Ladies and Gentlemen,
We are witnessing critically challenging and turbulent, yet exciting times. The recent changes in world politics are - to say the least - worrisome. I am deeply troubled by some countries’ attempts to intervene in other countries’ politics through physical invasions or cyber attacks.
Or by the rise of populism and increasing doubts in the merits of trade and free market, free flow of data and people for that matter. It is not the way forward.
At the same time, when looking at technology enabled changes, I am stunned by the progress and innovation-based efficiency gain. And I’m confident to say that the future looks bright. The way technology and open minded young people just like yourselves have innovated old industries is absolutely mind-blowing. Terms like Fintech or Regtech, solutions transforming banking or the exchanges like Transferwise or Funderbeam do, would have confused us just a short couple of years ago.
There’s a reason I mentioned these two innovative companies - I am proud to say that both of these companies, just like Skype some time ago, have been founded by Estonians. We have one of the biggest number of startups per capita in the world, many of them in the FinTech domain. These are the companies that give a perfect example of bright ideas meeting a can-do attitude, which I’m again proud to say is a norm rather than an exception in Estonia.
So, what is Estonia?
Estonia is a place for independent minds. A country that is on a human scale, yet extends beyond its borders. In Estonia everything happens fast, nothing is physically far away. Estonia is the most integrated Nordic country and also the world’s first country to function as a digital service. That is - almost anything can be done digitally - to register a company online, digitally sign and exchange encrypted documents, conduct secure online bank transfers, and make tax declarations electronically. Doing things digitally has become an integral part of our everyday lives.
Last year in May, at an Estonian tech and startup conference called Latitude59, His Excellency the Duke of York Prince Andrew, an American venture capital investor Tim Draper and myself were asked to pitch for our countries in just one minute. This was a very inspiring exercise that made us realise that in a globalised world such as we live in, countries will need to compete (and are already competing) for citizens and businesses. Just like companies are competing for customers. Estonia has over the 25 years since regaining its independence made significant progress to offer its people and businesses the most hassle free and advanced digital societies in the whole world. And this is not just talk - World Bank’s last year’s global development report confirms the same and according to Freedom House, Estonia ranks as number one in Internet Freedom in the world.
Estonian startup scene is a working home for thousands of highly paid people from around the world. These companies are creating real economic value and growth contribution, even if they are still only starting. Our government has been keen to do all we can to make Estonia a better place to start and grow innovative companies – and change the world. Not to wait in public offices to submit official documents to the government – we have online services for that. In Estonia, contracts within as well as between companies, with employees or customers are signed digitally no matter the physical location. Starting a company and running a business can be fully digitally handled.
We are determined to reduce time spent on red tape, create a hassle free and zero-bureaucracy environment for businesses. And we aim to work with private sector (like banks) to connect digital platforms more widely and reach a real-time economy, where all transactions happen instantly between all economic actors, not just with the state. Even global companies like Uber are developing solutions together with our state agencies to help their stakeholders report their income automatically, properly and transparently.
In fact, we have estimated that by signing anything and everything digitally (due to time saved), the efficiency gain of the whole economy is worth at least 2%. This is real economic benefit and growth contribution right there. Imagine if we saved more than 2% of GDP everywhere in Europe by using digital signatures? We already have various digital identities in EU countries and all we really need to do, is make them universally accepted and start using them – at home and cross-border.
Or imagine the possibilities of efficiency-gain and new service innovation if free flow of data and information would be the 5th fundamental freedom in the EU – next to free movement of goods, services, capital, people that underpin the Single Market? You would be able to reuse and share data collected by private companies or government about you, even make money on it yourself. It would greatly boost the innovation potential of Europe and our start-ups, as product development and go-to-market would be in Europe the fastest in the world. Another aspect of the free flow of data would be to apply the once-only principles on the EU level. To be able to not re-submit data again to get public services when moving to a different country to live or to work.
In addition to attractive business environment, there is yet another way how digital solutions support growth. Efficiency gains do not just fall to companies and people. Digital government means more efficient public service delivery and more effective governance. This was the very pragmatic reason why Estonia started going digital two decades ago.
In Estonia, we are able to deliver better value for less money by relying on digital means, both in back office and frontline of public administration. Digital governance contributes a great deal to fiscal prudence. We have the lowest sovereign debt burden among EU countries, around 10% of GDP. This means that we can spend tax incomes euros on growth initiatives, not for paying back old debts.
Not to mention that digital tax collection has made Estonian tax system the most efficient one (in terms of tax revenue collected per unit of cost) in OECD. So, doing things digitally has allowed our government to keep reducing the taxes to support growth in the economy.
