Arnaud Castaignet, Head of Public Relations, e-Residency programme, Republic of Estonia spoke to Zoya Malik, managing editor TFT about the benefits of Estonia’s e-residency programme for fintechs
ZM: What is e-residency’s role in furthering business set up and opening up trade relations and capital flow to and from Estonia? Which businesses will it appeal to?
AC: Over the last 20 years, Estonia has made 99% of its government services available online, accessible by citizens and residents through secure, government-issued digital identities. This means almost any interaction with the state – like voting, filing tax returns and registering names of children – can be done entirely online from virtually anywhere in the world.
In addition, these same digital identities can be used to access an increasing number of private sector services such as online banking. Estonia’s digital infrastructure has continued to develop, yet the number of users who could benefit was always limited to the number of citizens and residents of the country.
In 2014, Estonia decided to provide digital identities, along with access to Estonia’s digital services, to citizens of other countries who do not have residency in Estonia. These people were called e-residents and received e-Residency digital ID cards, offering access to many of same government e-services previously only available to Estonians living in Estonia. By taking this step, the Estonian government turned citizens of countries all over the world into potential ‘users’ of Estonia’s services. The next step was to consider which Estonian services were most valuable and relevant to these e-residents, as well as how use by e-residents could bring value to Estonia. In the first four years, 50,000 foreign nationals from 165+ countries have become e-residents.
In 2014, Estonia decided to provide digital identities, along with access to Estonia’s digital services, to citizens of other countries who do not have residency in Estonia.
E-Residency connects you with Estonia and Estonian business environment. E-residents have the freedom to create and run a global, EU-company online from anywhere in the world. Estonia offers increasingly convenient ways to successfully pursue activities independently of their location. Consequently, digital entrepreneurs and freelancers selling digital services and offering cross-border IT and consultation services, location-independent entrepreneurs who could work from any location in the world and digital nomads – professionals who live and work in more than one country per year – are the people who benefit the most from e-Residency. E-Residency gives them a way to establish trusted company in Europe and remotely manage it with low overheads.
The main nationalities in terms of company creation are Ukraine, Germany, Russia, Finland and Turkey. According to local e-residents, the possibility to create an EU based company and access European single market (Ukraine, Russia, Turkey) and run their business fully online with no paperwork and bureaucracy (Germany and Finland) is their main motivation.
ZM: What is the e-residency kit?
AC: The e-Residency kit includes your digital ID card, a card reader and your 2 PIN codes which are
necessary to authenticate yourself and legally sign documents. Each e-resident must pick it up in person at an Estonian embassy.
ZM: How is the background check fulfilled for new entrants? What’s needed to satisfy authorities? How is privacy of data maintained?
AC: All applicants receive background checks by the Estonian Police and Border Guard Board, the organisation that manages the entire application process, to ensure digital identities are used by verified people with honest intentions.
Companies are registered under the Company Registration Portal with the same obligations as any other company, including submitting an annual report, the country exchanges tax-related information with more than one hundred jurisdictions in the world on the basis of the relevant OECD convention, which also means such information exchange is also available to those with whom we have no valid tax treaty.
Our digital nation depends on the trust of all its people — citizens, residents and e-residents. You cannot expect trust if the State is not transparent and accountable. If there is no citizen control of the use of personal data, citizens would be legitimately worried about their privacy. In Estonia, to ensure transparency and accountability, citizens are allowed to monitor their own privacy. They can trace anyone who has tried to access their data by logging on to the state portal, eesti.ee. Protecting the integrity of our digital identity is also a top priority.
ZM: Can fintech businesses open a bank account through e-residency?
AC: E-Residency is a government-issued digital ID. Consequently, it doesn’t provide a bank account. E-residents are enabled to conduct their business activity using any credit or payment institution across the European Economic Area.
Estonian banks tend to serve e-residents who have a business connection to Estonia and can provide a clear understanding of their business, among other considerations, and always require to have a physical meeting in Estonia. However, Estonian banks are not the only banking options for e-residents.
