While cash accounts for 52.7% of Latvia’s transaction volume, payment cards have gained popularity over the past decade and consumers are moving towards cashless adoption. Financial literacy programmes and an improved labour market have also played key roles in the Baltic state’s progress
In terms of transaction volume, the share of payment cards in Latvia’s cards and payments industry grew from 16.4% in 2011 to 27.8% in 2015.
Payment cards are mostly used for in-store payments, indicating that consumers are moving towards cashless transactions. This is also evidenced by the fact that the number of card transactions at POS terminals stood at 215.2 million in 2015 – almost four times the number of ATM transactions.
To facilitate non-cash transactions and improve the card payment infrastructure, participants are focusing on reducing the number of ATMs and increasing the number of POS terminals. This led to a decline in the number of ATMs from 1,207 in 2011 to 1,058 in 2015.
In contrast, the number of POS terminals increased at compound annual growth rate of 5.8% from 24,716 in 2011 to 30,973 in 2015, encouraging more card-based transactions.
Latvia recorded its highest growth in terms of transaction volume in 2014, the year it joined the eurozone, with 21%.
Inclusion programmes increase uptake
Financial literacy programmes play a key role in driving growth in the debit card market in Latvia, as the government and central bank have taken initiatives to bring more people into the formal banking system.
The Financial and Capital Market Commission, Ministry of Education and Science, National Centre for Education, the BA School of Business and Finance, the Consumer Rights Protection Centre, the Association of Commercial Banks of Latvia and the Latvian Insurers Association collectively formulated the National Strategy for Financial Literacy 2014–2020, to create awareness of the benefits of financial products and services. The strategy is also supported by the Ministry of Finance and the Ministry of Economics.
The Bank of Latvia also introduced financial education websites such as naudasskola.lv and manapensija.lv to promote awareness of financial services including investments, deposits, borrowing, settlements, and
insurance. SEB, Swedbank and Nordea Bank are also making efforts to improve financial literacy.
The focus on financial inclusion has led to a rise in bank accounts: according to the Bank of Latvia, 3.4 million payment accounts were opened in 2015. According to the World Bank, the percentage of the population aged 15 or above with a bank account reached 90.2% in Latvia in 2014 – higher than neighbouring Lithuania (77.9%).
Labour market improvement
Despite improvements in consumer purchasing power, credit cards have been slow to take off in Latvia, due to the debt-conscious nature of consumers and the popularity of cash. In terms of transaction value, credit cards accounted for just 11.5% of the cards and payments industry in 2015.
Household financial liabilities in Latvia decreased by $281.3m year-on-year during the second quarter of 2015. In contrast, consumer disposable income continues to grow with constant improvements in the labour market – the unemployment rate fell from 16.2% in 2011 to 10.2% in 2015.
During the first six months of 2015, the average gross wage rose by 6.6% year-on-year – the highest rate in the Baltic region. As a result, real household consumption rose from $15.5bn in 2011 to $17.3bn in 2015.
Improved consumer purchasing power and declining rates of household financial liability are expected to encourage consumer spending on luxury products; this is forecast to drive the use of credit cards and personal loans in Latvia.