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March 13, 2017updated 21 Jan 2022 11:39am

Estonia’s younger consumers making the digital push

Estonia’s population aged 18-25 are substituting cash for payment cards; the country has the highest debit card penetration in the Baltic region. With the floodgates for contactless and e-commerce very much open, digitalisation is the natural step given the younger generation’s responsiveness to cashless alternatives

By Verdict Staff

Estonia’s population aged 18-25 are substituting cash for payment cards; the country has the highest debit card penetration in the Baltic region. With the floodgates for contactless and e-commerce very much open, digitalisation is the natural step given the younger generation’s responsiveness to cashless alternatives

Card transactions in Estonia recorded robust growth between 2012 and 2016, surpassing cash to become the dominant payment instrument. In terms of transaction volume, payment cards accounted for 44.3% of the cards and payments industry in 2016, while cash accounted for 33.6%. In total, 90% of individuals used payment cards for daily purchases in 2015, as compared to only 33% in 2001.

Payment card penetration stood at 1.40 in 2016, which is higher than Latvia (1.25) and Lithuania (1.24). Estonia’s young population are among the most prolific users of payment cards in the Baltic region. According to a survey by SEB in 2015, 76% of the Estonian population aged 18-25 used payment cards for all purchases, in comparison to 59% in Latvia and 40% in Lithuania.

Low levels of card fraud make Estonia a model country in the European cards and payments industry. A 2015 report by the European Central Bank indicated that at five instances of fraud per 1,000 people, Estonia was the lowest-ranking nation in the Single Euro Payments Area, where the average is 20.

The country has a robust banking infrastructure. ATM penetration – the number of ATMs per 100 inhabitants – stood at 7.8,  lower than its Baltic peers Latvia and Lithuania, which had respective penetration rates of 10.5 and 11.7. POS terminal penetration stood at 346.9, compared to the same two countries which had respective rates of 335.8 and 536.7.

All ATMs are expected to have contactless functionality by 2020, while new POS terminals are expected to have contactless functionality by the end of 2017. Swedbank, Nordea Bank and LHV Pank have already launched contactless cards to expedite the process.

Highest debit penetration in Baltic region

Debit cards remained the most widely used payment card between 2012 and 2016, and accounted for 91.8% of the total transaction volume and 90.5% of the total value of payment card transactions in 2016.

At 116.3 cards per 100 inhabitants, debit card penetration in Estonia is the highest in the Baltic region, compared to Latvia with 85.2 and Lithuania with 108.9. According to the World Bank’s Global Findex Survey, banking penetration in Estonia reached 98.1% in 2016; as debit cards are generally complementary account products, the reason for their high penetration rate is clear.

In addition to banks, mobile banking service provider Pocopay launched its service in February 2016. It allows customers to open and operate Pocopay bank accounts using mobile phones. There are three account types: Poco Power, Poco Basic, and Poco Power Youth. Poco Basic has no monthly fee but has limited transaction functionality. The Poco Power account is available for a monthly fee of $3.20 (€2.90), and carries no transaction fees. The Poco Power Youth account is for individuals aged 18-26, carries a monthly fee of $1 and has the same features as the Poco Power account. All account holders are offered a MasterCard contactless debit card.

Contactless to gain prominence

Europe has the world’s highest adoption of contactless payments. Estonian banks plan to embrace the technology. Estonia had an internet penetration rate of 88.4% in 2015 and in 2016, smartphone penetration measured 38%. SEB plans to introduce contactless cards by 2017. Due to a government focus on improving broadband penetration and speeds, the advent of 3G and 4G technologies, and the growing popularity of smart devices, penetration is anticipated to deepen.

E-commerce

Estonia’s e-commerce transaction value rose from $126.3m in 2012 to $216.4m in 2016. Internet banking services remained the most popular online activity. According to the Central Bank of Estonia, an average of 70,000 online purchases were made each day during the first quarter of 2016; this included 50,000 purchases from domestic online retailers.

While online banking remains the most popular method of payment at domestic e-retailers, bank cards are generally used to make purchases from foreign websites.

Consumers also used e-wallets, mobile wallets and carrier billing services. According to Eesti Pank, for online transactions completed in the first quarter of 2016 an average payment of $57.10 was made through bank links, while for payment cards the average was $54.90.

The average online purchase via a payment card was $73.90, and the average payment via credit card was notably higher than the average payment by debit card, at $66.10 and $48.20 respectively.

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