Estonia's FinTech revolution: catching up against the West begins!

Estonia's FinTech revolution: catching up against the West begins!
What is happening in the highly dynamic technology markets of central and Eastern Europe? A look at the current developments shows that many companies based there are striving to catch up at the level of their western counterparts. This trend is not only exciting, but also extremely promising. As EURONEWS made.
A particularly shining example is Estonia that has established itself rapidly as a European Fintech stronghold. With around 1.4 million inhabitants and a booming fintech industry, the market size of this sector was estimated at 15.2 billion euros in 2023, with a forecast growth rate of 5.7% CAGR by 2028. 87% of these startups are active in six main categories that range from digital assets to digital loans. A clever step that was worth it, because Estonia now even has 2.3 fintech insurers per million inhabitants, which underpins the status as an innovative hotspot.
growth and challenges in the FinTech sector
However, the challenges for fintech companies should not be underestimated. Increasing operating costs and competition with large technology companies present many startups for problems. In the fourth quarter of 2022 alone, wages climbed 10.1% compared to the previous year. This could also have a direct impact on the planned increase in corporate taxes from 20% to 22% from 2025, a measure that may increase the operating costs. Nevertheless, there are positive signs: FinTech startups in Estonia generated sales of 196 million euros and were able to establish themselves as the second largest industry according to company software, which is 13% of the entire startup ecosystem.
With the e-reside cycle program and an efficient tax system, Estonia offers excellent conditions for entrepreneurs. Over 117,000 e-residents have already founded over 31,800 companies. The commitment to innovative technologies, especially artificial intelligence and machine learning, is also remarkable. In addition, FinTechs have started to deal more strongly with topics such as open banking, embedded finance and sustainable investments, which further underlines the progressive character of the Estonian market.
EU-wide trends and the role of financial centers
But not only Estonia shows progress, the entire EU has an enormous increase in the Fintech industry since the mid-2010s. According to ECB , more than twice as many new fintechs have been founded since 2016. The geographical proximity to large financial centers significantly promotes the foundation and growth of these innovative companies. FinTechs near such centers are easier to access equity financing, which is crucial for many startups.
In addition, many banks work intensively with FinTechs to optimize their services, which makes the entire financial system more competitive. Initiatives such as the EU Fintech action plan aim to promote a more innovative financial sector and to further stimulate the growth of the industry. National and subnational measures that include regulatory sand boxes have proven to be extremely useful to develop new ideas and technologies.
It remains exciting to see how companies will continue to catch up in central and Eastern Europe. The urge to develop innovative solutions and face the international challenges could significantly change our picture of the technological landscape in Europe.
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