The Single Euro Payments Area (SEPA) is a collection of 34 countries in Europe with over half a billion customers and 23 million businesses. As far as markets go, this one is one of the biggest and most lucrative for financial services firms of all sizes. European, American and Asian firms are all competing for a slice of the pie and winners are the ones who are willing to innovate.
However, the competition is not just between firms, but also between nation-states who want these financial innovators to set up shop in their country and service all of Europe from there. And when it comes to attractiveness for FinTech and financial services firms, Lithuania is certainly checking all the right boxes. Google secured an e-money license last December from the Central Bank of Lithuania, joining a growing list of FinTech innovators setting up shop in the country.
But what is it that makes Lithuania such an ideal destination for firms servicing the SEPA countries?
Here is a breakdown of what Lithuania got right.The possibility to set up “Specialised Banks”. These are unique credit institutions with lighter requirements (like a lower capital base for example). The catch is that they cannot offer investment services or clearing services related to securities. However, they are ideal for institutions only looking at payments, transfers, deposits and lending.
By drastically reducing the licensing fee, Lithuania made itself a lot more attractive to new and cash strapped start-ups. The licensing fee ranges from EUR 898 for a payment institution to only EUR 4,157 for a full-service bank!
There is also a regulatory sandbox for new Fintech companies to explore and test new innovative projects which we have discussed in great detail in another article on “Innovation in Payments” .
The Bank of Lithuania also offers one of the most powerful payment systems called CENTROlink. This system was one of the first to offer SEPA’s new instant payment features. Both domestic (EU) and foreign service providers can make use of this system to offer payment services in all of SEPA.
Remote KYC for customer onboarding is another great tool which can significantly reduce onboarding time and cost for customers. This can be a great competitive advantage in a fast-paced business environment and something that is sure to make financial service intuitions very happy.
A specialised newcomer programme specifically geared towards new market participants. IT offers a one-stop shop which offers consultation on licensing and even business support.
There are also specialised licences and packages for peer to peer lending platforms, crowd-funding operations, credit providers and so on. This means lower regulatory costs and a faster/ easier licensing process and even consultation with Bank of Lithuania experts to demystify the regulatory aspects for new comers.
The results of all these innovations are clear. Lithuania has become the favoured destination for foreign banks and domestic FinTech start-ups alike when it comes to servicing the Single Euro Payments Area.
With the uncertainty in London due to Brexit, Lithuania has become even more attractive to foreign participants and the numbers seem to be reflecting that. By positioning itself as a low-hassle destination for FinTech players, Lithuania has certainly capitalised on one of the most promising business opportunities of the next decade.
Read more articles about the Bank of Lithuania and their PSD2-based ecosystem for FinTechs.
About the author
Ulrich Scholten is an internationally active entrepreneur and scientist. He holds a PhD in information technology and owns several patents on cloud-based sensors. His research on cloud computing is regularly published in highly rated journals and conference papers. From 2008 - 2015, he was associated research scientist at the Karlsruhe Service Research Institute (KSRI), a partnership by KIT and IBM, where he researched network effects around web-platforms together with SAP Research.