In fact, more than half of e-resident companies have obtained online business banking from the fintech industry. This is why we have built several partnerships with payment institutions such as Holvi and Payoneer in order to widen the choice of financial services available to e-residents. The overall trend worldwide shows that more and more global entrepreneurs chose fintech companies to access an IBAN, credit card and other financial services. Many of them actually use one of Estonia’s best success stories to access these services: Transferwise Borderless account.
ZM: What types of fintech business segments will flourish in Estonia and why?
AC: Estonia is a cashless society with over 99% of financial transactions occurring digitally. Having committed to digital financial services 20 years ago Estonia has developed unique skills and experience in the innovation and application of fintech. Estonia’s fintech journey has its roots in e-Estonia, when government, financial services and telecoms providers collaborated to create a unique environment. Digital service delivery was supported by the development of digital ID, high-speed connectivity and enabling legislation.
The overall trend worldwide shows that more and more global entrepreneurs chose fintech companies to access an IBAN, credit card and other financial services
Estonia has utilised a data exchange layer since 2001 and Blockchain in the administration since 2008. Guardtime, which developed KSI Blockchain technology used by the administration to ensure the integrity of critical data, was born and continues to have significant operations in Estonia, while Funderbeam attracts global investment and has been named the most innovative fintech startup in Europe in 2018.
In payments, Estonia has produced globally successful companies including Fortumo, award winning Monese and unicorn TransferWise, each of whom has significant R&D, engineering and 24/7, multilingual client service operations in Estonia. Whether you seek innovation, reliable engineering or an operational hub within the EU regulatory framework, Estonia is a smart, agile location for fintech businesses.
ZM: What types of fintech services will find a good fit with the e-residency model? What are incentives in 2019 to join the community?
AC: On our side, the e-Residency team will soon announce new partnerships with leading fintech companies in order to widen the banking services options for our e-residents. On January 1st, the Estonian Parliament has eliminated the requirement to use an Estonian bank when registering share capital, which means that e-residents are enable to conduct all business activity using any credit or payment institution across the European Economic Area. So, this is a very important change for our e-residents.
Estonia is a cashless society with over 99% of financial transactions occurring digitally. Having committed to digital financial services 20 years ago Estonia has developed unique skills and experience in the innovation and application of fintech
ZM: What is e-residency outlook on the growth of cryptocurrency and blockchain services over the platform?
AC: Since the inception of the programme, Blockchain entrepreneurs from around the world have been enabling their customers to access products and services through e-Residency. One thing that many of them have in common is the need to authenticate the online identities of users through a process known as KYC or ‘Know Your Customer’. Fortunately, the secure government-backed digital identities offered to e-residents means that they can be onboarded faster and at lower cost.
Among the examples of e-residents who are developing Blockchain services, I can mention Peter Ferry, an e-resident from Scotland, who launched Wallet.Services, which provides simplified tools for software developers to build applications using Blockchain technology. Their SICCAR platform, built with the Scottish Government, provides cybersecure information sharing between citizens and government. Another interesting company is Blockhive, established in 2017 by Japanese e-resident and Blockchain veteran Hikaru Kusaka, which collaborates with partners and develops blockchain strategy and technology solutions with them. Its four main businesses include a digital wallet, a cryptocurrency mining facility, a venture capital fund that invests in blockchain projects, and a new crowdfunding solution built based on Ethereum.
The fact that the Estonian government has been testing blockchain technology since 2008 shows that our country is particularly open to innovation and blockchain technology in particular. From 2012, blockchain has been in use in Estonia’s registries, such as national health, judicial, legislative, security and commercial code systems. We believe blockchain has a great potential because it can improve trust in systems and, in our case, it adds an extra layer of security.
Whether we like it or not, the world is becoming more decentralised. The development of blockchain technology should make us build new lending relationships between citizens, companies and the state. I would say it is for the best because this is one of the reasons why blockchain has such a great potential. Not only does it have the ability to remove entrenched middlemen, but it can also improve the overall transparency of our systems. Of course, coordination and openness amongst technologists, designers and citizens is necessary. However, we must not be overly optimistic about the capacity of technological innovation, on its own, to change the course of history. People always come first.