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LITHUANIA: An Introduction

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Introduction and market overview 

The rapid growth of Lithuania’s Fintech ecosystem began in 2016 and was a result of strategic joint efforts of the Government, the Bank of Lithuania and other institutions, such as Invest Lithuania.

A proactive approach, combined with regulatory changes and initiatives, proved to be a good strategy for the country. Lithuania ranks #4 in the Global Fintech Index (Findexable, Global Fintech Index 2020). There are now over 200 Fintechs operating here, making it the 2nd largest Fintech hub in Europe by number of licensed entities. According to the latest Fintech Report, 62 e-money institutions (EMIs), 35 payment institutions (PIs) and 5 specialized banks obtained their authorizations in Lithuania.

Lithuania is chosen as a home jurisdiction for non-European companies looking for a gateway to the European market, UK Fintechs hedging against the Brexit risks as well as other startup companies searching for a more friendly jurisdiction and necessary infrastructure to launch new businesses. All of them find compelling reasons to settle here.

Fintech friendly regulation 

As of January 2017, a concept of a specialized bank was introduced into the Lithuanian legal framework. Specialized banks are subject to the same legal requirements and have the same licence passporting possibilities as other credit institutions, with just two exemptions: (i) the initial capital requirement is reduced to EUR 1 million (as opposed to EUR 5 million for a full service bank in Lithuania), and (ii) a specialized bank can engage in all core banking activities, except for investment services and asset management business.

The concept of a specialized bank was first introduced with the aim to help local credit unions to convert into banks. Soon after, it was noticed by other Fintech players as an opportunity to launch a digital banking business with less capital and risk.

The Bank of Lithuania and European Central Bank (ECB) issued the very first specialized bank licences to WALLESS clients Mano Bank (a local credit union) and Revolut (a UK Fintech unicorn) at the end of 2018. Following this, four more bank licences were granted for European Merchant Bank, General Financing, Fjord Bank and PayRay; the latter got its full banking licence at the end of 2019. All the banks now have much higher capital reserves than the initially required EUR 1 million.

Specialized bank opportunity continues to attract the attention of new market entrants, including credit unions, consumer and business financiers, payment services providers and other players. The Bank of Lithuania reports it has several applications undergoing assessment.

Availability of infrastructure  

As part of its initiative to create a Fintech friendly regulatory environment the Bank of Lithuania (the single supervisory authority of the financial market in Lithuania) created a unique proposition to access payment infrastructure for non-bank financial institutions.

EMIs and PIs licensed both in Lithuania and other EEA countries avail of the following benefits in Lithuania:

• Direct access to SEPA and local IBANs: amongst other benefits that Fintech find in Lithuania, non-bank payment services providers value the possibility to access SEPA via the infrastructure of the Bank of Lithuania. Subject to access to SEPA Fintechs are able to issue IBANs to their clients.

• Direct access to TARGET2: as of February 2020 non-bank financial institutions are allowed to access TARGET2 via the infrastructure of the Bank of Lithuania if they participate in the SEPA instant credit transfer scheme and have the turnover of payments of at least EUR 1 million per year.

Availability of infrastructure combined with other benefits created a compelling proposition for non-bank payment services providers to do business here. In anticipation of Brexit, interest in Lithuanian EMI and PI licences is expected to continue; however, a more robust focus on quality rather than quantity is promised by the Bank of Lithuania going forward.

Opportunities for innovation 

Over the past few years Lithuania proved its commitment to contribute to the expansion of the Fintech sector, creating a regulatory environment that promotes innovation.

• Newcomer programme of the Bank of Lithuania: Prior to setting up a company or launching a financial product, investors can check if their business plans are in line with the applicable regulatory requirements by applying to the Bank of Lithuania and consulting with it.

• Sandbox benefits: Fintech startups are able to test their financial innovations in a live environment under the guidance and supervision of the Bank of Lithuania.

• Tax incentives: Companies may deduct their R&D cost 3 times for corporate income tax purposes.

Innovation is not limited to creating opportunities for Fintechs, as the Bank of Lithuania is also one of the most progressive regulators. In addition to the initiative of LBChain and LBCoin, the institution is building a novel framework striving for risk-based and near real time insights-based supervision. Regtech solutions are explored to gain new, more timely and precise insights on potential market risks.

Competitive cost and pool of available talent

Amongst the alternatives offered by other EU jurisdictions, Lithuania still stands out with its relatively competitive costs and its pool of available talent. As the traditional banking sector has been undergoing consolidation in the past few years, multilingual and experienced talents swap positions at banks or global shared service centres to Fintech companies. The flow of competences into the Fintech sector as well as trust shown by prominent former bankers creates even more optimism this sector will continue to expand and flourish, forcing traditional market players to innovate as well.

About WALLESS 

WALLESS is a modern law firm with a wall-less attitude. Clients are the firm's driving force and motivation. By implementing lean working processes and low leverage (1 partner per 3–5 associates), WALLESS is able to give clients direct access to their highly experienced team, while their decision-making process remains smooth and personalized. The firm's cohesive team does not see walls or boundaries, and unites forces behind each case to achieve the highest possible result for their clients.

During the last few years the WALLESS team assisted many Fintech clients in obtaining relevant necessary authorization and implementing their business in Lithuania – to name just a few, the WALLESS team has assisted Blender, Simplex, Revolut, Nayax, Transactive Systems, SumUp, Shift Financial Services, PayRay, General Financing, Mano Bank, Inbank, Vinted, and others. The WALLESS team has assisted clients in 4 out of 6 successful bank licensing projects.