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The amount and revenue of payment transactions executed by electronic money and payment institutions increased almost four-fold in 2021, Lithuania’s central bank has said.
Lithuania’s e-money and payments sector had another successful year in 2021, the Bank of Lithuania said in a new report.
The Baltic state, which has been positioning as a post-Brexit EU base for payment firms, is home to a number of the EU's big players, including Revolut, as well as the likes of ConnectPay and Paysera.
The central bank has said that the country currently oversees the activities of 132 entities in this field, and is processing about 30 applications for payments and e-money licences.
Revenue from licensed activities in 2021 increased 3.5 times, amounting to €504m overall. Of which, 92 percent was generated by e-money institutions.
In terms of transactions, the two sectors accumulated €195 bn worth of payments in 2021, which is 3.8 times more than the previous year.
“The electronic money and payment institutions sector continues to grow strongly. We want this growth to be sustainable and the maturity of the sector to increase,” said Dovilė Arlauskaitė, head of the Payment Market Supervision division at the Bank of Lithuania.
She continued: “Therefore, we continue to encourage companies to pay more attention and resources to such important areas as the prevention of money laundering, compliance with capital and customer protection requirements, internal control and strengthening compliance.”
The Baltic state has long established itself as a payments market leader in Europe, having pioneered a regime around its CENTROlink payments system that allows non-bank financial firms to gain direct access to central bank settlements, providing that they have the appropriate regulatory status prior.
This was an initiative taken before any other EU member state, according to the central bank.
As the UK prepared to depart the trading bloc, the Bank of Lithuania strategically kept its licensing fees relatively low compared with other national competent authorities and kept its re-authorisation process in alignment with the UK’s Financial Conduct Authority (FCA), helping to attract an influx of payment firms based in London looking for a European base.
De-risking
Lithuania’s fintech boosting activities have also made it a leader among EU nations in tackling the issue of de-risking, which the latest report touches upon.
“The position regarding the right of electronic money and payment institutions to use bank accounts opened with credit institutions remains one of the areas monitored by the Bank of Lithuania,” the central bank said.
In the fourth quarter of 2021, three notifications were received from credit institutions about the closure or restriction of payments and/or e-money accounts.
To help tackle de-risking, the central bank undertook a survey of financial institutions last year to find out why access to payment services was at risk of being undermined.
This year, it has also run a public consultation on the issue, which concluded on February 4. This looked at proposals from the Bank of Lithuania on the areas that it feels are in need of improvements.
It also gathered information on the experience of payment service providers related to the filling in or updating of know your customer (KYC) questionnaires, the provision of information requested by payment service providers and the application of other anti-money laundering/counter-terrorist financing requirements by the providers of those services.
While tackling the issue of de-risking, the central bank has also aimed to improve governance in the payments and e-money institutions that it oversees.
To increase the maturity of the sector and ensure the compliance of institutions with its requirements, the Bank of Lithuania sent a letter of expectations in February this year.
This aimed to address issues related to the implementation of business plans, the provision of licensing services, business model change, the protection of clients' funds, internal audit and internal control, risks including AML, and the management and provision of information.
This followed decisions taken in 2021 to revoke the licences of three institutions, including epayblock, to impose nine fines and to make five naming and shaming announcements following the violation of compliance rules.
Lithuania’s burgeoning payments industry has also come with the negative side effect of more suspicious transactions, as its Financial Intelligence Unit pointed out last year.
From January until September 2021, the number of suspicious transaction report (STR) notifications increased 20 times compared with the same period in 2020, while the number of requests to suspend monetary transactions almost tripled compared with the same period the previous year.
