The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.

We continue our series of European payment landscapes with a profile of Luxembourg, which is characterised by the highest banking internationalisation rate in Europe as well as great rates of online banking and digital payments utilisation. We interviewed Marc Hemmerling, General Counsel, Digital Banking, FinTech and Payments, the Luxembourg Bankers’ Association (ABBL), to learn more about payments in this country. In addition, our infographic summarises all you need to know about the Luxembourg payment landscape.

How strategic are payments for Luxembourg and its financial community?

In recent years, payments have become a strategic service offered by banks as emerging new players such as electronic money or payment institutions entered the payments market. This move to a strategic service has been amplified by the new revised Payment Services Directive (PSD2) legal framework, which is intended to foster competition and innovation in the interest of payment service users – both private customers and corporates. With the continuous support of the Luxembourg government, the Luxembourg financial centre with its high-performance eco-system has been able to attract numerous international payment service providers (PSPs) in recent years. 

What are the current main features of the payment landscape in Luxembourg, and how has it evolved in the recent past?

In the recent past, the payment landscape was dominated by a limited number of retail banks, serving mainly the domestic market as well as the greater region than Luxembourg. With the arrival of international PSPs, new innovative services such as e-money issuance, e-wallets, mobile payments and crypto-currency exchange are offered on the domestic, European and international markets. The presence of these actors entailed the emergence of many specialised services, PSD2/open-banking hubs such as highly secured tier IV data centres, cloud computing resources and specialised IT services. Therefore, it should be mentioned that those players’ growing business explains the explosion in the number of transactions and the volumes handled by the Luxembourg financial sector.

For example, in 2018, the number of card payments per capita was more than twice the European average¹.

Can you tell us about the status of the implementation of the Single Euro Payments Area  (SEPA) Instant Credit Transfer (SCT Inst) scheme in Luxembourg and what future developments you expect in this area?

At the end of 2018 under the leadership of ABBL – which also acts as National Adherence Support Organisation (NASO) for SEPA payment schemes for Luxembourg – seven SEPA participants decided to define a SCT Inst roll-out strategy and plan and committed to offer the service to their customers. A branch of an international bank joined the ranks and has offered SCT Inst since 2019, bringing the total number of SCT Inst participants registered, or in the process of registration, to eight.

During a number of workshops, the community of those seven banks defined the main characteristics of the instant payment service: SEPA-wide reach (in/out), amounts limited initially to 15,000 euros and a maximum processing time of ten seconds in line with the SCT Inst scheme’s standard features. These parameters will be adapted over time based on operational experience or market demand.  There will be no ‘big bang’, and each of the participants will offer the service at its own pace. However, at the end of the initial roll-out plan in 2022, some seventy-one percent of payment accounts will have access to instant payment services. The remaining 57 SEPA banks may join gradually after 2020, in accordance with their business strategy.

Finally, a broader question: how do you see the Luxembourg payment landscape developing over the coming five years?

Beside the existing actors, many new innovative payments businesses are currently in the start-up process, bringing new innovative solutions to the domestic and international markets.

Meanwhile, all the players face operational and technical challenges: moving towards real-time payments, migrating to new standards and preparing a cash-light society. Therefore, the payment providers in Luxembourg are working hard on the development of innovative, convenient and resilient payment services.

^{1 European Central Bank, 2018 statistics.}

Infographic: The payment landscape of Luxembourg (January 2020)

(Click to enlarge and download)