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| The Fintech Landscape in Lithuania 2020-2021 Invest Lithuania |
If you’ve been following the news about Wirecard, you know Munich prosecutors are reportedly investigating a Euro 100 million transfer through UAB Finolita Lithuania on the suspicion that the some or all of the proceeds were transferred to Jan Marsalek, Wirecard’s fugitive Board member and CFO.
You should note and, if you haven’t, I will emphasize that there is apparently an ongoing investigation but no charges have yet been filed, nor judicial judgments issued.
As usual, the FT is keeping a close eye on developments. You are likely to find them a good source of information.
Members of the Bundestag and at least one Lithuanian (opposition) politician have criticized the Central Bank of Lithuania’s alleged “lax enforcement” and “failure to act” against Finolita.
The CBOL have vigorously rebuffed this charge.
At this stage it is premature to pronounce in favor of either of these two positions.
What we can do, however, is take a closer look at Lithuania’s non banks share of payment activity.
To see what sort of activity is taking place and assess regulatory and other risks on a macro basis.
To start, let's set the 'scene".
As of year end 2020 Lithuania’s population was 2.8 million. As of May the estimate is 2.7 million.
2020 (estimated) GDP is some USD 55 billion which places it 80th in the world.
Per the CBOL’s 2020 annual review of banking activity as of 1 January 2021, there were 11 locally incorporated banks and 6 foreign branches operating in the country.
Despite the number of banks, the market is highly concentrated.
Two locally incorporated Swedish-owned banks (Swedbank and SEB) controlled 64% of banking assets in the country.
Luminor Bank (DNB/Nordea) was the largest foreign branch.
Total banking sector assets were some Euros 37 billion as of FYE 2020.
According to a 2019 EBF study based on FYE 2018 financials Lithuania ranked 26th out of the 28 states in the EU-28. In the EU (Euro area), it was 17th.
So relatively small beer. Not a lot of prospects to expand its commercial banking sector.
A small population, modest-sized economy, and a high level of banking concentration.
How to grow the economy?.
In 2016 Lithuania decided to aggressively pitch itself as a “fintech” center in Europe, launching a global campaign to build on prior years’ success in attracting fintechs..
It touted its multilingual, talented work force, quality of life, low taxes, low cost of living, and its “fintech friendly regulations and infrastructure”. The latter point was mentioned by 63% of respondents to a 2020 fintech survey.
In conformity with EU laws the CBOL issues Payment Institution (PI), Electronic Money Institution, (EMI) and Specialized Bank (SPB) licenses.
A PI may not hold customer funds on deposit. It makes “instant” payments.
An EMI may hold customer funds (legally not a deposit) but rather in the form of electronic money and make payments similar to a PI or issue payment instruments (prepaid cards, phone apps, etc) that allow a client to make a payment.
Note an EMI does not issue or transact in virtual or cryptocurrencies.
Another key selling point was that the CBOL allows fintechs with PI and EMI licenses to make and receive payments through Centrolink—the CBOL’s payment system linked to the SEPA (Single Euro Payments Area).
My wiser, elder brother suggested that I not presume that readers know what SEPA payments are. "Wise" advice. Quick summary. SEPA is similar to the USA's ACH (Automated Clearing House) and the UK's BACS (Bank Automated Clearing System).
Note SEPA still provides a channel for illicit activity as I hope my comment makes clear.
This is a major selling point as it gives these non bank entities access to the 36 SEPA countries, that is beyond the EU.
We will look at this topic in more detail in the next post.
By the end of 2020, Lithuania had achieved remarkable success. It has attracted a wide variety of fintechs, including major names.
For more details download the 2020-2021 The Fintech Landscape in Lithuania from the Invest Lithuania site here.
230 fintech companies were operating in the country.
Roughly 50% have payment licenses.
Prior to Brexit Lithuania ranked #2 in the EU by the number of PI, EMI, and SPB licenses it had issued as per the graphic above.
After Brexit, it is now #1.
Think of that for a moment.
More than Germany (77), France (76), Netherlands (66), and Sweden (49).
And unlike those countries, Lithuania has a preponderance of EMI licenses.
The CBOL’s report on 2020 PI and EMI activity won’t be available until some time in July.
So we’ll have to make-do with the 2019 report.
That report discloses that in 2019 12 PI and 6 EMI licensees were restricted to payments within Lithuania and subject to caps on the amount of permitted transactions.
You will also find details there on income, market share, destination of payments, and the types of payments – cash deposits and withdrawals, automated payments, etc.
In the next post we'll look at the share of Centrolink activity by the PI/EMI sector.
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1 comment:
As noted above, my wiser and elder brother suggested that i not presume that readers know what SEPA is.
So here are some additional details.
SEPA is similar to the USA’s ACH (Automated Clearing House) or the UK's BACS (Bankers Automated Clearing Service).
ACH and BACS were designed to reduce the cost of bank payments within the USA and the UK respectively, compared to a "normal" bank transfer. A very rough estimate is 10% of the bank cost.
ACH, BACS, and SEPA provide for recurring and occasional or one-off transactions
Direct Deposits, e.g, salaries, pensions, occasional medical claims payments, etc.
Direct Debits, e.g., payment of medical insurance premiums, occasional customer authorized debits. For these the owner of the account authorizes the provider of a service to automatically debit the owner’s account.
ACH transactions are also used to make funds transfers similar to those conducted through banks. Primarily B2B payments, e.g., payment of vendors and suppliers, etc.
ACH has two types of payment: (1) an ACH Same Day transfer and (2) an ACH Transfer , As implied the former is “completed” the same day it is released. The latter in 2 to 3 days.
ACH has a single transaction limit of US $100,000 for each separate ACH Same Day Transfer. This will increase to US $1,000,000 next year..
The maximum limit for a non same day ACH Transfer is US $3,500,000.
Like ACH SEPA has two types of transfer: SEPA Immediate Credit Transfer (within 10 seconds) and a SEPA Credit Transfer (the sender of the payment can specify the completion time up to 4 or 5 days).
The limit for a SEPA Immediate Credit Transfer is Euros 100,000.
The limit for a SEPA Credit Transfer is one Euro cent less than Euros 1 billion.
NOTE: The above are the system maximum limits. Each bank has the right to set the limit on an individual customer based on its own criteria.
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