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Raiffeisen’s Hungarian branch has reportedly pulled back from its partnership with Revolut; meanwhile, pressure mounts on the neobank to establish itself in the central European country despite its Lithuanian licence.
Earlier in February, local media reported that Raiffeisen had ended its Hungarian banking partnership with Revolut following a risk assessment.
By ending its partnership, Revolut has effectively been shut out of the country’s payments system.
To provide its services in forint, Revolut maintained an electronic money account with Raiffeisen, enabling its users to send local currency to their Revolut account without a fee.
The move leaves Hungarian customers without the option to hold their funds in a Hungarian bank account and instead said they will be offered Lithuanian accounts.
Revolut said users will continue to be able to keep their savings and make payments in the local currency of forint, but managing a Lithuanian bank account could be more cumbersome for Hungarian users, Gergely Szalóki, a partner at Schoenherr law firm in Hungary, said.
For instance, payments from a Lithuanian bank account could bear higher costs and take longer and some employers may refuse to pay wages to a foreign bank account.
Too big to passport
At present, Revolut relies on its Lithuanian licence and the EU’s passporting regime to perform services in Hungary and elsewhere in the European Union.
The firm obtained a specialised bank licence in Lithuania in 2018 that allows Revolut Bank to provide limited banking services in the EU via the Revolut app. This was later extended to a full banking licence, granted by the European Central Bank last December.
When entering the Hungarian market, the neobank initially started with payment services, before announcing plans to expand to lending and collecting deposits in September 2021.
The Hungarian National Bank (MNB) warned the public at the time that Revolut could pose risks to financial stability and urged it to seek a Hungarian banking licence.
The central bank believes the fintech company's significant growth in Hungary, with the firm boasting 18m users, including more than half a million account holders, in the country, poses financial stability risks.
In addition to the financial stability risks, the MNB warned, Lithuanian consumer protection rules do not give Revolut customers the same level of protection as the Hungarian law would; however, the hands of the MNB are tied in that regard.
As the passporting regime formally enables Revolut to offer its services everywhere in the EU, the MNB is only able to raise awareness in the public concerning the potential risks and urge the company to set up a Hungarian bank subsidiary and seek a licence from the MNB.
The MNB believes it is “crucial” that Revolut operates as an independent subsidiary in Hungary to protect the interests of “hundreds of thousands of Hungarian customers” and to enable the central bank to carry out continuous prudential oversight of Revolut, the central bank told VIXIO.
Access to Hungarian payments system
To carry out payments activities, a fintech company generally does not need to set up a subsidiary and apply for a licence in the host country.
The EU passporting regime authorises Revolut to provide its services in Hungary through partnerships with banks that deposit customer funds on its behalf.
The fintech could now either strike a new agreement with another bank or seek access to the MNB’s payment system as a direct participant.
Revolut has confirmed to VIXIO it is planning to join the Hungarian payment systems as a direct participant and “is currently engaging with the authorities to evaluate the best way forward for this”.
However, it is a question of whether the MNB would grant such an application under the current circumstances, Szalóki stressed.
The termination of the partnership with Raiffeisen has certainly had an uncomfortable impact on Revolut, but the fintech has still no legal obligation to obtain a Hungarian banking licence, he added. Hungarian regulations do not require having a banking licence to apply for payments access.
Nonetheless, the central bank added: “The MNB continues to have significant concerns about customer protection, which have not been affected by the current developments.
“The termination of this contract, and its circumstances, strengthen the need for the MNB to be able to carry out the prudential supervision of Revolut Bank.”
