Fintech payment institutions have almost doubled their revenues
The sector of electronic money institutions (EMIs) and payment institutions (PIs), which make up the majority of licensed fintechs, underwent changes in the third quarter of 2022: as the largest financial institution in the sector became part of the banking sector, the remaining market participants adjusted their positions. The Bank of Lithuania continues to constantly pursue and implement measures to ensure that financial institutions in this sector increase the maturity of their activities and improve the quality of services.
The former largest participant in the EMI and PI sector, UAB Revolut Payments, has moved to the banking sector, thus the market shares of the remaining financial institutions in the sector have been redistributed. However, the trend remains the same, with the sector’s performance being largely delivered by a small number of institutions.
The income of EMIs and PIs from licensed activities amounted to €289.3 million in the third quarter of 2022, of which nearly two thirds are generated by 10 institutions. EMIs accounted for 87% and PIs for 13% of the sector’s total income. The impact of the transition of Revolut Payments to another sector excluded, the income of the remaining EMIs and PIs increased by 1.8 times compared to the corresponding period of the previous year.
The total amount of payment transactions executed by EMIs and PIs at the end of the third quarter of 2022 amounted to €109.8 billion. This is 1.9 times more compared to the corresponding period of the previous year (the impact of Revolut Payments excluded). Half of all payment transactions made by EMIs and PIs are executed by five EMIs.
“The Bank of Lithuania aims to ensure that institutions prevent potential risks in a timely manner and are able to manage them as well as solve problems effectively. Therefore, we organised consultation events for market participants, shared good practices, identified errors and discussed emerging issues,” says Dovilė Arlauskaitė, Head of the Payments Market Supervision Division of the Bank of Lithuania.
The consultation events are aimed at improving institutions’ understanding of the importance of organisational structure and governance, discussing the most common problems in practice, as well as sharing existing good practices and recommendations. The institutions were informed about the current reporting issues, the most common mistakes and problems that arise when opening an account with credit institutions. The events focused on the importance of internal auditing and safeguarding of customer funds for EMIs and PIs. The role of internal auditing was once again emphasised, and the ways of safeguarding customer funds were reiterated. The Bank of Lithuania also shared the weaknesses identified during inspections as well as potential risks with the participants and answered practical questions.
During the consultation events, the issues of payment service provision were also discussed, heavily focusing on improving customer experience in institutions managing money laundering and terrorist financing risks. Attention was also paid to the handling of consumer complaints, restrictions on the provision of payment services, cases of termination of business relationships and cancellation/tracing of payment orders. In addition, in order to improve the quality of payment services and the experience of payment service users, the Bank of Lithuania addressed the managers of institutions and submitted its proposals in its Dear CEO Letter.
According to data for the third quarter of 2022, more than one third of the institutions in the sector still face difficulties in generating profit. On the basis of the financial results of this period, two institutions failed to meet the own funds requirement. The Bank of Lithuania is high-principled in responding to such infringements, thus in addition to regularly reminding EMIs and PIs about the importance of the own funds requirement, which must be always met and with a margin, it also pays attention when carrying out checks on institutions.
The Bank of Lithuania continues to closely monitor whether credit institutions follow the Position on the right of EMIs and PIs to access bank accounts opened with credit institutions. During the period under review, two notifications on account closures or restrictions were received. Since 2019, the Bank of Lithuania received a total of 62 notifications of this kind.
At the end of the third quarter of 2022, the public list of EMIs and PIs included 138 institutions (87 EMIs and 51 PIs). In the previous quarter, 10 sanctions were imposed on EMIs and PIs: 8 fines, one public communication of a legal infringement and one licence revocation.
In the first three quarters of 2022, the Bank of Lithuania issued 4 licenses, of which 2 EMI, 1 PI and 1 PI limited. During the period, six institutions withdrew from the EMI and PI sector: three institutions applied to the Bank of Lithuania to withdraw their license, and Revolut Payments, UAB became a bank. The validity of a licence was revoked for two institutions following a decision by the Bank of Lithuania for serious and systematic infringements.
The Bank of Lithuania publishes information on upcoming scheduled inspections of EMIs and PIs as well as annual and quarterly indicators of compliance with the key operational and prudential requirements for each of them.