Payment cards are the preferred payment instrument in Luxembourg, accounting for 52% of the total payment transaction volume in 2017.
Banking penetration in Luxembourg is one of the highest in the world, and consumers are keen users of bank products and services.
The percentage of Luxembourg’s population aged 15 or above with a bank account was 97.3% in 2017. Luxembourg is also host to a number of wealthy individuals and large corporations, and the majority of banks offer private banking, wealth management and asset management services.
Payment cards are often cross-sold to customers as part of bundled offerings. A favourable tax regime and bankprivacy legislation have enabled financial services to become a growth leader.
The rising adoption of contactless technology contributed to the growth of payment card transaction volumes and values between 2013 and 2017. With a growing number of retailers accepting contactless payments, the increased use of contactless technology is anticipated to further drive payment card transaction values and volumes over the next five years.
Debit card preferred
Debit cards accounted for 55.2% and 54.2% of the payment card transaction value and volume respectively in 2017.
Growth has been supported by a gradual shift from low-value cash transactions to debit cards, and the availability of contactless cards. Some non-banks also offer debit cards, and the entries of digital-only banks such as N26 and FerratumBank have also supported the debit card market.
Germany-based mobile-only bank N26 launched operations in Luxembourg in November 2017. Account holders are offered a Mastercard-branded debit card to make payments in stores and online.
Similarly, Finland-based mobile-only bank FerratumBank offers services in several European countries, including Luxembourg. The bank offers a current account, an overdraft facility and a Mastercard contactless debit card.
Pay later growth
Pay-later card penetration in Luxembourg is among the highest in the world, with every citizen currently holding around three paylater cards.
Rising disposable incomes and real household consumption are the primary reasons for the strong uptake of pay-later cards among individuals. With Luxembourg’s largely wealthy population, banks are offering premium credit cards and a range of value-added services to these customers as part of bundled packages.
E-commerce in Luxembourg recorded strong growth, increasing in value from €466.1m ($559.3m) in 2013 to $899.2m in 2017, at a CAGR of 12.6%.
Increasing consumer confidence in online transactions and a well-developed logistics infrastructure have supported e-commerce’s growth. The availability of virtual payment cards and a number of alternative payment solutions for online purchases has also been a key factor.
In November 2017 the Luxembourg government announced the launch of national e-commerce platform LetzShop. The platform provides an opportunity primarily for small and medium-sized merchants to display and sell products online.
Products can be picked up from physical stores or delivered to the customer’s address. To make it cost-effective, transaction fees on purchases are waived for merchants, although an annual fee of around $600 is charged. This initiative is anticipated to boost e-commerce in the country, which will drive electronic payments.
The number of POS terminals grew from 11,608 in 2013 to 13,232 in 2017, mainly supported by an increase in the number of POS installations at smaller retail outlets.
To serve SMEs, payment service providers are offering mPOS solutions. In 2017, SumUp, a Germany-based POS provider, launched its mPOS solution in Luxembourg, allowing merchants to accept payments by mobile phone.
As preference for contactless payments grows, retailers are also installing POS terminals with contactless functionality.
According to Visa Europe, there were 7,000 contactless POS terminals in Luxembourg as of February 2018