Credit: PwC

PwC Luxembourg has released the 2022 edition of "Banking Trends and Figures" which measures the evolution of the Luxembourg banking sector.

Luxembourg banking market net profit increases by 30.8%

The Luxembourg banking sector continues to operate a formidable and dynamic banking ecosystem, marked by consistent growth in assets and evolving business models largely focused on client proximity. Even though the year 2021 saw a slight decrease in the total number of authorised banks, overall banking assets grew by 11.9% to hit €951.7 billion from €850.1 billion the previous year and net profit increased by 30.8% - a testament to the high performance of the country’s banks.

With 124 authorised banks at the end of the financial year 2021, the number of banks in Grand Duchy has decreased by four.

The sector is also undergoing a structural reshaping, with the ongoing disruption brought about by rapid technological innovation intensifying the need for new business models, operations and processes. Of all the subsectors within this sector, the payment sector perhaps stands as the archetype of how technological innovation can reshape an industry’s approach and create an obligation to change.

The new payments landscape

Digitalisation is radically changing the European banking landscape - especially within payments, which is in a new phase of the so-called payment revolution that started three decades ago. Factors such as the demand for instant payments, the entry of fintech and big tech players, and the Artifical Intelligence-enabled integration of financial service offerings within traditionally non-financial platforms have accelerated the digitalisation of payments and effectively limited the use of physical cash in recent years.

The impacts of the payments revolution on the financial services industry and how banks are facing up to the market changes in this emerging landscape is particularly important for Luxembourg, given the country’s significant role in financial services and as a hub for some of the leading technology players driving the evolution of payment methods.

In this report, PwC Luxembourg has identified three main shifts that are underpinning this new payments landscape, instigating the structural growth and transformation of banks and pushing the boundaries of digitalisation towards the strengthening of their value proposition:

  • Demand for instant payments disrupts the ecosystem and infrastructure
  • Big Tech’s entry presents a new and complex layer of competition within the payments ecosystem
  • Innovation of B2B payments represents the new frontier of payments.

The disruption of the payment ecosystem affords a greater opportunity for banks, fintechs, big tech firms and regulators alike to re-assess their strategy for greater value yield. More importantly, it is allowing banks to transform or upgrade in order to consolidate their position as market innovators and leaders, according to PwC.

In this context, we have identified five strategic considerations that will advance banks' adaptation and set them up for greater value-creation in this new payments segment:

  • Differentiate your business/organisation by leveraging opportunities within the B2B landscape
  • Partnerships with FinTech will lead to a win-win situation
  • Anticipate further changes in the payments landscape
  • Drive the development of global payments solutions
  • Regulators have a role in levelling the playing field