Debit cards accounted for over 90% of total card transaction volume and total card transaction value in 2015. The high banked population is now looking towards other forms of payment including contactless cards and mobile payments. However, the banks and card issuers are heavily pushing credit cards
Card transactions in Estonia recorded robust growth between 2011 and 2015, surpassing cash transactions to become the dominant payment instrument.
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In terms of transaction volume, payment cards accounted for 42.2% of the total cards and payments industry in 2015, while cash accounted for 34.8%. The use of payment cards for daily purchases increased considerably in the last decade in the country. Nearly 90% of individuals use payment cards for daily purchases in 2015, as compared to only 33% in 2001.
Payment card penetration – the number of cards per inhabitant – in the country is highest among its Baltic peers at 1.40, compared to Latvia (1.21) and Lithuania (1.18). Moreover, Estonia’s young population are the most prolific users of payment cards in the Baltic region. According to a survey by SEB in 2015, 76% of the population aged 18-25 years in Estonia uses payment cards for all purchases, in comparison to 59% in Latvia and 40% in Lithuania.
Low card fraud instances, coupled with a high card use rate, make Estonia a prominent country in the European cards and payments market. A 2015 report by the European Central Bank indicates that at five card frauds per 1,000 people, Estonia was the lowest-ranking, as compared to the average of 20 card frauds per 1,000 population in the SEPA region.
Estonia also has a robust banking infrastructure among its Baltic peers. ATM penetration – the number of ATMs per 100,000 inhabitants – in the country stood at 62.7, higher than Latvia (53.6) and Lithuania (44.6).
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By GlobalDataIn addition, POS terminal penetration – the number of terminals per 100,000 inhabitants – was 2,294.2, higher than Latvia (1,568.2) and Lithuania (1,469.1).
To further increase access of banking services among rural consumers, the state-owned postal service Eesti Post launched a cash withdrawal service through its mail carriers in May 2015.
The service allows consumers to withdraw up to $444.30 (400) per transaction using cards at mobile POS terminals provided by mail delivery personnel.
Debit cards continue to dominate
Debit cards remained the most widely used form of payment card between 2011 and 2015, and accounted for 91.5% of the total transaction volume in 2015.
In terms of transaction value, debit cards accounted for 90.4% of the total value of payment card transactions in 2015.
Debit card penetration in Estonia is the highest in the Baltic region, with 114 cards per 100 inhabitants, compared to peers Latvia (86.8) and Lithuania (93.3).
Debit cards remain a key retail payment mode, and are generally provided as a complementary product when opening a bank account.
The high banked population resulted in high adoption of debit cards in the country. Banking penetration is very high in Estonia, at 97.7% in 2014 according to the World Bank’s Global Findex survey.
Contactless payments drive transactions
Europe has the world’s highest adoption of contactless payments.
Estonian banks plan to aggressively embrace this technology to emulate their European counterparts and provide payment convenience to customers.
All ATMs are expected to be equipped with contactless functionality by 2020, while new POS terminals are expected to have contactless functionality by 2017, in accordance with MasterCard requirements.
To expedite the process, Swedbank and LHV Bank have indicated plans to launch contactless cards by the end of 2016, and Swedbank has announced it will transform its payment terminals to contactless technology by 2016. In a similar initiative, SEB plans to introduce its contactless cards to the market by 2017.
E-commerce offers scope
The e-commerce transaction value in Estonia grew from $102.2m (73.5m) in 2011 to $188.8m (170m) in 2015. Internet banking services remain the most popular online activity, followed by reading newspapers and magazines, using email, and seeking information about products and services.
According to Statistics Estonia, the number of residents purchasing online increased by 10% in 2015 compared to 2014.
In addition, Eesti Pank estimated that the average number of daily online purchases rose by 25% in the first quarter of 2015, compared to the same period in 2014.
On average, 16,000 online purchases worth 847,000 were made during the first quarter of 2015. Nearly 61% of total e-commerce transactions were made using debit cards during this time.
Travel and accommodation services remain the most purchased products and services, followed by tickets for concerts, cinema, theatre and other events; and clothes or sports equipment.
In a bid to become a global e-commerce destination, Estonia offers e-Residency, a digital identity, to any global citizen to help them set up a business in Estonia, and carry out online business across the EU.
e-Residency helps business owners to obtain a physical company address, and access government and private sector e-services. Businesses from the US, Finland, Russia, the UK, Canada and India have already shown interest in the service.
Banks and card issuers taking initiatives
To increase credit card adoption in the country, banks are offering several benefits to consumers, such as instalment facilities, longer interest-free credit periods, discounts, reward points and cashback offers.
For example, SEB launched its MasterCard World Elite credit card in October 2015, to provide exclusive benefits and privileges to private banking customers.
Cardholders can access unique services such as MasterCard Concierge personal assistant for 24-hour help with booking a restaurant or hotel, priority basis security checks at Tallinn Airport, and access to 700 airport lounges worldwide.
To further increase credit card uptake, banks in Estonia now offer credit cards with special features and discounted fees. Swedbank, for example, offers the MasterCard Fixed Payment Credit Card with no maintenance charge to customers with a monthly income of 300.
Similarly, SEB offers a credit card which is issued without any fee; the monthly maintenance fee is waived for Super+, 60+, Senior and Family Plan account holders.
Other initiatives taken by credit card issuers include targeting niche consumer segments, such as high-income customers and the young population.
Banks are largely focusing on the middle- and high-income populations, and offering value-added services such as reward points and discounts on purchases at partner retailers to increase credit card penetration.
For example, Nordea Bank offers the MasterCard Gold Card, which has a cash deposit facility. Cardholders can deposit cash to their card account, increasing the available funds on the card.
