Estonia’s digital residency programme faces first headwind

Estonian banks are limiting access to banking services for companies in the country’s e-Residency programme, presenting the scheme with a significant hurdle.

The service enables non-resident entrepreneurs to set up businesses registered in Estonia. Many thousands have signed up to the programme since its launch in 2014. These companies can take advantage of Estonia’s advanced digital government services, but overcoming the hurdle with banks is its first major challenge.

Estonia is a tiny nation of 1.3 million people, but it punches above its weight when it comes to IT in government. It has pioneered e-Residency, which makes its easy, secure access to services via an ID platform available to anyone in the world interested in administering a business online.

Estonia – where services such as Skype and Transferwise were created – has done a lot to be at the forefront of modern technology adoption. It had paperless government meetings 10 years ago and about 97% of the population hold smart ID cards and use them to prove their identity when accessing online services.

So far, the e-Residency programme has been sailing with a strong headwind. It has made waves in tech media around the world, and a number of governments said they would follow its example. Estonia has so far issued more than 35,000 ID cards to e-residents from over 150 countries. Many of the early e-residents are tech-savvy entrepreneurs who are excited about being part of something new.

“You never have to visit Estonia,” e-Residency programme head Kaspar Korjus told Computer Weekly last year. This has been the promise to entrepreneurs. And rightly so, as from most target countries of the e-Residency it is a long journey to Estonia, which has direct flight connections only with European countries.

But more than three years after the programme was launched, it is still only a promise. “Everyone currently has to come to Estonia to open an Estonian bank account,” said Adam Rang, a spokesman for the e-Residency programme. 

Several e-residents have reported over the past few weeks that banks have closed down their accounts, and many have said opening an account is impossible. The banks declined to comment, referring to the privacy of its customer relationships.

While e-residents can run a company remotely and use accounts of financial technology (fintech) firms such as N26, Revolut, Transferwise and BBVA’s Holvi, registering share capital could requiires a visit to the country to open a local bank account.

“Estonian banks do still serve e-resident companies that demonstrate a ‘connection to Estonia’ and provide clear visibility of their business, among other considerations. Estonian bank LHV, for example, has opened business accounts for about 70% to 90% of e-resident applications,” said Rang.

"In cases that have been rejected, some e-residents have successfully appealed and had the decision reversed," said Rang

Other banks have not commented on how many e-residents they have opened accounts for, but with LHV working closely with the programme, the approval rate is likely the highest there.

The banks’ tightening is caused by a wave of money laundering claims in the region. Neighbouring Latvia shut down the third biggest bank in the country after money laundering accusations from US officials. 

In Estonia, the European Central Bank revoked the licence of small Versobank AS in March over failures to remedy regulatory breaches in areas such as money laundering. Two-thirds of Versobank’s 5,600 clients were non-residents. Also, Danske Bank’s Estonian business, now part of new bank Luminor, has fired a number of executives over money laundering claims. 

The e-Residency team hopes the rise of fintechs will solve the problem. “Most companies run by e-residents use banking services from fintech companies outside Estonia,” said Rang.