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Estonia developing first fintech strategy

Keit Pentus-Rosimannus: the finance minister is pictured speaking at the Global Government Fintech Lab on 1 June 2022

Estonia is developing its first strategy for the ‘rapidly developing’ fintech sector, the country’s finance minister said at the inaugural Global Government Fintech Lab.

Keit Pentus-Rosimannnus delivered a keynote speech, ‘How important is fintech to Estonia?’, at the one-day event hosted in the Baltic nation’s capital city, Tallinn, on 1 June.

The minister used her speech to outline how the government of the relatively small nation, which has a population of about 1.3 million, had prioritised digital government and that “size is irrelevant when it comes to the jump on technological innovation”. But despite its e-government pedigree, for example ‘e-tax filing’ and ‘e-identity’, Estonia has not previously developed a dedicated strategy for fintech.

“We are now working together with different stakeholders from the public and private sector, leveraging our strong IT sector and friendly business environment to overcome possible obstacles that prevent Estonian businesses to be scalable and successful here and abroad,” Pentus-Rosimannnus said.

About 215 fintech companies have been established in Estonia “or have some kind of connection with Estonia”, the minister said. She highlighted blockchain as a particular strength, saying that country had a “very active start-up sector that makes use of blockchain technology in various ways” and referencing KSI (Keyless Signature Infrastructure) blockchain – provided by company named Guardtime.

“From credit services to big data, and crypto services to digital identity management, most innovative IT-based start-ups have utilised digital assets and some sort of blockchain technology in their business,” she said.

‘Fintech sector is moving rapidly’

While emphasising the advantages that digital technology can bring to state authorities and citizens, Pentus-Rosimannnus also emphasised the risks.

“Digital society will never be ready,” she said. “New risks will emerge daily. Developments are super-quick in the tech world. Fintech sector is moving rapidly. If a government wants to keep the pace, one needs to dedicate to it every single year. There will always be plenty of room for improvements.”

“Estonia is by no means immune to threats and major security risks,” she continued. “As much as the task of the government is to encourage innovation, we must also limit the downside risk. Serious cyberattacks mainly starting 15 years ago made us push digital initiatives and cyber security further and harder. We have learned that what doesn’t kill you makes you stronger.”

Pentus-Rosimannnus went on to point out that fintech companies are “often associated with crypto-assets in various forms”, an area that brings both “optimism and success” but also “real and legitimate concerns – anonymous cryptocurrency payments feeding into an explosion of ransomware and risk for potential money laundering.”

“If we want to continue enjoying the charms of the digital society the response to managing the risks is equally essential. Not at the level of the individual countries only but in entire Europe and even globally,” she said, adding: “It is said that the pseudonymous nature of cryptocurrencies and new business models like DeFi [decentralised finance] make it complicated to apply a globally agreed crypto travel rule in practice. Still, I think we have a chance in here to work together and come up with a common standard in this respect.”

KYC and ‘green fintech’ possibilities

Pentus-Rosimannnus’s speech also took in areas including know-your-customer (KYC) technology and the possibilities of ‘green fintech’.

In terms of KYC, she pointed out that “often fintech companies offer their services to traditional financial companies to help them solve the challenges posed by regulation,” name-checking Estonian company Veriff’s remote KYC tech.

Related to this, fintech solutions can help tackle money laundering. “Most likely Estonia will be the first country to make machine-readable data in national registers and databases available for the KYC procedure and will also provide them with a time-stamp that provides the highest confirmation of the origin and compliance of the data,” Pentus-Rosimannnus said.

Bringing her remarks to a close she mentioned a hope that fintech start-ups “can become a leaders in the transition to sustainable energy sources”, referencing Estonian firm Single.Earth.

“In simple terms Single.Earth offers landowners a new business model: to earn money from living trees,” she explained. “Using satellite imagery and data, Single.Earth looks at nature in real time and sees how much of any area of the world absorbs CO2 and retains biodiversity, which is then tokenised for ecological value.”

“I believe in innovation. So I believe with new and responsible kind of technology we can make a world cleaner and better place,” she concluded.

Further information about the Lab can be found on the Global Government Fintech Lab webpage