Once the largest country in Europe, Lithuania, a country with a population of just under 3 million and an EU member state since May 1, 2004, is defining itself as the jurisdiction of choice for start-ups seeking to enter the payments and e-money market. Several larger players such as Revolut, Alipay and Google Pay all have a presence in the country, and in the first quarter of 2021, the Bank of Lithuania supervised 80 electronic money institutions (EMIs).

Payment Institution vs EMI License

One of the first questions we are faced with, is whether a payment institution license would be sufficient for a particular business model or whether an electronic money institution would be required. The answer largely depends on whether the firm intends to issue electronic money and the length of time customer funds will be held.

What is 'electronic money'?

The Republic of Lithuania Law on Electronic Money Institutions (hereinafter ‘the Law’) lays down that ‘electronic money’ means a monetary value as represented by a claim on the issuer which is issued on receipt of monetary funds by the electronic money issuer from a natural or legal person and has the following characteristics:

• stored electronically (including magnetically);

• is issued for the purpose of making payment transactions;

• is received by persons other than electronic money issuers.

With an EMI license, it is possible to issue electronic money, which is stored either in a central accounting system or on an electronic device like a chip. Unlike payment institutions, EMIs can store this monetary value for a prolonged period of time, whereas payment institutions can only retain client funds for the period necessary to execute the payment transaction. For example, an online shop may use a payment firm in order to enable customers to make purchases online using their debit card. The payment firm does not store the funds to be used in the transaction, but simply transmits them from customer to seller. An EMI, on the other hand, may issue payment cards to its customers and customers could use that card to pay for online purchases using their funds previously deposited with the EMI. The EMI could also handle the payment transfer to the online shop (provided the online shop allows for this).

EMI License for 'restricted activities'

To establish a favourable environment for Lithuanian and foreign startups, the Bank of Lithuania has introduced a sub-category of EMI licence that allows the holder to engage in restricted activities. This has been implemented with the aim of facilitating access of new market participants to the Lithuanian market and later, after being granted a licence to engage in usual activities, to also the European Economic Area market. The basic difference between an EMI engaged in restricted activities and a traditional EMI is that the EMI engaged in restricted activities is not subject to the minimum initial capital requirement; however, a licence of an electronic money institution to engage in restricted activities is valid solely in the Republic of Lithuania. In other words, no passporting is permitted.

Authorisation Process

1. Pre-application

The Bank of Lithuania, knowing that the legal texts regulating the authorisation process may not always be clear for both newcomers to the financial sector and experienced specialists, encourages applicants for a licence of an EMI to contact the Bank of Lithuania at an early stage. The Bank will provide more detailed information about the authorisation process and the requirements for prospective (existing) EMIs. Owing to government guidance on social distancing due to covid-19, the Bank of Lithuania is allowing meetings with prospective applicants via Zoom at present.

During the pre-application meeting, the Bank of Lithuania aims at discussing the following:

• Who the applicant is and what kind of entity it will be?

• Who are the owners and/or major capital investors and what is their country of origin?

• How advanced or developed is the applicant’s proposition? In some cases it may be too early to have a meeting.

• Is the applicant part of a larger group?

• Who will be responsible for running the business?

• The applicant’s funding model.

• Details of the products/services, target markets, delivery channels, pricing policy, and the corresponding regulated activities that will be applied for.

• The EMI’s funding sources.

• Anticipated staffing levels.

• Key outsourcing arrangements.

2. Submission of license application

Following the pre-application stage, comes the most important stage, which entails the preparation of the license application and supporting documents, and their submission to the Supervision Service of the Bank of Lithuania (hereinafter ‘Supervision Service’). The applicant would be required to submit several documents that would need to be as detailed as possible and carefully drafted to meet the regulator's expectations. This will reduce the possibility of delays during the assessment stage. Such documents would include the following.

• A business plan, including a forecast budget for the first 3 financial years, which demonstrates that the electronic money institution is able to operate soundly and employs the appropriate internal control systems, procedures and resources.

• A description of the safe-keeping arrangements to be employed in order to safeguard customer funds.

• A description of the governance arrangements and internal control mechanisms applied (to be applied), including administrative, risk management and accounting procedures demonstrating that such governance arrangements and internal control mechanisms are appropriate, sound and proportionate to the risks taken on.

• A description of the internal control mechanisms established (to be established) in order to comply with obligations in relation to prevention of money laundering and terrorist financing.

• A description of the procedure to file, monitor, track and restrict access to sensitive payment data.

• A description of business continuity processes, with clearly states operations of exceptional significance, effective business continuity plans, procedure of testing and control of adequacy and effectiveness of such plans.

• A description of principles and definitions applicable to the collection of the statistical data on performance, transactions and fraud.

• A description of security policies, including a detailed assessment of risks related to the pursued activity, security control and risk mitigation measures taken to properly protect electronic money holders and/or payment service users from identified risks, including fraud and unauthorised use of sensitive and personal data.

The Supervision Service reviews the application documents within 5 business days, and, where no formal deficiencies are identified, accepts the application for further consideration.

3. Application assessment

If there are no deficiencies in the application documents, the assessment period takes 3 months for a full EMI license and 2 months for an EMI licence to engage in restricted activities. Nevertheless, experience shows that it is in only exceptional cases that the submitted documents do not contain deficiencies of some sort. Therefore, the Supervision Service usually submits comments to the applicant, asking to submit additional information or documents, and this will result in an extension to the assessment period.

4. Decision

After finishing the assessment of submitted documents, the Board of the Bank of Lithuania analyses the summary information submitted by the Supervision Service and decides whether to issue the EMI license or otherwise.

Initial Capital

An EMI must possess a minimum initial capital of €350,000. An EMI engaged in restricted activities is not subject to any minimum initial capital requirement.

License Fee​

The fee to apply for an EMI license is currently set at €1,463, which is particularly reasonable when compared to other jurisdictions. In the case of a restricted EMI license, the license fee is even cheaper and amounts to €1,235.

Supervisory Fee

Every year the EMI is also required to pay a supervisory fee equivalent to 0.585% of income related to payment service provision.

Substance Requirements​

A EMI is required to have sufficient resources to properly discharge its business in Lithuania. For this reason, the Lithuanian regulator requires that the company have a CEO and a management board composed of at least 3 members. The CEO may be a member of the management board. In addition, managers must be of good repute and possess the qualification and experience necessary to properly perform their duties.

Why Lithuania?​

• An EU Member State, therefore, allowing for EU-wide passporting

• Regulatory sandbox for testing innovative ideas

• Forward-thinking regulator

• Remote KYC customer onboarding

• English is the primary language of doing business and all laws are available in English

• Fast and cost-effective authorisation process

• Short time to market (3 to 6 months)

• Access to CENTROlink, which is a payment system operated by the Bank of Lithuania, providing the gateway to the Single Euro Payments Area (SEPA). Via its infrastructure, the Bank of Lithuania provides technical access to SEPA for all types of payment service providers – banks, credit unions, e-money or payment institutions – licensed in the European Economic Area (EEA).

• Ability to generate unique IBAN account numbers for clients

• Excellent connectivity to the rest of Europe

• Corporate tax rate of 15% (lower in certain cases)

• Level playing with banks when it comes to access to payment infrastructure

• Reputability of jurisdiction

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