Estonia, often referred to as “e-Estonia” for its advanced digital infrastructure, has emerged as a unique player in the global payment market. With a population of about 1.3 million, this Baltic nation exceeds expectations regarding innovative payment solutions and financial technology. Estonia had an internet penetration rate of 92% in 2022, reflecting how tech-savvy that population is. As a result, the country has a growing ecommerce industry, with ecommerce revenue projected to surpass $1 billion in 2025.

Central to Estonia’s payment environment are its digital ID system, which facilitates safe and easy online transactions, and its e-Residency program, which welcomes international entrepreneurs and businesses. This blend of technology adoption and entrepreneurial spirit has positioned Estonia as a global leader in e-governance and ecommerce.

Below, we’ll explain what you need to know about Estonia’s payment market, including:

• Understanding local payment preferences
  
• Complying with EU regulations
  
• Maintaining high security standards
  

The state of the market

Estonia aims to build secure, effective payment systems by implementing strict regulatory oversight. The Financial Supervision and Resolution Authority plays an important role in ensuring the stability and integrity of the financial market. The country also follows the EU’s regulations, including the rules of the Single Euro Payments Area (SEPA), facilitating smooth cross-border transactions within the EU.

Digital identity is a core feature of secure online transactions, best demonstrated by the e-ID system and e-Residency program. E-Residency, in particular, shows the nation’s commitment to digitization—this program attracts global entrepreneurs and businesses that want to tap into the EU market.

Estonia is renowned for its forward-thinking attitude toward payments. Estonian customers use mobile payments and digital wallets widely, with an increasing number using apps such as Smart-ID and Mobile-ID for authentication. The nation’s progressive stance on blockchain technology has also led to the development of projects such as e-Residency’s blockchain-powered notary service.

Payment methods

Estonia has an advanced digital payment environment and close ties to EU member countries, and both shape its payment systems.

Usage

Estonia is at the forefront of technological advancements, so cash payments have been steadily declining. European Central Bank (ECB) data shows that card payments constituted 48% of all point-of-sale (POS) transaction value in Estonia in 2022. The growing adoption of contactless payments, digital wallets, and digital banking services has further diminished the dependence on cash. Estonia’s pioneering use of digital identities such as the national ID card and Mobile-ID has created an environment in which secure, efficient digital payments are the norm. QR code payments are also gaining traction, a testament to Estonia’s tech-forward attitude and readiness to embrace the future of payments.

Estonian customers have a strong affinity for electronic payment methods, and the majority of the population appreciates their convenience, speed, and transparency. The ECB report showed that card and cash payments each accounted for 46% of POS transactions in 2022. Though cash is still used, the prevailing trend aligns with the global shift toward cashless payments. The COVID-19 pandemic also contributed to the decline in cash payments, accelerating digitization and particularly contactless payments worldwide.

Estonian regulators have shaped the country’s payment systems in many ways, including by encouraging electronic payments and offering tax incentives to businesses and individuals. These incentives promote greater transparency in transactions and help to combat financial fraud. There’s no limit on cash payments, but that could change if the EU adopts a proposal to limit cash payments to €10,000 across all member nations. These regulatory measures demonstrate Estonia’s commitment to maintaining the integrity of its financial system and building trust in electronic payment methods.

Estonians in urban and rural areas use credit cards. A variety of establishments, including cafés, grocery stores, and online retailers, often accept them. In 2024, there were nearly 28 million credit card transactions in the country—roughly 23 transactions per capita. Estonia’s high internet penetration rate has contributed to the extensive adoption of online shopping, driving the use of credit cards for online payments.

Popular B2C payment methods in Estonia

• Credit cards
  
• Mobile payments
  
• Pay by link (e.g., Swedbank, SEB, Luminor)
  

Popular B2B payment methods in Estonia

• SEPA transfers
  
• Credit cards
  
• Third-party payment processors
  

Trends

Contactless payments are increasing in popularity in Estonia because of a combination of convenience and hygiene considerations (the latter especially during the pandemic). ECB data shows the share of contactless card transactions in Estonia increased from 35% of all POS card payments in 2019 to 48% in 2022, reflecting the growing and enduring preference for touch-free transactions.

Mobile payment adoption is increasing as well, particularly among tech-savvy younger generations. According to data from the Bank of Estonia, mobile payments—facilitated by digital wallets and dedicated apps—accounted for 16.5% of card payments in Estonia in the first quarter of 2023, an 8% increase from a year prior. This indicates growing customer acceptance and confidence in the security of mobile payment options.

Ease and friction of entry

As you plan your business strategy for Estonia, study its tax structure and the regulations governing chargebacks and disputes.

Taxes

The value-added tax (VAT) rate in Estonia is 22% for most goods and services. Though customers pay VAT when making purchases, businesses must collect and remit the tax to the government. Late or improper VAT remittance can result in fines.

Chargebacks and disputes

Estonia has a customer-centric resolution process for chargebacks and disputes, influenced by EU regulations and local laws. The EU Consumer Rights Directive and the revised Payment Services Directive (PSD2) have shaped Estonia’s chargeback process, granting customers high levels of protection, including the right to initiate chargebacks with relative ease.

Estonia places the burden of proof on businesses during disputes. Businesses in this nation have shorter windows for response than those in many other countries, requiring swift action when a dispute occurs. Their documentation requirements are also more extensive, requiring better recordkeeping practices. Consequently, businesses in Estonia need to meticulously build their operations for chargeback management to adapt to these dispute resolution requirements.

