Innovations – an integral part of Latvia’s financial sector

For multiple years running, the insurance and credit institution sectors have led the way as the most active adopters of innovative solutions. These sectors demonstrate exceptional flexibility and a strong commitment to adapt their services to meet the changing digital demands of their customers.

Survey data indicate a growing interest among companies in establishing internal innovation teams – dedicated structural units responsible for identifying, testing, and implementing new technological solutions within the company. This trend is particularly significant, as it reflects a strategic approach to innovation management rather than the ad hoc implementation of individual solutions. Innovations are no longer just a technological choice – they are becoming an integral part of corporate culture.

In 2025, 34 market participants reported having established dedicated innovation teams within their organisations to explore or implement innovative financial technology solutions. This suggests that in 2025, the spread of innovations within Latvia's financial sector has reached a qualitatively new level – not only is the number of companies adopting innovative solutions growing, but there is also a marked increase in their commitment to systematically develop these innovations.

From a technology perspective, the most significant growth in 2025 compared to 2024 was observed in the use of artificial intelligence, digital platforms, and instant payments.

Types of financial technology solutions

The survey was based on the framework of the European Forum for Innovation Facilitators, which classifies innovations into four pillars: innovative business models, new and innovative processes, new and innovative technological applications, and new and innovative products.

Innovative business models

The 2025 survey results reveal a significant strengthening of the trend towards adopting new and innovative business models within Latvia's financial sector. Companies are increasingly reassessing their traditional operating principles, adopting more flexible approaches tailored to customer behaviours. For several consecutive years, insurance services leveraging technology have consistently maintained their leadership position. Meanwhile, in 2025, open finance emerged as the second most popular business model among market participants.

Survey results reveal that business model innovations are increasingly driven not only by cost optimisation but also by the goal of delivering greater value to customers and strengthening long-term competitive advantage of companies.

Innovative processes

In 2025, process innovations remain a central focus and one of the most critical drivers of advancement within the financial sector. Companies are ramping up automation efforts across internal and external processes to drive cost reduction, boost efficiency, and accelerate the speed of service delivery. Process automation has emerged as a key driver in boosting efficiency. Most companies use cloud services to achieve greater flexibility and efficiency in managing their IT resources.

Compared to 2024, the leading three innovative processes used by market participants have remained unchanged. These include artificial intelligence, cloud-based services, as well as digital customer acquisition.

Innovative technological applications

Technological applications are increasingly recognised not merely as support functions but as essential components of a company's strategic infrastructure, empowering efficient and swift responses to customer needs and market demands.

The market is currently experiencing a surge in the use of instant payments. API technology has become an industry standard – companies use APIs not only for data exchange with partners but also to optimise integration and collaboration within internal systems across diverse platforms. The use of chatbots and digital platforms is also on the rise.

Innovative products

This product segment remains consistently led by four products – on-demand insurance, parametric insurance, the pension tracking system, and telematics-based insurance – predominantly delivered by the insurance sector and credit institutions. On-demand insurance remains the most widely offered product, with the pension tracking system ranking as the second most prevalent.

Artificial intelligence is swiftly gaining ground across companies

Artificial intelligence solutions are making a remarkable breakthrough in Latvia's financial sector. While artificial intelligence solutions were primarily mentioned as a promising area in 2021 and 2022, they are now being used by a significant number of market participants. In 2025, the number of market participants using artificial intelligence solutions has doubled year on year. All market segments have started using these technologies to varying degrees. Analysis of the past two years' results reveals that representatives from every segment of the financial market have started utilising artificial intelligence in their operations.

Artificial intelligence solutions are primarily employed to perform daily operations – examples include tools like ChatGPT and Copilot – and are also applied in marketing, customer service, product design and development. Certain market participants use artificial intelligence tools to forecast shifts in investment strategies, prevent fraud, monitor transactions, and perform credit scoring.

The rising popularity of artificial intelligence solutions stems from greater accessibility and ongoing technological advancements – making these tools easier to implement, more widely available, and increasingly comprehensible for medium-sized enterprises.

In 2025, participants in Latvia's financial market reported substantial practical benefits from integrating artificial intelligence solutions into their processes and services. The most significant benefits identified encompass process automation, enhanced productivity, accelerated processing speed, and optimised resource utilisation. Companies report that the use of artificial intelligence technologies has markedly enhanced operational efficiency while driving significant cost reductions. Artificial intelligence's analytical capabilities empower companies to analyse customer data more effectively and tailor personalised offers, ultimately boosting customer acquisition and loyalty.

