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  1. Analysis
July 24, 2019

Luxembourg: Penetration levels high in a mature, wealthy market

By Patrick Brusnahan

Luxembourg’s payment card market is mature, with a high penetration rate of 4.6 cards per inhabitant. Cards are the preferred payment instrument in the country, accounting for 54.1% of the total consumer payment transaction volume in 2018.

Improved payment infrastructure, high consumer awareness of payment cards, enhanced security and the growing adoption of contactless payments will support this growth. Luxembourg is also home to a number of wealthy individuals and large corporations, and the majority of banks serve them by offering private banking, wealth management and asset management services.

 

Credit cards are mostly offered as part of bundled banking packages. Meanwhile, debit cards are widely used by consumers for low-value payments.

E-commerce registered robust growth between 2014 and 2018; this trend is expected to continue, providing further opportunities for growth in the payments market.

Rising adoption of contactless technology has contributed to growths in the payment card transaction volume and value over the last five years. With a growing number of retailers accepting contactless payments, this trend is likely to further drive card transaction values and volumes between now and 2022.

Debit card payments

Debit card penetration in Luxembourg stands at 1.3 cards per individual, supported by a strong adult banked population, which stood at 99.2% of the total adult population in 2018.

Additionally, the recent entries of digital-only operators such as N26 and Ferratum Bank have further supported the debit card market’s growth.

The frequency of debit card payments is rising progressively, registering a healthy CAGR of 5.5%, growing from 78.1 times a year in 2014 to 96.9 times in 2018. Rising use has been supported by the availability of value-added services and growing acceptance of contactless debit cards at retail outlets.

Credit cards preferred

Credit card penetration is high in Luxembourg, with each individual holding three cards as of 2018.

Consumers are also avid users of credit cards, which accounted for 61.8% of total card payment value in 2018. This is supported by banks offering credit cards alongside banking packages, as well as rising disposable income and household consumption in the country.

Banks are also offering private banking services along with premium credit cards and a range of value-added services to wealthy customers as part of bundled packages.

E-commerce growth

E-commerce in Luxembourg grew from €535m ($612.9m) in 2014 to $928.5m in 2018 at a CAGR of 10.9%.

Growth was supported by rising interest in online shopping, government initiatives, and an increasing number of online merchants. To capitalise on this, the country’s major banks offer virtual cards exclusively for online shopping.

In addition, the availability of alternative payment solutions such as Digicash, Cashcloud and PayPal is expected to stimulate the local e-commerce market.

To promote e-commerce among the country’s merchants, in September 2018 the Ministry of the Economy launched a national e-commerce marketplace, LetzShop, enabling merchants to sell goods online.

To drive adoption, the marketplace charges no commission on transactions – just a flat annual fee of $572.77. During its launch, the website featured around 100 shops with over 350,000 items for sale.

 

Mobile POS

Payment services providers are offering innovative products such as mobile POS terminals in Luxembourg.

Worldline offers the Yoximo mobile payment terminal, enabling merchants to accept card and contactless payments. In September 2017, Germany-based mobile POS provider SumUp launched its mobile POS solution in Luxembourg, allowing merchants to accept payments using a mobile phone.

To capitalise on the growing payment infrastructure, payment solution providers are also offering POS solutions. Digicash, for example, introduced the Digicash Beacon terminal in 2014. The terminal uses Bluetooth Low Energy and NFC technology to enable merchants to accept contactless payments.

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