International payments

Despite its relatively small size, Estonia has a payment market that is connected with various global markets, regionally and internationally. These relationships with larger, more technologically advanced markets reflect the nation’s position in the global payment space. Here’s how international payments work in Estonia:

• Currency conversion: For travelers coming to Estonia from countries outside the euro area, currency conversion often occurs at financial institutions or specialized currency exchange centers. Typical exchange rate markups range from 1% to 3% over the interbank rate, with some banks charging a flat fee of €5–€10. ATMs in Estonia might allow withdrawals in foreign currencies for a small service fee. Currency conversion in Estonia follows EU regulations, specifically PSD2, which mandates full transparency in conversion rates and fees.

• SEPA: As a member of the EU, Estonia operates within SEPA, which simplifies euro-denominated, cross-border transactions and connects Estonia’s payment market to those of other EU member states such as France, Germany, and the Netherlands.

• Trade partnerships: Estonia shares a common commitment to SEPA regulations with Latvia and Lithuania, and all three have a simplified cross-border payment environment. Estonian businesses often trade with their Baltic counterparts.

Security and privacy

Estonia prioritizes payment and data security. According to ECB data, card fraud in Estonia constituted just 0.01% of total transaction value in 2021, a promising sign that its security measures are effective.

• Data protection laws: Estonia diligently follows the EU’s General Data Protection Regulation (GDPR), which mandates strict rules for the collection and processing of customer data, requiring explicit consent and granting individuals the right to request the erasure of their personal data. This ensures high data protection standards within Estonia’s payment sector.

• PSD2 compliance: PSD2 is another key regulation in Estonia. The directive requires the use of Strong Customer Authentication (SCA) for payment transactions, typically via two-factor authentication, increasing payment security and customer trust.

• Financial Intelligence Unit: This unit monitors and investigates suspicious financial activities and uses sophisticated techniques to defend the industry against financial crimes.

• Data Protection Inspectorate: The Data Protection Inspectorate in Estonia monitors for GDPR compliance. This authority keeps businesses compliant with data protection regulations and can impose fines for noncompliance.

Key success factors

Estonia’s advanced payment market still faces challenges inherent to the changing nature of the global payment industry. Here are factors that can shape your market entry:

• Slow adoption of mobile payments: According to the Bank of Estonia, as of early 2023, mobile payment options accounted for only about one in six card payments. This slower pace of adoption poses a challenge for businesses that aim to embrace these technologies fully. They must be able to accept traditional payment methods and emerging mobile solutions to cater to a wider customer base.

• Complexity in international transactions: Though SEPA rules have simplified cross-border transactions within the euro area, international transactions beyond it present challenges such as exchange rate fluctuations, varying regulatory frameworks, and differing payment methods. Your business should consider advanced financial planning and risk management tactics to address this complexity.

• Regulatory demands on data management: The GDPR creates stringent compliance requirements in Estonia. Noncompliance with the GDPR can lead to substantial fines, putting pressure on your business to invest in data governance systems that assist in compliance.

• Technological advancement: Keeping up with the quick pace of technological advancement is an ongoing challenge for payment service providers and businesses in Estonia. The need to continually improve and adapt to new payment methods, security technologies, and consumer preferences demands considerable investment in research and development to stay competitive and meet customer expectations.

Key takeaways

Estonia’s position as a pioneer in the digital payment space presents opportunities and challenges for businesses, policymakers, and financial analysts operating in the country. Here are the key takeaways for entering this market:

Understand local payment preferences

• Use trusted payment gateways: Estonian customers highly value security and trust with online transactions. Choosing reputable payment gateways and processors known for their security measures can instill confidence in customers. Ensuring compliance with Payment Card Industry Data Security Standards (PCI DSS) and adopting SCA methods can help businesses adhere to Estonia’s data protection and payment security standards.

• Prioritize mobile payments: A large portion of Estonia’s population has mobile devices, so it’s important to refine your mobile payment process. Ensure it’s responsive and able to accommodate customers who prefer to pay by smartphone or tablet. Mobile payments are convenient and can increase conversion rates.

• Integrate with digital wallets: Consider integrating popular digital wallets such as Apple Pay into your payment options. These wallets are often used for online purchases and can simplify the payment process.

Comply with data and security rules

• Keep data safe: As an EU member state, Estonia focuses on keeping customers’ data private. Payment service providers must follow safe data storage protocols, as mandated by the GDPR.

• Follow SEPA regulations: Estonia, as part of SEPA, follows SEPA regulations for chargebacks related to direct debits. These rules give customers the right to request a refund for direct debit transactions within eight weeks, contributing to a customer-centric chargeback environment.

• Pick payment service providers that follow regulations: Payment service providers operating in Estonia—including global players such as Stripe—adhere diligently to local regulations and often go beyond the basic requirements, using advanced technologies such as machine learning algorithms to detect fraudulent patterns and safeguard customer data.

Prioritize security

• Comply with the GDPR: The Estonian government promotes payment digitization with regulatory measures designed to keep mobile payment solutions secure and safeguard customers’ interests. Data protection regulations, which adhere to the GDPR, protect the privacy and security of mobile payment users with rules for storing and processing payment data.

• Use advanced Europay, Mastercard, and Visa (EMV) chip technology: As an early adopter of EMV chip technology, Estonia has high standards for card security. EMV chips generate unique, one-time codes for each transaction, making data theft considerably more challenging and improving payment security.

• Know how local and international standards interact: Estonia operates several local card networks such as Estcard and Pocopay, which adhere to rigorous security standards. These networks collaborate with international card giants such as Visa and Mastercard to boost transaction safety and incorporate additional cutting-edge security features such as dynamic security codes.