Published: 29.11.2022

Financial innovations used by Latvia’s financial and capital market participants

In spring 2022, the Financial and Capital Market Commission (FCMC) conducted a survey of Latvia’s financial and capital market participants for the third consecutive year with a view to clarifying the scope and trends of the innovative financial technology (FinTech) used in Latvia.

Overall, 186 market participants were invited to participate in the survey. Of these, 144 participants responded to the survey, of which 74 indicated that they were currently using an innovative solution for the provision of financial services, while 28 of them had already created a special team for the development and implementation of innovative solutions. The survey results and conclusions to be drawn were based on data submitted by market participants.

This year, more market participants responded to the survey than last year (77% of respondents invited this year compared to 69% in 2021 and 40% in 2020). The share of market participants using an innovative solution for the provision of financial services increased by 68%. The survey shows that one sector of market participants – licensed alternative investment fund managers – is not currently using financial technologies.

This year the scope of the survey was extended and included new emerging financial innovations identified at European level.

The FCMC survey shows that currently six technologies are the most frequently used by market participants: provision of application programming interface (API), cloud computing services, digital customer acquisition, digital platforms, biometric solutions and insurance technologies.

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Comparing the year-on-year data, it follows that two FinTech solutions – provision of API and cloud computing services – maintained their top position. Whereas two technologies, covered in the survey for the first time, – digital customer acquisition and digital platforms, ranked third and fourth in the 2022 survey.

Over the year, there had been a significant increase in the use of the following FinTech solutions: cloud computing services, provisioning API, biometric solutions and big data.

The innovations included in the survey were divided into four groups: new business models (Group 1), new and innovative processes (Group 2), new and innovative technological applications (Group 3), as well as new and innovative products (Group 4).

The analysis of Group 1 innovative technologies shows that FinTech solutions are mostly used by insurance and credit institution segments. The most popular solutions in these segments are insurance technologies, environment-friendly business model and open finance, while regulatory technologies, P2P insurance, next-generation financial market infrastructure and BigTech are less used. Crowdfunding business model is not used at all. Private pension funds and savings and loan associations use financial technologies least of all.

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The analysis of Group 2 innovative technologies shows that the insurance and credit institution segments still use FinTech solutions the most with following best-recognized solutions in these segments: cloud computing services, biometric solutions, big data, artificial intelligence, machine learning, namely innovations that were included in the 2021 survey, as well as digital customer acquisition, payment initiation service and account information service. Two innovation solutions of this Group are not used: distributed ledger technology and coin offering. In this Group, private pension funds and savings and loan associations use financial technologies least of all.

The analysis of Group 3 innovative technologies shows that that the insurance and credit institution segments still use FinTech solutions the most with the following most popular solutions: provisioning API, robo-advice, smart contracts, namely innovations that were included in the 2021 survey, as well as digital platforms, instant payment and chatbots. Next best action and tokenization are less used. One innovation solution, blockchain, is not used at all. In this Group, payment institutions, electronic money institutions and private pension funds and savings and loan associations use financial technologies least of all.

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The analysis of Group 4 innovative technologies shows that the representatives of insurance, credit institutions and private pension funds use FinTech products of this Group, while the representatives of other financial market segments do not use the innovative products of this Group at all. The most popular solutions are on-demand insurance, parametric insurance and pension tracking system. One product of this Group is not used at all, namely cryptocurrencies.

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The results of the survey indicate that percentage of market participants planning to develop and implement new and innovative processes and innovative technological application innovation group Fintech solutions in coming years has increased by 143% over the year, with a particular focus on the solutions already in use: API, cloud computing services, artificial intelligence, machine learning, biometric data, automated advice, digital customer acquisition and digital platforms, as well as the solutions not yet used, namely crypto-assets.

The commitment of financial market participants to develop innovations is also demonstrated by human resources dedicated for that purpose, namely 34 market participants have set up a dedicated team for the development and implementation of innovative solutions with an 87% increase in their number since 2021.

Among the barriers to the introduction or successful operation of FinTech solutions, market participants indicated the regulatory framework, such as compliance with laws and regulations, legislative restrictions, complexity of legal requirements, as well as the lack of experienced IT specialists on the market and financial barriers (limited financial resources, lack of investments). The above barriers were also indicated by market participants also in the 2021 survey. The following were indicated as new barriers to the introduction of innovations this year: complicated move from historical to new solutions, customer ability to adapt and unclear cryptocurrencies regulatory framework.

FinTech monitoring 2021

Financial innovations used by Latvian financial and capital market participants (2021)

In spring 2021 for the second year in a row, the Financial and Capital Market Commission (FCMC) conducted a survey of Latvia's financial and capital market participants in order to ascertain the scope and trends of the financial technologies (FinTech) used in Latvia.

182 market participants were invited to participate in the survey. Of these, 125 responded, and 44 respondents indicated that they were already using an innovative solution for the provision of financial services, with 15 of them creating a special dedicated team for the development and implementation of innovative solutions. 14 respondents are planning to start using innovative financial technologies in the future.

This year, there were more respondents than last year (69% this year, while in 2020 – 40% of market participants invited). The share of market participants using an innovative solution for the provision of any of innovative solutions has climbed by 1%.

The survey carried out by the FCMC shows that four technologies are currently being used most frequently: provision of application programming interface (API), contactless payments, biometric solutions and cloud computing services.

Compared to the previous year, there are changes in the top of the most used technologies, namely, in 2020, the most frequently used FinTech solutions were: strong customer authentication (18 market participants), provisioning API (11), biometric solutions (11) and big data (9). Over the year, there has been a significant increase in the use of the following FinTech solutions: provisioning API, biometric solutions, contactless payments and cloud computing services.

The analysis of the innovative technologies used by market segments shows that the major user of innovative technologies is a credit institution segment – the most popular solution in this segment is provisioning API that credit institutions mainly use for open banking with FinTech companies. It is followed by the insurance sector, representatives of which most frequently used following innovative technologies: provisioning API, cloud computing services, biometric solutions, contactless payments and big data.

Cooperative savings and loan associations and licensed alternative investment fund managers make little use of financial technologies. Investment firms, however, do not use FinTech solutions at all.

A dedicated team for the development and implementation of innovative solutions has been set up by 15 market participants, namely seven credit institutions, two insurance companies, as well as one representative of the following market participants: payment institution, electronic money institution, private pension fund, insurance broker, investment management company and investment firm.

A survey conducted by the FCMC shows that there are two innovation strands in Latvia's financial and capital markets: one arises from market regulation (Second Payment Services Directive, near-field communication (NFC), provisioning API, while the other is based on the own initiative of financial and capital market participants (biometric data, artificial intelligence, big data, robo-advisor, machine learning, etc.).

The survey results indicate that over the next two years market participants are planning to develop and implement FinTech solutions for these two innovation strands, with a particular focus on provisioning API, biometric solutions, big data, artificial intelligence and machine learning.

As obstacles to the implementation or successful operation of the FinTech solution, market participants identified regulatory barriers, such as compliance with laws and regulations, legislative restrictions, complicated regulatory requirements, a lack of experienced IT specialists in the market, as well as financial barriers such as limited financial resources and a lack of investment.