Overall, market participants affirm that investments in artificial intelligence technologies have yielded tangible, measurable benefits, directly and positively enhancing their companies' competitiveness and sustainability.

Naturally, to safeguard data security and privacy when using artificial intelligence solutions, market participants implement several measures. Companies are progressively using data encryption technologies to safeguard sensitive information against unauthorised access. Increasingly, companies prioritise employee training on data security to guarantee the responsible and compliant handling of customer and corporate data. Many companies have introduced robust access control systems that meticulously regulate permissions, ensuring only authorised personnel can access data and algorithm management.

The introduction of artificial intelligence in the financial sector unlocks extensive opportunities to boost efficiency and deliver personalised services. At the same time, it also introduces critical challenges concerning data security, management, and transparency. The 2025 survey results unequivocally show that companies are treating this issue with utmost seriousness and are pursuing practical solutions.

Overall, companies stress that investing in data security and management has become an essential pillar of strategic risk management when implementing artificial intelligence.

Obstacles

While the adoption of innovation and artificial intelligence advances, 39 companies surveyed in 2025 reported encountering obstacles that impede or complicate the introduction of innovative solutions. These obstacles have consistently recurred over the years, with their root causes being predominantly structural in nature. This suggests that while technological readiness is on the rise, the environment has not yet fully adjusted to accommodate the broad implementation of innovations. The majority of company representatives pointed to a shortage of staff dedicated to innovation development, while entrepreneurs highlighted regulatory burdens that impede further innovation advancement.

Risks and challenges associated with innovation implementation

One of the risks in implementing innovations is achieving technology compatibility while addressing the complexities of legacy IT system integration. Numerous companies continue to rely on platforms that lack compatibility with contemporary API architectures or artificial intelligence solutions. This significantly complicates innovation integration and drives up development costs. These challenges tend to be more pronounced in larger companies with a longstanding operational history.

Another critical factor involves constraints on financial and human resources. The implementation of new solutions hinges on the engagement of qualified professionals and the availability of investments. Latvia is still experiencing significant demand for FinTech specialists, yet the labour market remains insufficiently equipped to satisfy this demand. Businesses frequently face competition from global players in attracting and retaining the same highly sought-after talent. At the same time, access to financing continues to be restricted, especially for small businesses.

Another risk involves challenges related to data security and regulatory compliance. Innovative solutions often outpace legislation, creating uncertainty around the technical and procedural standards that need to be followed. This issue is particularly pronounced in the implementation of artificial intelligence solutions, where risks are related not only to data protection, but also to issues of ethics and transparency.

Innovation development over the past five years

During the past five years, innovation development within Latvia's financial and capital markets has exibited a decisive shift from small-scale projects to extensively integrated technological transformations. Since 2021, the number of companies using innovative solutions has surged significantly, increasing from 44 to 102 this year. These developments underscore the fact that innovations have become an enduring element of business practices.

During this period, the qualitative dimensions of innovations have undergone significant transformation. While initial efforts focused primarily on basic digitisation and enhancing customer self-service, an increasing number of companies are now integrating artificial intelligence, automation, and data analytics into their daily operations. Similarly, the number of companies establishing specialised innovation teams or dedicated laboratories focused on technology adaptation and development has also grown.

A further noteworthy trend is the convergence across sectors: while insurers and banks led innovation efforts in 2021, today, virtually all market participants are embracing innovative solutions. These indicators demonstrate that implementing innovations has evolved from a mere competitive advantage into an essential necessity – driven especially by customer demand for swift, flexible, and transparent services.

Future outlook

Drawing on the outcomes of the last five years, it is anticipated that Latvia's financial market will increasingly focus on the following areas in the years ahead:

1. responsible integration of artificial intelligence – transparency, security, and ethical considerations will become as crucial as efficiency;
2. data-driven decision-making – personalised services and analysis of customer behaviour will develop;
3. platform economics – an increasing number of services will be integrated into unified ecosystems;
4. collaboration with startups – major players will seek partners to develop more flexible solutions;
5. green innovations – solutions will be developed to help companies adapt to ESG and sustainability requirements.

Conclusion

Over the past five years, Latvia's financial market has undergone a profound technological maturation. Innovations are no longer just a story about technologies – they have become a narrative about strategy, partnerships, security, and public trust. While discussions in 2021 focused on the potential of innovations, in 2025 it is appropriate to recognise innovations as established reality.