Bank of Lithuania
2024-10-08
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Income from licensed activities of the electronic money institution (EMI) and payment institution (PI) sector grew by more than a fifth in the first half of 2024, with the amount of payment transactions increasing even faster. However, the bulk of the sector’s income continued to be generated by less than a tenth of more than 120 licensed institutions. 

“It can be stated once again that the sector of innovative electronic services and payment institutions is an integral part of the financial market as payment services provided by it successfully compete with traditional financial service providers. As the sector continues its rapid development, it is important that market participants properly manage emerging risks and ensure the required capital buffer,” says Denas Jonas Gadeikis, Head of the Payment and Electronic Money Institution Supervision Division of Lietuvos bankas.

The sector’s income from licensed activities amounted to €275.1 million in the first half of 2024, growing by 22% year on year. The amount of payment transactions rose by 37% to almost €132 billion. 

The majority of the sector’s operating income and turnover is generated by 10 largest institutions (8% of the sector’s companies). They earned nearly €178 million in income from licensed activities (65% of the market) and generated €90 billion in turnover (70% of the market) in the first half of the year. 

31 EMIs and PIs (25% of the sector’s companies) had a turnover of less than €50 million, and 58 institutions (47% of the sector’s companies) earned less than €1 million of income from licensed activities.
At the end of the first half of 2024, institutions with less than €100 million in payment transactions and only 1% of the total market turnover accounted for the largest share of the sector (25%). Large institutions with the amount of payment transactions exceeding €1 billion and turnover accounting for 91% of the total turnover represented 22% of the sector.

Medium-sized institutions with the amount of payment transactions between €100 million and €1 billion accounted for 24% of the sector, followed by collectors of utilities and other payments (18% of the sector) as well as non-operating institutions and institutions providing only payment initiation services (PIS) and account information services (AIS) (6% of the sector each).

The funds of customers of the sector’s institutions held with central banks stood at €922 million at the end of the first half of the year, up by 10% compared to the end of June 2023, and accounted for 34% of total customer funds (compared to 47% a year ago). The amount of funds held with banks and other credit institutions went up by 62% year on year to €871 million, with their share rising by 2 percentage points to 32%.

Customer funds invested in safe liquid assets grew 2.2 times year on year to €650 million at the end of June 2024 (24% of total customer funds, compared to 16% a year ago). This indicates that market and liquidity risks faced by the sector are clearly increasing and must therefore be properly managed by EMIs and PIs. 

At the end of the half-year, €301 million of customer funds were held in time deposits with credit institutions, representing an increase of 2.4 times year on year.

At the end of the first half of 2024, three institutions in the sector failed to meet the own funds requirements, and the result remained unchanged over the year. In the first half of 2024, the capital adequacy ratio of 12 institutions (compared to 10 in the first half of 2023) stood between 1 and 1.1. So far, there has not been a significant downward trend of this ratio, but institutions should target a higher own funds ratio as a ratio which is too low may be insufficient to cover unexpected losses. It is also important to stress that institutions must comply with prudential capital requirements at all times.

At the end of the first half of 2024, 123 EMIs and PIs were licensed (80 EMIs and 43 PIs), compared to 127 in the first half of 2023 (83 and 44 respectively). The decrease in the number of institutions is due to the revocation of licences at the request of institutions themselves or following imposed sanctions for significant breaches of AML/CTF legislation, breaches of requirements for the safeguarding of customer funds, breaches of internal controls as well as non-compliance with mandatory instructions or inactivity. In the second quarter of 2024, Lietuvos bankas issued one licence and authorised acquisitions of three licensed institutions.

In the first half of 2024, Lietuvos bankas completed two individual inspections, imposed eight sanctions, organised 10 meetings with financial market participants and sent 30 practice improvement notices in the context of assessing how these institutions comply with the requirements of money laundering risk management, KYC and fraud risk management, own funds and safeguarding of customer funds as well as how they ensure internal audits and controls.

Lietuvos bankas 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.

Implementing the commitments set out in the Guidelines for the Development of the Lithuanian Fintech Sector for 2023–2028, Lietuvos bankas has compiled a list of standard information that fintech companies should make public about their activities and risk management. The list includes all information on the activities carried out by EMIs or PIs, specifying all the services provided as well as partners and intermediaries. This information is aimed at encouraging EMIs and PIs to keep their customers better informed about their activities and risks involved. The full list is available here.

Reviews of the activities of electronic money and payment institutions