marius jurgilas : who are non - banks and why are they important for us? opening remarks by mr marius jurgilas, member of the board of the bank of lithuania, at the conference “ non - banks in payment market : challenges and opportunities ”, organised by the bank of lithuania and the sveriges riksbank, vilnius, 8 october 2015. * * * it is a great pleasure for me to open the conference on non - banks in payment market. in 2007 federal reserve bank of kansas city hosted a similarly titled conference. it was the time when europe was still debating the modalities of the upcoming psd and steve jobs just introduced the first iphone to the world. now we have iphone 6 and psd2 and because of the another innovation by apple over that time – applepay the link between the two is relevant more than ever. let me briefly elaborate on two points : who non - banks are and why they are important for us. in general non - banks in the payment market mainly refer to the financial institutions that facilitate payment transactions for end - users. sometimes the definition goes even further and includes those entities that provide technology for the banks to facilitate for those payments. both groups are relevant as they deal with different problems. overall these institutions do not engage in financial intermediation or credit risk taking, like shadow banks, which do. we could start the list of non - banks in payments with traditional post offices that have been more or less active in payment market for ages. many have turned into banks or quasi banks by now. then we have electronic money institutions and payment institutions that joined the club not long ago. some of them tried to mimic banks ’ payments model and failed. a new wave of non - banks emerged in the age of smart phone. equipped with the latest technology and outof - box thinking they made a bald step – implemented new business models, in sectors where banks were slow to act. nevertheless, many early initiatives are struggling for a number of reasons. regulators as well as the industry need to understand what is still missing. payment initiation services as defined in the psd2 are a good bet. but the outlook is not all dark shades. last year the economist featured an article on the future of payments titled “ payments : the end of monopoly ”. the title speaks for itself – banks are losing the grip on payments market. but according to mckinsey 34 % of global profits banking industry is making from payments. therefore

assets, with the qfii quota fully utilized. portfolio consists of chinese government bonds only. however, i have some very recent news to share. just last week the board of the bank of lithuania made a decision to double our china on - shore exposure – up to an equivalent of eur 200 million. given the diversification benefits of the renminbi denominated assets, we consider this to be a logical next step in terms of our engagement in china. especially seeing that the market is maturing, and that the volatility in market interest rates has been decreasing over the recent years. going forward, we do see a potential of increasing our stake in this geographical region further. but, at the same time, we would like for some of the existing bottlenecks to be removed – encouraging further involvement of international investors. these are obstacles that we ourselves can identify based on our own practical experience. first, more clarity is needed on some of the financial market regulations. for instance, china ’ s foreign exchange regulator has decided to abolish quota restrictions on the qfii. however, an official ruling is yet to come out. some uncertainty remains regarding taxation as well. there is a lack of clarity on whether and how capital gains or coupons on some bonds would be taxed after november 2021 – and this can already influence current investment decisions. another barrier is the lack of interest rate hedging tools – for instance, foreign investors have not been allowed to trade bond futures yet. 2 / 3 bis central bankers'speeches finally, chinese policy bank bonds still remain outside of the eligible investment universe – due to the lack of explicit chinese government guarantees for these issuers. if such guarantees were provided, the highly liquid policy bank bonds could become a very attractive investment option. overall, there is surely room for china to attract more foreign institutional investors to china ’ s government bond market. the foreign institutional investor share has increased over the recent years – but there is a lot of potential for further growth. especially compared to other bond markets. on average, foreigners – both retail and institutional investors – hold a larger share of emerging market government bonds than china government bonds. and foreign ownership share is almost five times larger in case of the us or the oecd, and about eight times larger in case of germany. ladies and gentlemen, let me conclude with a few broader strokes on the future for renminbi internationalization. a more prominent international role for the currency would require a more