the case when relying on credit bureaus that may hold outdated data. By using Open Banking data, alternative lenders can consider SMEs and thin-file individuals, provide more personalised services and products, and perform enhanced identity and income verification processes. Open Banking providers can work in tandem with fintech lenders in regions that are startup- and tech-intensive, like the Baltics, and assist them in achieving the greatest results.

Alternative lenders and banks embracing Open Banking

The overall atmosphere in the Baltics is incredibly favourable towards Open Banking, with the region embracing PSD2 and the changes that have come with it. Representatives of major banks in the Baltics, like the Head of Digital Banking at SEB bank commented earlier this year that ‘Open Banking is at quite a high level right now’ and banks are interested to collaborate with fintechs. Aided by a robust investment climate and forward-thinking financial regulations, Estonia, Latvia, and Lithuania have long been acknowledged as fintech breeding grounds, with alternative lending playing a vital role. 

In Lithuania, for example, alternative lenders are key to the national growth of scale-ups, with them providing over two-thirds (approximately EUR 200 million) of the government loans supplied to SMEs during the COVID-19 pandemic. This was due to traditional banks being unable to provide financial aid as a result of rigid policies and timing constraints. Lithuania as a whole is known for its avid use of alternative lending solutions, with recent statistics placing the country as 2nd in the European Union in terms of alternative financing popularity, with 23% of enterprises surveyed stating they would prefer to source loans through non-traditional sources. 

Alternative lending and P2P investment platforms are growing across the Baltics, with key players including Mintos, Twino, Eleving, Bondora, and more. Many representatives of the region fall into the P2P investment platforms category. This sector also utilises Open Banking as part of its risk management procedures, using the technology and rich data gathered to evaluate loan and investment eligibility.

Future predictions on Open Banking’s adoption 

As Open Banking adoption continues to grow and technology becomes a vital part of financial services, the way that procedures are conducted will change. What we can expect to see is a full digitalisation of lending practices, with printed documentation being omitted from the process completely, instead all the information needed will be sourced directly from bank accounts. We will see a decrease in reliance on traditional lending and often unreliable credit information, creating more opportunities for SMEs and individuals to gain financing through alternative options. Overall, adapting Open Banking within the lending sector will lower the barriers to entry and innovation, and assist fintechs in improving client engagement and gaining a lasting competitive advantage. Additionally, it will aid them in offering service at reduced prices and raising customer satisfaction levels, leading to an overall increase in profitability.

About Rolands Mesters

Rolands Mesters is the co-founder and CEO of the world’s first freemium Open Banking platform, Nordigen. The company’s API connects to more than 2,300 banks making it the largest network of bank connections in Europe. Rolands is a sales and growth hacker who is passionate about fintech and alternative lending.

About Nordigen

Nordigen is a freemium Open Banking platform that provides free access to Open Banking data and premium data insights. Nordigen's free API connects to more than 2,300 banks in Europe and serves fintech companies and developers in 31 European countries, including the UK.

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Keywords: Open Banking, lending, banks, P2P lending
Categories: Banking & Fintech
Companies: Nordigen
Countries: Europe
This article is part of category

Banking & Fintech


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