We are often asked, how has all that digital development been possible: what has been the policy? I have always said that first you need the political will. There needs to be leadership to do things differently and take risks with trying out new solutions. Technology is only an instrument, it’s the transformation of government with technology what matters - to redesign processes around technology and across agencies.
Estonia as a country runs a governmental start-up of its own called the e-Residency. This programme is an example of further economic boost that digital can bring – creation of wholly new markets and niches, products and services.
We launched e-Residency in order to make the Estonian economy bigger – at least in the digital realm. Basically, we created a platform for companies to come up with new services for users they never had before – we created a new market. This means new income, more growth, more jobs for Estonia. As a governmental start-up, e-Residency has been in public beta phase. It means that we work iteratively with our users, with the private sector and government agencies to improve the initial services and launch new ones.
Until late, you could only access the great Estonian digital services as a resident of Estonia – because that was the only way you could get our digital ID. From December 2014, we opened our services up to a wider user base. Now anyone in the world can apply for Estonian government-issued digital ID and get access to digital signing, online banking, digital services for establishing and running their companies. With the benefit of digital services that Estonian government and our private partners offer, e-Residents can run their transnational business in a hassle-free and trusted way from wherever they are in the world. There are more than 17,500 e-Residency applications from 133 countries. They have already established close to 1,300 new companies in Estonia, running them fully digitally.
Dear FinTech enthusiasts,
The reason I’m bringing the example of my country here today is to illustrate the efficiency gain that can be achieved by redesigning processes, digitising and automating them. By using business intelligence and predictive capabilities - by using technology. There are so many industries (and not too many countries) that have gone through it already, at the same time there are number of fields (and countries) that are yet to receive the ‘Tech’ treatment.
The disturbance known as FinTech of the financial and payment industries has resulted in global investments skyrocketing within the past year. The whole industry, a great number of international companies are willing to invest in technology to make financial systems more efficient, also more predictable. To me, the similarities with my country’s pursuit in thinking outside of the box and are obvious. In creating service models that could avoid the structural formalities to better serve the needs of the people and businesses we create value.
FinTech has impacted us all in numerous ways, but most of all, it has changed how we do business. Gone is the need to secure a loan for any business idea - these days, anyone can pitch an idea onto crowdsourcing site or find a loan from a peer-to-peer lending site. Also, accepting multiple forms of payments, electronically or on mobile devices from customers - no matter where they live and without transaction fees - allows businesses to participate in the global market. Digital wallets, peer-to-peer payments opportunities and cryptocurrencies built on blockchain are decentralized payment systems that allow anyone to transfer funds securely from anywhere in the world. Unburdened by regulators or legacy IT systems FinTech companies are able to offer reduced costs and improved services for their customers.
While FinTech is not likely to fully replace traditional financial institutions, these startups and businesses are disrupting the industry by providing a better consumer experience, enabling more effective tracking and monitoring of budgets, and making it easier to secure loans. All for the purpose of growing the business, offering more jobs and value.
Today, RegTech as an emerging concept in financial services is gaining momentum. A paradigm shift similar to FinTech will facilitate the delivery of regulatory requirements or compliance obligations. The adoption of new technology such as cloud computing, big data, and blockchain is yet to make compliance and regulatory-related activities easier, faster, more efficient to monitor and more complete. Offering strategic opportunities that will help companies successfully execute their business models in the context of a safe and sound global financial system, develop advanced data analytics capabilities, and reduce the cost of compliance in financial services.
History shows that for any innovations to be successful they must fully be supported by governments and regulators. With RegTech, the UK is taking the lead and is encouraging the rest of the world to follow suit. Already in 2015, two of the UK’s primary financial regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), announced they would support the widespread adoption of RegTech. I am happy to say that Estonian Financial Supervisory Authority (FSA) has also initiated a FinTech working group at the FSA touching also upon the realms of RegTech.
As an eternal optimist and a true fan of innovative solutions, I am convinced these technologies will extend beyond the financial or regulatory sectors. With blockchain, secure and transparent exchanges can and will be used for other assets like property, vehicles or even diamonds. There are endless possibilities the way technology will impact the everyday lives of us all. It will change the way we live and work, consume, communicate and learn, get medical treatment or take time off. And all this will fortunately enough happen within the very immediate future.
Ladies and Gentlemen,
Today’s Conference will be agenda-setting. People taking the stage after me will tackle issues in the fintech space ranging from legal matters, political impact, introduction of new technologies and transformation of market leaders. I wanted to talk about the mindset and innovations of my country for inspiration and maybe even a lesson-learnt. To tell you that when bright ideas meet a can-do attitude anything is possible.