The fintech (financial technology) industry has increased in recent years. As a result, many entrepreneurs are interested in starting fintech companies to provide innovative financial services and products. However, to legally operate a fintech business, you must obtain relevant licenses and comply with regulations. A fintech license allows a company to provide financial services or products that use new technology legally. Different countries and states have different rules on what type of license you need based on your business.
This article provides an overview of standard fintech licensing requirements to guide you through the application process.
What is Fintech?
A fintech company utilizes technology to modify, enhance, or automate financial services. Examples include mobile banking, peer-to-peer payment services like Venmo and CashApp, automated portfolio managers like Wealthfront and Betterment, trading platforms such as Robinhood, and the development and trading of cryptocurrencies like Bitcoin, Dogecoin, and Ether.
This technology ranges from simple mobile payment applications to sophisticated blockchain networks that house encrypted transactions.
Types of Fintech and Their Products
Fintech spans various markets, including business-to-business (B2B), business-to-consumer (B2C), and peer-to-peer (P2P). Key fintech categories include:
- Fintech Banks: Offering flexible personal checking accounts, high-yield saving accounts, and secured credit cards, often with reduced fees.
- Digital Payments: Facilitating cashless transactions, which have surged in popularity, particularly since the onset of the pandemic.
- Personal Financial Management (PFM): Apps that consolidate financial information from various accounts into a single dashboard, aiding in budgeting and financial management.
- Wealth Management: Assisting financial advisors and wealth management platforms to offer holistic financial advice and manage assets.
- Fintech Lenders: Using technology to streamline the lending process, offering consumer-friendly loan choices, and avoiding predatory loans.
- Embedded Finance: Integrating financial services into non-financial products, such as business checking accounts for e-commerce platforms.
Types of Fintech Licenses in Lithuania
Authorized Payment Institution License (PI)
An Authorized Payment Institution (PI) license is a license that allows a company to provide payment services in Lithuania. The following services can be provided under the PI license:
- Services which provide conditions for depositing cash into a payment account, and all operations related to the management of a payment account;
- Services that enable the withdrawal of cash from the payment account, and all transactions related to the management of the payment account;
- Payment transaction, including the transfer of funds in the payment account opened at the payment service provider or other payment service provider institution of the user of payment services;
- Payment transactions, when funds are granted to the user of payment services under a credit line;
- Issuance of means of payment and/or processing of incoming payments;
- Money transfers;
- Payment initiation services;
- Account information services.
PIs cannot issue electronic money but can issue payment instruments such as payment cards and electronic wallets. PIs are subject to specific capital requirements and ongoing supervisory fees.
Authorized E-money Institution License (EMI)
An Authorized Electronic Money Institution (EMI) license is a license that allows a company to issue electronic money and provide payment services in Lithuania. Electronic money is a digital representation of fiat currency that can be stored and used for payments. EMIs can issue various electronic money products, such as prepaid cards and e-wallets.
In addition to providing payment services, EMIs can also:
- Operating Online Banking System
- Issue and redeem electronic money
- Conduct foreign exchange transactions
- Provide other financial services, such as loans and microcredit
EMIs are subject to more stringent capital requirements and ongoing supervisory fees than PIs.
Small E-money Institution License (SE-EMI)
A Small Electronic Money Institution (SE-EMI) license is a simplified EMI license for companies with lower transaction volumes. SE-EMIs can issue electronic money and provide payment services, but they are subject to lower initial capital requirements and ongoing supervisory fees than a full EMI license. The biggest limitation is that SE-EMI can only provide services in the jurisdiction where the license was obtained.
Small Payment Institution License (SE-PI)
A Small Payment Institution (SE-PI) license is a simplified PI license for companies with lower transaction volumes. SE-PIs can provide payment services, but they cannot issue electronic money. SE-PIs are subject to lower initial capital requirements and ongoing supervisory fees than a full PI license. The biggest limitation is that SE-PI can only provide services in the jurisdiction where the license was obtained.
The type of fintech license right for a company will depend on the specific activities the company plans to carry out. PIs are an excellent option for companies that want to provide a limited range of payment services. EMIs are a better option for companies that want to issue electronic money or provide a broader range of financial services. SE-EMIs and SE-PIs are excellent options for companies with lower transaction volumes.
Here is a table summarizing the key differences between the four types of fintech licenses:
| Feature | Authorized Payment Institution License (PI) | Authorized E-money Institution License (EMI) | Small E-money Institution License (SE-EMI) | Small Payment Institution License (SE-PI) |
| Issue payment services | Yes | Yes | Yes | Yes |
| Issue electronic money | No | Yes | Yes | No |
| Issue payment instruments | Yes | Yes | Yes | Yes |
| Initial capital requirements | Higher | Higher | Lower | Lower |
| Ongoing supervisory fees | Higher | Higher | Lower | Lower |
| Jurisdiction of provision of active services | Europe and more | Europe and more | Only one member state | Only one member state |
Obtaining a Fintech License in Lithuania
Obtaining a fintech license in Lithuania is rigorous and can take several months. Companies must submit a detailed application to the Bank of Lithuania, which will then review the application and assess the company’s ability to meet the regulatory requirements.
Requirements for a Fintech License in Lithuania
Key requirements include:
- Founders: Must undergo an investor screening procedure separate from the licensing process and compliance with national security interests.
- Personnel: A management structure with a Board and CEO, along with crucial personnel like anti-money laundering and information security officers, is necessary, which also have to be approved by the Bank of Lithuania.
- Initial Capital: The initial capital requirement for EMIs is EUR 350,000, with an additional capital buffer as per business plan calculations. The requirement varies for Payment Institutions (PI) based on the services provided, but starts from EUR 20,000. .
- Partnership Agreements: These should be established before submitting the documents for a license, including technical solutions and outsourcing agreements.
Process of Obtaining a Fintech License in Lithuania
The authorization process involves several steps:
- Pre-application Meeting: This is conducted with representatives from the Bank of Lithuania to clarify the financial services the applicant plans to provide.
- Application Submission: An application form for an EMI license is submitted to the Supervision Service of the Bank of Lithuania, which reviews the materials over five business days.
- Assessment of Application and Documents: Before the decision of the Board the respective employees of the Bank of Lithuania evaluates the documents within 30 working days and comes back with the initial questions and remarks. Which have to be answered within 10 working days. That’s the Questions and Answer session with the Bank of Lithuania.
- Issuance or Refusal of License: The license is either issued or refusedfollowing the assessment.
Benefits of a Fintech License in Lithuania
The Lithuanian government offers numerous benefits to fintech startups, including:
- Faster licensing process (within three months).
- Sandbox regime for the first year with no regulatory sanctions.
- Access to the CENTROlink and payment system of the Bank of Lithuania.
- “Lite” bank license for specialized banks with minimum capital requirements.
- Full SEPA reachability for non-banking institutions.
- The ability to issue own IBANs.
Conclusion
The fintech landscape in Lithuania offers a promising environment for startups and established companies looking to innovate in the financial sector. Understanding the types of fintech, the licensing process, and the benefits Lithuania offers is crucial for any business aiming to impact this dynamic industry. With the right approach and adherence to regulatory requirements, obtaining a fintech license in Lithuania can be a transformative step towards success in the fintech world.