Data Dive: Exploring Northern Europe’s Dominance In EU Payments Licensing

Following new data published by the European Banking Authority (EBA) exploring the authorisation processes of payment firms between 2019 and 2021 across the EU, VIXIO takes a brief look at the trends behind these numbers, which show significant activity in Northern Europe.

With the fourth anniversary of the revised Payments Services Directive (PSD2) now passed, the EBA published a report in January reviewing the authorisation process across all member states.

The EBA noted “significant divergences” in the authorisation process, including varying “level of scrutiny” given to applicants by different regulators. Further VIXIO analysis found a strong geographical correlation, showing that the majority of recent EU licence activity stemmed from Northern Europe.

From 2019-21, more than 50 percent of payments/e-money licence applications and 48 percent of authorisations occurred in five countries — Lithuania, the Netherlands, Germany, Sweden and Ireland — all from Northern Europe. With the exception of Spain, all countries that granted more than 20 licences were in Northern Europe. Lithuania, in particular, dominates the EU payments licensing space with 22 percent of all applicants and 13 percent of authorisations.

In contrast, the bottom ten countries, which were mainly a mixture of Central and Eastern European countries, received only 7 percent of applications and gave out 10 percent of authorisations.

There are a number of possible reasons why only a handful of countries dominate the European licence space. First is time. With the exception of Germany and Spain, the top licence-granting countries typically had a short turnaround in the licensing process of around seven to nine months to grant authorisation. For Sweden, this process fell to between four and six months.

Although there are some exceptions, such as Slovakia and Estonia, overall the top five countries took on average 9.2 months to process applications, compared with 11.2 months for the bottom five countries.

Another possible reason is geography. Firms may choose a licensing jurisdiction because of its strategic importance, including the prospect of joining an existing hub of similar firms with the relevant experienced workforce. For example, Lukas Jakubonis, head of financial market development at the Bank of Lithuania, told VIXIO last year how the country had been working on creating a fintech friendly environment and attracting firms, particularly from the UK, following Brexit.

“We now have one of the most efficient processes in Europe and have attracted big names to the country. Getting companies like Revolut here meant we had a kickstart and had attracted other financial institutions.”

Quality over quantity

Although Lithuania is way out in front in terms of number of applications and authorisations granted in the EU, the data also reveals a relatively high rate of failure among applicants and slowing growth in licensed firms.

Lithuania ranks fifth worst of the 27 EU countries in terms of application success (measured as the number of applications made during the period over the number of licences granted, which is not necessarily like-for-like). At 27 percent, it betters the likes of Romania (17 percent) and the Czech Republic (13 percent) but is significantly behind leading markets Germany (67 percent), the Netherlands (58 percent) and Sweden (48 percent).

More recently, Lithuanian authorities have taken a more judicious approach as the country’s payments scene has matured. According to Jakubonis, the regulator has shifted from quantity to “focusing on quality and business culture”.

These sentiments also match other recent data from the Bank of Lithuania. In 2021, the number of authorised payments and e-money firms increased by 7 percent, equivalent to ten firms. This represents just 15 percent of the 65 firms authorised in the country between 2019-21.

For firms wishing to base themselves in Lithuania, unless the country’s regulators adopt a more liberal licensing policy, it is likely that only a handful of more established firms with a good business culture are likely to become successfully authorised. Other countries, such as Sweden or the Netherlands, could therefore become a more attractive place for new payments firms to locate for their European operations in the longer term.

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