Inga Karulaitytė, Attorney-at-Law, Partner and Head of Banking and Finance & FinTech at ECOVIS ProventusLaw, examines the narrowing distinction between payment and electronic money licences and its implications for Lithuania’s fintech sector ahead of the 2026–2027 EBA implementation timeline.
A payment institution licence has become an increasingly important alternative to an electronic money institution licence as European supervisors narrow the legal concept of electronic money. Lithuania, which built one of the largest electronic money sectors in the European Union, currently hosts 117 licensed payment and electronic money institutions, of which 73 are electronic money institutions. Since the Second Payment Services Directive, the sector has been facing a fundamental shift: determining whether activity previously treated as electronic money issuance should instead be regulated as payment services
Payment institution licence vs electronic money institution licence: why EMI was historically preferred
Historically, the Bank of Lithuania took an expansive view of electronic money, and firms entering the market frequently chose to apply for an electronic money institution licence rather than a payment institution licence. This position mirrored the approach of the United Kingdom Financial Conduct Authority and was a deliberate part of Lithuania’s strategy to attract firms relocating after Brexit. Wise is a well-known illustration of this FCA-aligned route: its UK operations are authorised under an electronic money institution licence, while in Belgium the National Bank of Belgium authorised it under a payment institution licence. This historical context helps explain the significance of the current change in supervisory approach.
Payment institution versus electronic money institution: what changed
An entity holding a payment institution licence executes payment transactions, operates payment accounts, issues payment instruments and provides related services under the Second Payment Services Directive, but does not issue electronic money.
Under the Second Electronic Money Directive, by contrast, “e-money is electronically stored monetary value, a claim on the issuer, issued on receipt of funds for making payment transactions, and accepted by persons other than the issuer.”
Two developments dismantled the traditional reading:
First, the judgment of the Court of Justice of the European Union in Case C-661/22 (ABC Projektai). The Court held that „the activity of a payment institution which consists in receiving funds from a user of a payment service, where such funds are not immediately accompanied by a payment order and therefore remain available on a payment account, within the meaning of Article 4(12) of Directive 2015/2366, operated by that institution, constitutes a payment service provided by that payment institution, within the meaning of Article 4(3) of Directive 2015/2366, and not a transaction consisting in the issuance of electronic money, within the meaning of Article 2(2) of Directive 2009/110.“
Second, the question-and-answer response 2022_6336 of the European Commission and the European Banking Authority. It clarifies that the “acceptance by third parties” element of the definition is not satisfied where the payee merely receives ordinary scriptural money upon redemption. Acceptance requires the payee to accept and receive electronic money itself, as a distinct asset, under a direct contractual arrangement.
Taken together, these developments significantly narrow the concept of electronic money. Holding client balances and executing payments from them does not, by itself, constitute electronic money issuance. The Bank of Lithuania summarised its position as: “same function, same authorisation”. If the function is a payment service, the applicable regime is that of a payment institution licence.
A related but distinct question concerns capital methodology. The Court of Justice of the European Union addressed this separately in Case C-389/17 (Paysera LT vs Bank of Lithuania), confirming that electronic money institutions must apply Method D under Article 5(3) of the Second Electronic Money Directive only for activities genuinely linked to e-money issuance, while Methods A, B or C apply to payment services that are not so linked. Under that ruling, payment services enabling redemption are treated as linked to e-money issuance only where they trigger issuance or redemption within a single transaction.
The clearest surviving example of genuine electronic money is the electronic money token under the Markets in Crypto-Assets Regulation. There, a distinct instrument demonstrably exists, and only credit institutions and electronic money institutions may issue such tokens. The Bank of Lithuania has confirmed that issuers of electronic money tokens will remain electronic money institutions regardless of the broader requalification, with Method D continuing to apply to that activity. Electronic money token distribution under the Markets in Crypto-Assets Regulation, however, differs significantly from traditional electronic money distribution: in practice, most of this activity is carried out by crypto-asset service providers, which acquire and execute payment operations in electronic money tokens for their clients — a structure that does not necessarily map onto the classic definition of an electronic money distributor.
The Bank of Lithuania’s approach versus other jurisdictions
Most supervisors in other European Union member states are already conducting institution-specific legal analyses: they request firms to demonstrate whether actual electronic money issuance takes place, and they pursue product-by-product alignment with the emerging interpretation. This has met institutional pushback, and those supervisors are testing interpretations with firms while seeking buy-in.
The Bank of Lithuania has so far opted for a guidance-led approach:
- It will not launch a formal requalification process or impose additional requirements until a common European position is reached.
- Once the European Banking Authority’s position is finalised and coordinated, it will publish detailed guidance, and practical assessment principles.
- Firms will then perform a self-assessment of their business models and submit conclusions to the supervisor, followed by individual case reviews and consultations.
- Critically, this is not a re-licensing exercise. No new authorisation, no licence conversion, no full application process.
What the European Banking Authority expects
The implementation timeline discussed by the European Banking Authority includes the following steps:
- By 31 December 2026: assess the impact on own funds requirements and ensure correct calculation, Method D only for genuine issuance activity, Methods A, B or C for payment services.
- By 30 March 2027: assess whether distributors must be requalified as agents and properly registered; update cross-border passport notifications; and provide transparent information to payment service users, updating contracts, precontractual information and advertising to reflect the true nature of the services.
