Entrepreneurs looking to offer something different to the traditional banking model and offer innovative, more efficient, and more accessible services, have a window of opportunity. Their strong market potential has been driven by the rise in the usage of smartphones and apps that have become the primary platform for consumers to do their banking activity.
Launching a traditional bank takes years and requires a heavy financial investment and navigating regulatory requirements. Meanwhile setting up a neobank is much easier, you just need to wisely choose the right jurisdiction and the right technology.
What is Neobank? Why are they growing so fast now?
Neobanks differ from traditional banks in many respects: they may offer different services, or a different experience, or financial products developed for a niche market segment. But the greatest differentiator is that a neobank is designed from the ground-up to be customer-centric. Customers these days want more intuitive and personal service – neobanks provide it by leveraging data analytics and AI.
Powering the explosion of neobanks is cloud-native technologies. SaaS (Software-as-a-Service) platforms make it easier for startups and fintechs to launch, modify, and configure banking products. These new technologies allow businesses to avoid creating the data silos and legacy systems that inhibit agility and growth.
For anyone planning to launch an EMI or specialised bank in Europe, Lithuania is the perfect gateway. Lithuania has already issued 102 licences for electronic money institutions (EMIs), payment institutions and the specialised banks (SBs) and is the second largest fintech hub in Europe. One clear advantage of this country is the government that promotes clear strategic objectives for the fintech industry and has created a significantly streamlined EMI licencing process. Meanwhile the Bank of Lithuania has developed a new special Newcomers programme to attract new fintech companies. It is a one-stop shop that provides guidance and support, a technology sandbox, and access to payment infrastructure.
The Lithuanian government also enables companies to use state-of-the-art tools in order to remotely identify their customers (KYC). It allows companies working in the field of electronic money issue to open accounts for users and perform AML operations remotely, digitally and based on scanned IDs. This gives companies with Lithuanian payment system licenses a distinctive competitive advantage.
The Lithuanian licence is recognized in all EU countries. This opens an enormous opportunity to potentially serve a population of app. 500 million people under a single licence. The Bank of Lithuania, through its infrastructure, provides technical access to the SEPA (Single Euro Payments Area) for all types of payment service providers, licensed in the EEA. Within the Centrolink (payment system designed and managed by the Bank of Lithuania), the client has an opportunity to open an IBAN and make money transfers throughout the entire territory of the EU.
Additionally, Lithuania is a country with competitive business tax rates. The corporate income tax rate (0-15%) is the third lowest in the EU, and the personal income tax rate (15%) is the second in the same rating.
Steps to Set up a Neobank in Lithuania
Plan first. In this early stage it is useful to connect to Invest Lithuania, the official agency for foreign direct investment and business development. They will partner with you to get your business set up and off to the best start possible. The support includes tailored in-depth market and industry insights, advice on business costs, information concerning the local labour and legal framework, site visits, introduction to peer companies, universities and government authorities.
Connecting with one of the top fintech law or consultancy firms such as Walless, Cobalt, Ecovis, TGS Baltic, Deloitte, KPMG, EY, Sorainen, Ellex, CEE Attorneys, or PwC could give you advice on how to meet the regulatory requirements as well as get help in preparing your application.
Once the application is ready, you can apply online through the Bank of Lithuania. If you wish to issue electronic money services in Lithuania such as prepaid cards or electronic wallet, the required equity capital is 350.000 EUR and the licencing takes around 3 to 9 months. For the specialized bank licence, the equity capital is 1 million EUR and the licencing approximately 12 months.
Once you’ve taken these steps, you will begin to focus on building the right technology for your bank.
Your technology stack
Choosing the right technology is a key component to success. Cloud-native technologies provide the agility and scalability that allows start-ups to develop innovative solutions without massive upfront investments in resources.
Composable banking is the rapid and flexible assembly of independent systems in the cloud. It helps EMIs and specialised banks create modern customer experiences and to constantly evolve and respond to change.
As an example, Mambu’s banking platform allows its customers to reduce costs, and scale based on their business needs. The pure SaaS platform allows quick and easy deployment of updates without the risk of service disruptions.
Today, even the simplest banking service involves a complex orchestration of core systems, transaction processing, decisioning, reporting, analytics, authentication, security and beyond. Instead of locking these functions together for dedicated applications and workflows, composable banking separates the functions so they can be combined and recombined in new ways to deliver new services and customer experiences. Mambu can further improve their time to market with Lithuania specific integrations such as Centrolink, VMI, PLAIS and FNTT readily available.
„Modular“ is a common industry term that should not be confused with composable. Modules are proprietary pre-defined suites that extend the functionality, but they are not open and flexible. An apt metaphor is the jigsaw puzzle for modular and lego-brick for composable. Jigsaw puzzle is combining pieces into one, pre-set picture, while the Lego approach combines independent components to make anything.
Mambu enables composable banking with its cloud banking engine, process orchestrator and ecosystem integrations. The benefits are obvious: agility and flexibility, speed to market, lower total cost of ownership and better customer relationship.
The early adopters of composable banking come in all shapes and sizes. Mambu works with fintech unicorns, banks, lending organisations, EMIsm and telcos.
Mambu has over 160 customers with over 25 million end-users, among them also Lithuanian banks and Fintechs including General Financing, as well as international companies operating in Lithuania, including RebellionPay.