Payment Landscape

How to replicate Lithuania’s fintech hub success?

Matthieu Blandineau
February 2023
min read

Fintech companies are increasingly seeing Europe as an appealing market to launch or expand into.

The regulators have facilitated the process of targeting the whole continent from one single country. Nevertheless, the question of "where to start?" still remains.

It seems that the industry got a clear answer from one country.

Lithuania's emergence as Europe’s fintech hub

Lithuania has become a popular destination for financial technology, or fintech, companies looking to establish a presence in the European Union.

The country's combination of an attractive business environment, supportive regulatory processes, and access to the European market have made it a haven for fintech firms.

As a result, Lithuania has become one of the most attractive destinations for fintech companies looking to establish a presence in the European Union.

One might experience a sense of recognition when dealing with the services of fintech companies and their Lithuanian IBANs.

Could it be that something is happening in Vilnius?

As of December 2022, Lithuania had the most licensed payment or electronic money institutions in the European Economic Area (EEA) at 135, outnumbering France's 95. It is an impressive figure for a small country with only 2.7 million people.

It includes well-known names like Revolut and SumUp.

Surprisingly, nearly half of these companies are SEPA participants, while the typical European Economic Area holds a rate of only 16%.

What could be behind Lithuania's success? One possible answer might be the Bank of Lithuania's CENTROlink payment system, which handled 205.3 billion euros of payments in 2021, equalling 370.7% of the country's GDP - more than any other EEA state apart from Latvia's EKS.

Lithuania's secret, CENTROlink

In 2015, the Bank of Lithuania inaugurated CENTROlink, a gateway to SEPA that permits all EEA-licensed credit institutions, electronic money institutions and payment institutions to become SEPA participants.

By becoming a SEPA participant, financial institutions can benefit in numerous ways. Such advantages include the capacity to process SEPA payments autonomously, having their own BIC and providing their own IBANs, and ultimately, reducing the overall expenses of payments.

The CENTROlink website states that it provides users with all the features fintech companies would dream of, including access to all the payment methods of the Single Euro Payments Area (credit transfers, instant credit transfers, and direct debits), reliability, and straightforward integration.

Is any European country able to launch its own CENTROlink?

Much more than a payment system

Not every fintech business requires or is prepared to be a SEPA participant. 

Additionally, only 48% of the fintechs in Lithuania are.

The country's success in this sector can be attributed to much more than just a payment system. The Bank of Lithuania perceived the European fintechs as a profitable developing market, developed a complete product range to respond to it, and marketed it effectively.

An efficient, crystal-clear, and collaborative regulatory procedure

The EU's "free provision of services" principle allows for financial institutions regulated in any EU or EEA country to offer their services within any other country of the area by virtue of a license passporting.

European fintechs, or those targeting the EU market by opening a branch there, are only required to go through the regulatory process in a single country in order to operate across the entire area.

Although the same European rules apply everywhere, the way they are implemented is decided by the local regulator. The Bank of Lithuania has taken full advantage of this and used the regulatory process to its benefit.

It is widely recognized that they provide extremely precise instructions regarding the documents that need to be provided, and they guarantee that the procedure will be done in the specified time frame.

It is possible for applicants for a license to work with the Bank of Lithuania cooperatively. Applying fintech companies can consult the Bank of Lithuania to determine which license is suitable for them, evaluate if their plan meets the necessary requirements for licensing, and can reach out and ask questions to Bank of Lithuania representatives outside of the official regulatory process.

The Bank of Lithuania has provided detailed instructions and documents.

Fintech firms commonly take 6 months to acquire their authorization in other nations, yet this process is minimized to a period of 3 months through this method.

When it is essential to have a quick launch, the streamlined process can be a major factor in deciding where to acquire the license.

A one-stop-shop

The Bank of Lithuania oversees the regulatory process offers support and guidance, and, when needed, gives technical access to payment systems.

This one-stop-shop is rare in Europe, as fintech firms in other countries have to consult different entities - a regulator to get a license, a sponsor bank to gain access to SEPA, and experts to guide them throughout the process.