- By 30 June 2027: ensure correct reporting of payment transactions and fraud data, including retroactive corrections where applicable.
National supervising authorities, including the Bank of Lithuania, are urging the European Banking Authority to take a more coordinated role, comparable to its no-action letter on the interplay between the Markets in Crypto-Assets Regulation and the Second Payment Services Directive, given industry pushback and legal uncertainty about the status of the question-and-answer instrument.
The Bank of Lithuania has indicated that it does not currently plan to require retrospective corrections of historical statistical data. Its current expectation is that the new classification will apply prospectively only, including for fraud statistics.
What market participants can expect from the Bank of Lithuania
Based on the June 2026 quarterly meeting with the Lithuanian Fintech Association, the supervisor’s positions can be summarised as follows:
Self-assessment first, supervision second
Firms assess which services constitute electronic money issuance and which are payment services; the Bank of Lithuania will consult and review individual cases. No standardised form or exhaustive criteria list is planned, but practical principles and examples will accompany the guidance.
No forced redemption or product closures
Most products already function as payment accounts. The change is legal requalification, not commercial disruption — clients should notice little or nothing.
Safeguarding remains stable
Client fund segregation, safekeeping, investment and liquidity principles are essentially the same under both regimes. No new investment limits, mandatory allocations between central and commercial banks, or liquidity ratios are planned.
Capital calculations will change
Where activity is requalified as payment services, Methods A, B or C replace Method D. Hybrid models are possible where one part of the business remains issuance and another becomes payment services. Purely internal transfers within a platform do not, by themselves, constitute electronic money operations.
Substance over labels for partners
Whether a partner is a distributor or an agent depends on what the partner actually does, not on how the relationship is described in the contract. A partner may be treated as an agent where it receives client funds, participates in executing payment operations, influences the customer-service process, or performs other functions related to payment services. Requalified agents must be registered, and host-state supervisors may need to be notified.
Passporting will be updated, not rebuilt
Existing notifications survive; they must be reviewed and amended where they refer to electronic money issuance.
PSD3 is expected to introduce a separate authorisation process in the future
The forthcoming directive is expected to require a new authorisation round for the entire market. The current requalification should not be confused with that future process — but it should be planned with it in mind.
What this means for market participants
Do not wait for the final European position to start the analysis. Map every product against the definition of electronic money as narrowed by the Court of Justice of the European Union: is there a distinct, stored monetary asset accepted as such by third parties under a contractual arrangement? For many account-based models, this assessment may lead to the conclusion that the activity constitutes payment services rather than electronic money issuance.
Model the capital impact now
Moving from Method D to Methods A, B or C can materially change own funds requirements in either direction. Boards should see the numbers before the guidance arrives.
Audit your partner network
Any partner handling client funds or execution is likely an agent, whatever the contract says. Registration gaps create compliance risk, particularly in light of the implementation deadlines.
Review your documentation
Client contracts, precontractual disclosures, marketing materials, internal procedures, risk assessments, capital methodologies, reporting processes and passport notifications will all need review. The Bank of Lithuania has specifically flagged capital management, risk management, client contract reviews, client information processes, reporting processes, and the assessment of partner and agent models as the areas warranting closest attention, alongside the underlying internal policies and procedures. The Bank of Lithuania expects documented change management during the transition.
Issuers of electronic money tokens are the exception
That activity remains electronic money issuance — but other services of the same institution may still be requalified.
Expect dialogue, not enforcement, for now
The Bank of Lithuania has committed to consultations, seminars and methodological explanations, and will not act ahead of the common European position. Firms that engage early will be better prepared for implementation; firms that ignore the European Banking Authority’s 2026–2027 timeline will find themselves compressed against it.
Conclusion
The distinction between a payment institution licence and an electronic money institution licence is collapsing into a question of function rather than licence label. Lithuania is now aligning its supervisory approach with the emerging European interpretation of electronic money. For market participants, the message is equally orderly but unambiguous: the requalification process is expected to follow once a common European position is reached, the implementation timeline is already taking shape, and the firms that treat 2026 as preparation time rather than waiting time will face the lowest transition costs.
About the author
Inga Karulaitytė is a Partner and Head of Banking and Finance & FinTech at ECOVIS ProventusLaw, and one of the Baltic region’s leading voices on financial sector licensing and regulatory change. She advises financial institutions across the Baltic states on licensing, regulatory requalification and compliance. Inga is ranked in FinTech Legal by Chambers and Partners (2020–2026) and Highly Regarded for Banking and Finance by IFLR1000 and The Legal 500 (2019–2026). She is a Certified Anti-Money Laundering Specialist (CAMS), holds a certification in Global Sanctions Risk Management, and is a certified Board Member under the BICG Corporate Governance Certificate.
About ECOVIS ProventusLaw
ECOVIS ProventusLaw is a leading law firm operating across Lithuania, Latvia and Estonia and is part of the ECOVIS International network, present in more than 90 countries worldwide. Since 2014, the firm has helped clients secure more than 40 financial licences end-to-end across the Baltic states. The firm advises e-money and payment institutions through licence requalification, AML and compliance reviews, and partner and agent audits. The firm is consistently ranked by Chambers and Partners, IFLR1000 and The Legal 500 for Banking and Finance & FinTech.
