You are probably reading this because you recently received an email from Revolut announcing that your account is being moved to an entity in a small and relatively unknown European country – Lithuania.
If you have been living under a rock and do not know what we are talking about, Revolut is a global payment service provider, originally established in 2015 as a modern alternative to certain bank services, including e-transfers, currency exchange, card payments and cash withdrawals, available globally. To the horror of the banking industry, Revolut also offers a number of additional perks that depend on a client’s location, such as integrated stock and cryptocurrency trading accounts, airport lounge access and personal concierge.
As of today, Revolut operates in 31 European countries, several in Asia Pacific and a few in the Americas. A month ago, Revolut expanded to the United States market – a move likely to dethrone the current incumbents – Venmo and Transferwise, given the much wider scope of services and perks offered by Revolut.
Please mind that this article is neither legal advice nor should be treated as an exhaustive description of all applicable laws.
Why now?
As an England and Wales based company (operating as Revolut Ltd.), which services customers all over Europe and globally, Revolut timely identified issues Brexit could cause in its operations. In an effort to mitigate the regulatory and business uncertainty and ensure smooth continuous provision of services, in March 2020 Revolut announced that all customers in Central and Eastern Europe are being moved to their new European entity in Lithuania – Revolut Payments UAB.
For many Revolut’s users, this might have been the first time they heard about Revolut’s ties to Lithuania, however, Revolut had actually been working on establishing a presence in Lithuania as early as 2016. In fact, Revolut Payments UAB has been operating in Lithuania under an electronic money institution license since the end of 2018.
How is Revolut supervised?
For years now, Revolut has been providing services under an electronic money institution license – the activities of Revolut, being narrower than those of a commercial bank, did not require a banking license. Thanks to European Union regulations, an electronic money institution licensed in one European Union member state, is allowed to provide services in other European Union countries under the same license and is not required to obtain a license in each member state. This simplified procedure initially allowed Revolut to provide services in the European Union, including Lithuania, through Revolut Ltd.
For those worried about the shift to Lithuania, European Union electronic money institutions, similarly to other financial market participants, are all strictly regulated and supervised by European Union authorities. On the national level, electronic money institutions are supervised by central banks of European Union member states, in which such electronic money institutions are licensed or operate with or without a branch. Each such central bank is simultaneously under supervision of institutions of the European System of Financial Supervision and under the obligation to comply with all applicable European Union regulations.
As a result, regardless of where a European Union electronic money institution is licensed, it must comply with same European Union regulations, including, among others, rules regulating payment services provision, electronic money issuance and remittance, and even anti money laundering (and consequently, KYC and AML). In other words, there is no cause for concern as Revolut Payments UAB is just as heavily regulated as Revolut Ltd was.
Of all places then, why Lithuania?
Over the past few years Lithuania has established a reputation as home to one of the fastest growing fintech sectors in the European Union. The list of fintech startups established in Lithuania only in 2019-2020 is overwhelming, especially taking into account the size of the country.
Having set up a relatively straightforward and fast licensing processes, Lithuania has created a welcoming environment for companies specializing in financial technology. At the same time, being a member of the European Union and the euro area, thus regulated by the European System of Financial Supervision, Lithuania ensures a safe and regulated environment for both payment service providers and their customers. Bank of Lithuania, the central bank of Lithuania, supervises all financial institutions operating in Lithuania in line with European Union regulations and under supervision of European Union authorities.
Is Revolut becoming a bank?
In late 2018, Revolut acquired another European banking license that was issued by the European Central Bank to Revolut Bank UAB – an entity registered in – you guessed it – Lithuania. Even thought, as an electronic money institution, Revolut is already under strict scrutiny to ensure security of its customers’ funds and transactions, under the European banking license Revolut can engage in a much wider scope of activities. Among many perks of this development is the protection of customers’ funds under the European Deposit Insurance Scheme.
As a testing ground, the first offers to switch to Revolut Bank UAB were made to some Lithuanian Revolut’s customers in March 2020. The switch, together with all the perks thereof, however, seems to be in the works for all remaining Revolut’s European customers as well.
Revolut in the United States
The Lithuanian licenses of Revolut can only go so far – no, Revolut in the United States is not the same Revolut Payments UAB or Revolut Bank UAB. In the United States Revolut operates as Revolut Technologies Inc., a Delaware corporation, while its banking services are provided by Metropolitan Commercial Bank, Member FDIC.