The straightforwardness of this procedure instils trust and facilitates a quick launch for those looking to start in Europe.

Persuasive marketing

All those efforts would be worthless if nobody knew about these advantages.

The Bank of Lithuania bundled all of their services into the Newcomer Programme, making clear to fintech companies that the Bank of Lithuania was the quickest, most accommodating one-stop-shop for access to the European market.

The Bank of Lithuania has made its CENTROlink system pricing open and accessible to the public, making it simple for fintech companies to project themselves with the service.

Invest Lithuania, the country's investment promotion agency, ran online advertisements to promote this opportunity.

A successful approach

Although the IMF recently provided guidance to the Bank of Lithuania on how to update their anti-money laundering and onboarding processes to encompass the increasing amount of regulated fintechs supervised in the country, Lithuania’s strategy has proven undeniably successful.

This strategy has yielded positive results, as evidenced by the number of companies registered in Lithuania, which has grown from 55 in 2014 to 265 in 2021. Additionally, the Fintech sector now employs 6,000 people, according to Invest Lithuania.

Can the rest of Europe compete?

Anyone would be excited to replicate Lithuania’s success, given the number of jobs, taxes revenue, and industry growth it has created.

It took Lithuania nearly a decade and the cooperation of many entities to consolidate all matters on fintech under the Bank of Lithuania before it was successful.

Are there any other nations that can provide even a fraction of what Lithuania delivers?

A regulatory system hard to replicate

Let’s be honest, while certain authorities, such as Germany’s BaFin and France’s ACPR, have created dedicated plans and assembled teams to handle fintech companies and lead them through their regulatory processes, Lithuania provides a complete solution.

It could take a few years for local regulators and investment agencies to come together and develop an integrated plan.

The Bank of Lithuania has gone beyond the norm in Europe by providing regulated companies with access to the SEPA network through CENTROlink. It is not likely that another central bank will launch a similar system.

The potential for European banks to capitalise on

The potential for European banks to capitalise on an alternative for non-banks to gain access to SEPA without using a system such as CENTROlink, is to become SEPA indirect participants in cooperation with a sponsor bank.

The model, accessible to licensed electronic money institutions, payment institutions, and credit institutions, allows fintech companies to access SEPA through a direct participant (sponsor bank). This participant functions as a go-between the indirect participant and the SEPA CSMs.

Despite being used by the local branches of big banks, small banks and foreign banks launching in Europe, this model remains relatively unfamiliar to fintech firms.

Essentially, CENTROlink offers SEPA indirect participation through the Bank of Lithuania instead of a commercial bank.

Differentiate through tech Launched in 2015, CENTROlink is based on Lithuanian’s pre-euro local currency payment system itself, launched in 2004. Customers connect to CENTROlink in the same way as before, through traditional SFTP servers, like how they would with other banks’ connectivity solutions.

European banks have the potential to bundle their SEPA connection systems into modern APIs for fintech businesses to integrate without difficulty.

Provide regulatory guidance Banks, although not regulatory or advisory, have had intimate knowledge of the processes that fintech organisations must endure to be licensed as part of the indirect SEPA involvement projects that they have been associated with.

Rather than providing assistance to those wishing to obtain a license to fill in the necessary paperwork, banks can document the process and direct companies to relevant service providers in the bank's home country.

Double down on marketing and packaging Do you know of any European banking institutions providing SEPA indirect participant sponsorship?

Banks could potentially get more fintech companies on board by making their indirect SEPA services more visible. At the moment, fintech companies have to navigate banks’ commercial departments in order to check if they offer this option.

It can be difficult to comprehend the details of a proposed offer once it has been made. There are many considerations, from grasping the pricing model to determining the level of assistance provided by banks and how much of it is necessary to having a clear vision of the commercial and integration process.

Banks are in an excellent position to put together complete packages, collaborating with partners, such as:

  • Regulatory guidance

  • SEPA indirect participant offering

  • Modern connectivity API

By utilising the correct marketing strategies, and being clear about the terms of the offer, the cost, and the application process, any bank has the potential to be the next CENTROlink.

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