Fintech

Estonia teaches governments how to compete digitally

Estonia teaches governments how to compete digitally. Image: Freepik & S Weston
Written by Bernard Lunn

Bernard Lunn explores Estonia’s credentials as a fintech startup hub, assessing its merits and heritage as the birthplace of Skype.

When I left ReadWriteWeb at the end of 2009, somebody asked me, ‘What is the most exciting tech startup that you saw during during the last year?’. My answer was a company that wasn’t well known at the time – Faroo – that was creating a decentralized search engine in competition with Google. I was a tad early, as was Faroo. Now, decentralization is becoming more real thanks to blockchain technology. This is the big disruption of our time. The company that proved that decentralization was technically and commercially feasible was Skype, so I thought it was time to see what was happening today in the birthplace of Skype: Estonia. Let’s see some Estonia fast facts:

  • Estonia is #103 in global GDP rankings. As a launchpad for something global like Skype, Estonia is good, but nobody comes here for a big domestic market. Many Estonian entrepreneurs set up shop in other countries in order to accelerate global growth.
  • Estonia is #39 in GDP per capita.
  • Estonia is a eurozone country.

A bit earlier than Skype were the file-sharing services Napster and BitTorrent (and Kazaa also with Estonian roots). Skype was more technically complex and, the coming wave of blockchain systems is another order of magnitude more complex and will have even greater economic impact. Here is how we rank Estonia on the seven attributes for ‘Alternative Fintech Capitals’:

Click here to see the attributes before continuing.
  1. Outsider status (excluded from mainstream global finance).
  2. Close to big markets. Alternative usually means a small home market, so fintech startups must be focused on global markets.
  3. Access to talent (combination of colleges and open to immigration and the sort of places where techies like to live).
  4. Friendly fintech regulation (without points 2 and 3, this would only create nameplate operations run by lawyers).
  5. Wired population (high-speed access to internet).
  6. Some interesting startups (ie evidence that the ground is fertile).
  7. Low-cost electricity. This seems an odd attribute, but when the primary cost of the bitcoin economy or cloud data centers is electricity, it does make sense.

Outsider status 

Estonia is part of the eurozone, so not really an outsider.

Close to big markets 

Yes (eurozone).

Access to talent 

Big score here for Estonia, and the future looks bright thanks to a nationwide plan to teach programming in schools from the age of seven.

Friendly fintech regulation 

Estonia is part of Europe, so doesn’t have an independent fintech regulatory environment.

Wired population (high-speed internet) 

Yes, one of the highest internet penetration rates in the world.

Some interesting startups (fertile ground) 

This is where the Skype alumni story plays out with TransferWise as the big fintech success story. Another Estonian fintech is Fortumo. Other startup success stories with a Skype lineage include Pipedrive, Cloutex, Click & Grow, GrabCAD, Erply, and Lingvist.

Low-cost electricity 

Estonia has nearly 90% energy independence thanks to shale oil (obviously a lot easier to achieve in such a small country).

The big innovation in Estonia relates to e-citizenship, or e-residency. This makes it as easy to do business with government through digital services as we do with private companies, such as signing documents, launching and managing companies, banking and file encryption. Government officials have to make an electronic declaration of financial interests to reduce the risk of corruption and increase transparency. This is what gives the country the e-Estonia nickname. You can see the details here.

Hopefully, representatives of other governments will make the trip to Estonia to study how to do this.

This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article by Bernard Lunn of Daily Fintech.

About the author

Bernard Lunn

Bernard Lunn is a serial entrepreneur who used to work for fintech companies such as Misys and Temenos. He has done turnarounds and startups in America, Asia and Europe. He lives in Switzerland and works as an adviser connecting banks, funds and strategics to fintech innovation globally. As part of the research for this, he is Founding Editor of Daily Fintech and provides mentoring to startups.

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