Innovative technologies in the Latvian financial sector: tendencies in 2024

AI grows among top innovative technologies

As of 2024, the leading technologies in the Latvian financial sector include application programming interfaces (APIs), utilised by 59 market participants, and cloud solutions and digital customer onboarding, both employed by 46 market participants. Additionally, 19 market participants use biometric solutions.

The number of companies using artificial intelligence (AI) solutions has more than doubled compared to the previous year, increasing from 14 respondents in 2023 to 34 in 2024.

The frontliners in AI adoption are the insurance sector, investment firms, and investment management companies.

However, there are still 144 market participants that are not using AI in their activities, but 73 of them are planning to use AI in the future. The areas where market participants foresee the benefits of AI usage include increasing efficiency, managing insurance claims, risk review and pricing, marketing and sales, product design, and improvements in customer service. Almost all market participants who use AI indicated that they are using ChatGPT to improve existing business processes.

Among the benefits of using AI, market participants mentioned increasing efficiency and productivity. Companies also noted that AI optimises resources and improves process automation in daily activities.

Adopting AI solutions in business operations involves challenges and requires actions in data protection and security. According to the survey, market participants have arranged training sessions for employees, introduced additional security measures against malware, implemented data encryption, established secure channels for information exchange, included confidentiality clauses, and enhanced user rights management and controls.

European Forum for Innovation Facilitators framework

The survey on the adoption of innovations in the financial market was conducted using the European Forum for Innovation Facilitators (EFIF) framework. This framework classifies innovation into four pillars: innovative business models, innovative processes, innovative products, and innovative technologies.

Innovative business models

According to the survey results, Latvian financial market participants are using innovations to construct their business models, particularly in the insurance sector (18 participants).

Credit institutions, crowdfunding service providers, and investment firms are focusing on integrating open banking solutions into their business models.

Almost all market segments use solutions provided by BigTech companies (Google, Amazon, Facebook, Microsoft) to enhance the efficiency of their business models and processes.

The analysis of the survey data shows that a wide range of market participants are focused on implementing "green tech" solutions into their business models, which involves integrating and evaluating sustainability impacts and ESG aspects. This is mainly done by credit institutions and insurance sector participants.

Innovative processes

Regarding process innovations, market participants are most widely using digital customer onboarding. This solution is implemented by the majority of credit institutions, insurance sector participants, and investment firms

Additionally, participants are using cloud services to improve daily operations and AI solutions.

Innovative technologies

Regarding new innovative technologies, APIs are mostly used in Latvia by credit institutions (10), insurance corporations, and investment firms. Market participants also integrate digital platforms and instant payments to support business activities.

Technologies such as blockchain, robo-advisors, and smart contracts are less commonly used in the Latvian financial sector. However, chatbots are integrated into the activities of some credit institutions, insurance corporations, and investment firms.

Innovative products

Regarding product-level innovation, the survey focused on innovations such as  "on-demand or just-in-time insurance", parametric insurance, pension tracking systems, and telematics-based insurance. The most innovative product in the insurance sector is "on-demand or just-in-time insurance", which is offered by insurance corporations and brokerage services.

Challenges

The survey also covered the risks and challenges faced by financial market participants in adopting innovations. Compliance with regulatory requirements and navigating complex rules that vary by country or region were identified as major challenges. Operational risk management, including system failures, fraud, and process inefficiencies, was also highlighted as a significant risk for participants working with innovative technologies. Additionally, cybersecurity threats, attacks, and data privacy concerns were evaluated as substantial risks. Another challenge is the integration of new technologies into existing systems and infrastructures, which is often a complex task.

Market participants also noted that competition in the financial market is intense, driven by the rapid development of innovations. Maintaining customer trust and confidence while using new technologies is another challenge in the modern landscape.

The survey identified major barriers to the adoption of innovations: about 20% of market participants indicated budget limitations, 10% have not yet found effective solutions, and some participants face a lack of human resources and regulatory limitations.

In conclusion

Summarising the survey results, at least one market participant in each financial segment indicated the use of innovations in their business operations. Compared to 2023, the most significant increases in innovation usage were observed in AI, digital customer onboarding, and API interfaces. Additionally, there has been an increase in the number of companies that have introduced teams focused on innovation activities and research.

The survey identified the biggest obstacles to the development of innovations as follows: a small number of customers and employees, lack of finance, and some companies still researching the most efficient and suitable technologies.