The payments sector in Luxembourg has been a key driver of its FinTech success, attracting a wide range of international payment firms that use Luxembourg as a base for their European operations. These firms take advantage of the country’s strategic location, robust regulatory framework, and ease of passporting services across the EU.
Why payments firms establish in Luxembourg
Luxembourg has positioned itself as a hub for international payments firms due to the combination of a business-friendly regulatory environment and strong industry expertise.
The country’s role as a hub for payments services lead to the European Payments Association (EPA) choosing Luxembourg as the HQ for their EU representation office in 2020.
1. Regulatory Clarity and Proactivity
Luxembourg is a proactive leader in implementing EU financial regulations, having been a first mover in adopting PSD2 and creating a predictable legal environment for payments firms. Its regulator, the CSSF, provides clear and comprehensive guidance, actively engaging with the industry to support compliance and foster innovation. This combination of early regulatory alignment and strong, transparent support makes Luxembourg an attractive and stable hub for payments firms operating across Europe.
Looking forward, Luxembourg is also advancing in instant payments through the integration of SEPA Instant Credit Transfers, which enable real-time euro transactions within seconds, 24/7. Further, under PSD3, select payment institutions in Luxembourg will be granted access to central bank accounts.
2. Passporting
Firms licensed in Luxembourg are able to passport their services across the EU and European Economic Area without the need to obtain additional licenses in other member states, simplifying their European expansion.
3. Access to Major Players
Leading companies such as PayPal, Alipay, Amazon Payments, and Rakuten have chosen Luxembourg for their European headquarters, benefitting from the country’s regulatory flexibility, financial infrastructure, and proximity to major European markets.
Licensing process for payments firms in Luxembourg
Payments firms are governed by the Law of 10 November 2009 on payment services, with a subsequent amendment by the Law of 20 July 2018, with transposed Directive (EU) 2015/2366 of 25 November 2015 on payments services in the internal market, i.e. PSD2.
Payments services in Luxembourg, in alignment with the law, are categorised under three main types of firms: Payments Institutions, Electronic Money Institutions, and Banks.
1. Payments Institutions (PIs)
PIs are versatile entities that can service both individuals and businesses, proving the infrastructure for secure and efficient payment processing both within Luxembourg and across the EU. They are able to offer a broad range of services, including enabling cash deposits and withdrawals, executing payment transactions, such as direct debits and credit transfers, issuing payment instruments, such as debit or credit cards, offering money remittance services, and facilitating account information services and payment initiation services.
2. Electronic Money Institutions (EMIs)
EMIs go beyond standard payment services, offering the ability to issue e-money – digitally stored value that can be used to facilitate payment transactions. Luxembourg’s EMI license is particularly attractive for firms looking to provide digital wallets, pre-paid cards, and other innovative payment solutions across the EU and EEA. Beyond being able to supply all services that PIs are able to, EMIs in Luxembourg are also authorised to provide others.
3. Banks
Banks licensed in Luxembourg can automatically offer both PI and EMI services, in addition to the other services usually permitted to such entities, such as deposit taking and credit granting.
Luxembourg is home to
international banks from over 20 different countries
Why you need a licence
In the EU, FinTech firms are required to obtain a license as soon as they engage in offering financial services, handling financial transactions, or accessing sensitive client data. This licensing is critical to ensure compliance with EU regulations designed to safeguard financial systems and protect consumers.
A properly regulated FinTech firm not only fulfils legal obligations but also enhances its credibility and trustworthiness among potential partners and clients. Being licensed offers the company itself legal protection, reducing the risk of penalties and regulatory issues.
In addition, obtaining a license ensures that FinTech firms comply with AML regulations, which are crucial for preventing illicit financial activities and maintaining the integrity of the financial system. For investors, counterparties, and customers, dealing with a licensed entity provides assurance that the company adheres to rigorous financial standards.
How to set up a payments firm in Luxembourg
Setting up a payments firm in Luxembourg involves several key steps:
1. Initial Contact with the CSSF
The process usually begins with an informal meeting with the regulator, where prospective applicants present their business model and an outline of proposed activities, including:
- Business plan and description of activities.
- Diagrams of the fund and data transfers linked to their activities.
- Overview of intra group and external outsourcing arrangements.
This is a vital step, allowing the CSSF to provide guidance and clarify regulatory expectations prior to any formal submission.
2. Application Drafting
Following the initial meeting, applicants must draft their formal application, detailing their business plan, organisational structure, and compliance mechanisms. The CSSF reviews the application and may request additional information through feedback rounds.
3. Company Incorporation
To obtain authorisation in Luxembourg, PIs and EMIs must be incorporated under Luxembourg law as public limited companies (Société Anonyme – SA). This ensures that the entity meets the corporate governance standards expected within the financial sector.
Additionally, firms are required to establish relationships with EU banking providers for operational banking services. For EMIs, it is crucial to arrange for segregated bank account services to manage client funds securely and in compliance with regulatory requirements.
The Luxembourg entity is also required to employ a workforce that is proportionate to the volume of transactions and the scope of payment services it intends to provide. The exact staffing requirements are flexible and are typically discussed and agreed with the regulator. This ensures that the company is equipped with adequate resources to manage its operations in line with regulatory expectations.
The PSL Law sets minimum capital requirements of at least:
- EUR 20,000 to EUR 125,000 for a PI, depending on the type of payment services offered.
- EUR 350,000 for an EMI
The entity must at all times respect the own funds requirements as set out by the Law.
4. Final Submission and Approval
Once the company has addressed all regulatory requirements, established its operational teams, and formed the necessary partnerships with service providers, the CSSF will signal approval for the formal submission of the application. The application process includes a thorough verification by the CSSF to ensure that the company meets all legal and regulatory standards. Once these conditions are satisfied, the CSSF will issue the license.
Upon granting the license, the CSSF send an official letter to the supervised entity detail the periodic legal reporting obligations the company must fulfil. This ensures ongoing compliance and transparency in operations.
Luxembourg-authorised PIs and EMIs may extend their services across the EEA through passporting. This allows the entity to offer its services in other EEA countries either through cross-border provisions or by establishing a local branch or subsidiary. The passporting process involves a regulatory notification to the CSSF, and the applicant must inform the CSSF in advance of the specific markets and services it intends to target through the passporting mechanism.
An application filing fee of EUR 30,000 is also required to be paid to the regulator at the time of final submission. An annual lump sum fee must also be paid to the regulator by both PIs and EMIs based on the volume of payment transactions of the preceding year:
- ≤ 1 billion transactions = EUR 30,000
- > 1 billion transactions = EUR 40,000
