Lithuania Keeps On Growing As Payments Hub, As De-Risking Remains A Problem

July 11, 2022
Lithuanian payments and electronic money institutions had almost 10m customers in 2021, with revenues growing 3.5 times as the country tries to grapple with the size and knock-on effects of its burgeoning sector.

Lithuanian payments and electronic money institutions (EMIs) had almost 10m customers in 2021, with revenues growing 3.5 times as the country tries to grapple with the size and knock-on effects of its burgeoning sector.

The Bank of Lithuania has published the audited data of payments and EMI sector in 2021.

The data reveals that the number of EMIs and PIs operating in Lithuania grew by 7 percent in 2021 to 141 (87 EMIs and 54 payments institutions).

“Our aim is to strengthen risk management and compliance in the sector which underlies fintech and to ensure that business development grows only in tandem with compliance maturity,” said Dovilė Arlauskaitė, head of the financial supervisor’s payments division.

Arlauskaitė continued to add that the central bank is working hard on this issue in cooperation with market participants.

“Our joint efforts translate into analyses and recommendations that help to strengthen the sector.”

With a significant increase in the volume of activities of the sector’s institutions, the Bank of Lithuania has focused its auditing work on monitoring compliance with anti-money laundering and counter-terrorist financing (AML/CTF) requirements, protection of equity capital and customer funds, internal control requirements and strengthening compliance.

Highlighting this supervisory focus, this data comes as the Bank of Lithuania announces that it has fined NIUM EU, an EMI, for improperly storing customer funds and providing incorrect information.

EMI regulation in the EU outlines that institutions must separate the funds of their customers from their own funds, and store them in a separate account.

NIUM EU, according to the central bank, kept its customers', as well as its own, funds in a payment account intended for receiving and storing customer funds and making payments.

For this violation of the aforementioned law, the company has been fined €10,000 and has now become compliant with the regulatory requirements as well.

Inspections and sanctions

Last year, the central bank said it carried out more than 30 inspections, sectoral analyses or visits.

Meanwhile, 18 sanctions were imposed for infringements of legislation and more than half of all customer complaints received by the Bank of Lithuania were related to payment services provided by EMIs and PIs.

The most common issues were linked to account restrictions and termination of business relations due to the application of AML/CTF requirements.

Complaints were also received due to the high commissions applicable to a payment account and the refusal of a market participant to open an account.

This is likely to be what spurred the Bank of Lithuania’s investigation into the issue of de-risking in 2021, with the central bank issuing a survey on how best to compromise between financial inclusion policy and tightened AML measures.

The numbers

By the end of 2021, EMIs and PIs had nearly 10m active customers, of which only 370,000 were Lithuanian residents.

The largest turnover of payment transactions was generated by payments made by legal entities, while payments between Lithuania and EU countries — predominantly Ireland and Germany, as well as the UK — dominated in terms of the value of payment transactions.

Payments carried out by EMIs and PIs accounted for 40 percent of total credit transfers, and direct debit and card payments in the country.

When broken down in terms of their primary business operations, a third of EMIs and PIs specialised in payment instrument issuance and incoming payment processing services.

Meanwhile, open banking services, such as payment initiation services (PIS) and account information services (AIS) also proved increasingly popular in the Baltic state, according to the central bank.

At the end of 2021, the overall value of payment transactions for EMIs and PIs amounted to €194.7bn, up 3.8 times year-on-year, and revenues from licensed activities increased 3.5 times, totalling €502.1m. A total of 92 percent of these revenues were generated by EMIs and 8 percent by payment institutions.

According to the Bank of Lithuania, interest in obtaining an EMI or PI licence remains strong. For example, approximately 60 potential market participants contacted the Bank of Lithuania and expressed an interest in such licences, with the greatest interest coming from companies that operate in the UK and the US.

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