Lithuania is one of the latest countries joining the fintech revolution. Why is fintech important for the Bank of Lithuania?
The Central Bank is responsible for the financial market development, thus we decided to roll out the red carpet for new entrants to inspire competition in the financial sector, where 90% of the market is controlled by three main Scandinavian banks: SEB, Swedbank and DNB. In their domestic markets, these banks were very innovative and at the forefront of providing ingenious consumer products.
However, there were no competitive threats to the incumbents in Lithuania, so they did not have to invest in innovation and improvements here. We realized that the ultimate key to stimulating competition and challenge established norms lies in the collaboration with new market entrants and reducing market entry barriers for fintech companies.
Moreover, we had to change the paradigm of a small market (Lithuania`s population stands below 3 million). For this purpose, we adjusted the KYC regulation (similar to Germany) in order to allow remote identification of customers. Now fintech companies have access to 450 million consumers since they can remotely onboard them from all over Europe.
Many financial technology companies are making Lithuania one of their target countries, as it offers an innovation-friendly space. What are the advantages for fintech companies that choose to set up in Lithuania?
We aim at providing the best conditions for the development of financial technologies while ensuring beneficial environment for the entire Nordic-Baltic region.
The ground-breaking new companies are nowadays looking at providing ease of use and a fast user experience of the same products, at a better standard. Thus, we decided to provide a better user experience from a regulator to the same regulated firms.
The ultimate goal is to cut the cost and time until the product reaches the market. If it is a startup, the ultimate goal for them is to get through the licensing process as fast as possible (within 3 months of submission of proper documents) and to start providing services and generating income (this can only happen if the application is done properly and if no impediments occur during the licensing process). Therefore, the licensing time is essential for these firms. We have optimized our licensing process - without cutting any corners - to make sure there are no backlogs or bottlenecks throughout the process.
As the latest add-on to the advantage package, the Bank of Lithuania has expanded the functionalities of its CENTROlink payment system to become one of the first locations in Europe where payment service providers can offer instant payments to their clients. This cutting-edge innovation will allow payments to be executed 24/7 throughout the year on weekdays and holidays, with funds credited instantly. Both domestic and foreign payment service providers are showing keen interest in what CENTROlink can offer.
Currently, several payment service providers are using CENTROlink services, including Citadele, Medicinos bankas, Šiauliu Bankas, and various credit unions. Participants of the non-bank sector – Contis Group, Elektroniniu mokejimu agentura, Paysera, Perlo paslaugos, Revolut, among others – can also access them through the Bank of Lithuania infrastructure.
The Bank of Lithuania has already received significant interest from FinTech companies across the globe. Who is already there and what is in their scope?
We have been experiencing significant interest from market players abroad; in particular, investors from Israel (Simplex, Moneta), Germany, China (IBS, which is in the process of technical testing), Singapore (InstaReM), UK (Contis Group), Poland, Middle East (Devera), Revolut (now seeking to obtain a European banking license and expand its app-based bank to new markets), and other countries are interested in specialized banking licenses.
Primarily, these firms are providing cross-border payments, peer-to-peer payments, as well as integrator services to other fintech companies to process payments on their behalf (Contis, for instance). All of these new entrants are now looking forward to the next step - credit, consumer loans, asset management, and crowdfunding. What they are all looking for is the backbone to Europe, to have access to the European market.
This summer the three largest mobile operators in Lithuania got permission from the European Commission to create a common platform for a mobile payments service. Could you elaborate a bit more on this project and its benefits for consumers and merchants?
The Bank of Lithuania reviewed the state of affairs on the payments market in the country and we came up with a national action plan on how to make it more competitive. One of the goals was to look for a national champion, a domestic scheme development like in Norway or Denmark.
Lithuania is the first country in the world where competing mobile operators have joined forces to create a payments system convenient for consumers. We had an initial discussion with these three mobile operators (Bite, Tele2, and Telia Lietuva) and it so appears that they see a benefit of jointly launching that product – a consumer e-wallet which will allow settlement of payments consumer-to-consumer.
The consumer-to-business settlement is to be implemented in the near future. At this point, the joint venture is having intensive conversations with the major retailers. The payment system is to be launched at the end of 2017 or the beginning of 2018.
The PSD2 is currently the hot topic across the payments industry in Europe. How is Bank of Lithuania preparing for PSD2?
In 2016, we made a strategic decision to create technical access to the Bank of Lithuania payment infrastructure for non-banking sector companies planning to offer payment services (now we collaborate with several non-banks such as Contis Group and Revolut). This is a general change in the central banking community, that understood that it is imperative to expand access rights to the market players. We were the first in the EU to grant non-bank payment service providers the technical access to the country’s payment, followed by the Bank of England.
We are heavily involved in the PSD2 legislation process and are in constant consultation with the market. The current draft of the transposition law of PSD2 is at the Government discussion stage and will soon be sent out to the parliament. The Bank of Lithuania has taken a very active role as a regulator, thus we issued a code of good practices for payment initiation services, with essential bullet points that firms providing payment services are supposed to follow.
We are also leading the discussion with the market regarding technical standards. EBA will only provide the principles and then the technical side is to be developed. Moreover, we are closely observing the Berlin Group developments and we will try to will align more broadly with the Baltics and Scandinavia.
About Marius Jurgilas
Marius Jurgilas worked as Researcher at the European Central Bank, Economist at the central banks of Norway and England, and gained academic experience in the US. As Member of the Board of the Bank of Lithuania, he is in charge of payment services and their development, fintech, research and cash, as well as units performing related functions. To address related issues, he participates in meetings of the ECB Governing Council and committees, scientific conferences, as well as represents the central bank of the Republic of Lithuania at various international economic fora and organisations.
About The Bank of Lithuania
The Bank of Lithuania, together with the European Central Bank and the central banks of EU Member States, tackle key financial and economic issues, represent Lithuania in the International Monetary Fund, maintain close relationship with the Economic and Financial Affairs Council and the European Commission, as well as actively participate in negotiations over Lithuania’s accession to the Organisation for Economic Cooperation and Development.
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