As Lithuania’s banking regulator is expanding the plan of basic payment services commercial banks must offer to their clients at a fixed price, banks themselves call it “planned economy”.
A payment card, cash withdrawals from ATMs, and access to online banking tools are some of the basic services that commercial banks operating in Lithuania must provide for their customers at a fixed price.
The bundle of basic banking services was introduced by the central bank in 2017. It also set a price at which this basic plan has to be provided, 1.45 euros a month.
This year, the Bank of Lithuania has reviewed the package and is introducing some changes.
First of all, banks will have to raise the sum of cash withdrawals provided for free. At the moment, the limit is 550 euros a month.
“The main change is that people who have opted for the regulated basic bundle of payment services will be able to withdraw 800 euros per month [for free],” says Gediminas Šimkus, head of the Bank of Lithuania.
Moreover, clients will be able to make 15 online transfers without additional fees, instead of 10.
And the price banks can charge for this bundle of basic services will go down from 1.45 to 1 euro.
“This is the basic plan of payment services. Payment services, I would say, are the milk and blood of the financial system,” says Šimkus.
Commercial banks are predictably unhappy with the changes.
“The price of the service plan is being reduced to 1 euro and its composition expanded. This does not follow any economic logic and is therefore populism,” says Eivilė Čipkutė, president of the Lithuanian Banking Association.
The banks are most upset with the raised limit of free cash withdrawals.
“According to the central bank’s own data, in 2023 the average person withdrew 268 euros per month. This begs the question, where did that figure of 800 euros come from?” says Čipkutė.
Šimkus, of the Bank of Lithuania, argues that the regulations are a way to find the right balance between the interests of banks and the users of payment services.
But the head of the Banking Association calls it a Soviet-type planned economy.
“If we still call ourselves a market economy, then the market participants would like the supervisory authorities to behave accordingly. What we have now is akin to a planned economy with commands what goods to produce and how much to charge,” insists Čipkutė.
According to a consumer rights group, the raised limit of cash withdrawals is in line with recent inflation.
“The increase in the cash limit is a real reflection of inflation. That is, the purchasing power of that amount of cash has remained the same. Therefore, the central bank’s decision to increase the cash-out limit is simply an objective reality,” says Rytis Jokubauskas, vice president of the Consumer Alliance.
He believes regulation to make banks offer better and more affordable services is long overdue.
“The question is now whether commercial banks will not try to compensate their losses through some other services,” cautions Jokubauskas. “We will see.”
The changes will take effect next year and will remain in place for three years.
According to the Banking Association, around 3 percent of all customers have signed up for the basic plan that is mandated by the central bank. All the other clients use different plans at unregulated prices.
According to consumer rights groups, the problem is that most people are not aware of which plan they are on and how much their bank charges them.
The Bank of Lithuania hopes that people will now find it attractive to choose the price-regulated plan.
The Banking Association also argues that more free cash withdrawals will increase the share of cash transactions and, therefore, the shadow economy.
According to the Bank of Lithuania’s data, commercial banks operating in the country earned a net profit of 986 million euros in 2023, which was twice as much as in 2022 (491 million euros). This was mostly due to the European Central Bank’s decisions to raise interest rates and despite the temporary tax on windfall profits – the so-called solidarity levy – introduced by the Lithuanian government for 2023–2024.
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