Liechtenstein, a small but prosperous country nestled in the heart of Central Europe, has emerged as a significant player in the global financial landscape. Renowned for its robust banking sector and thriving fintech industry, Liechtenstein has seen its payments market expand in recent years. The country is no stranger to digital payments, and its population is increasingly embracing them, mirroring global trends.

Online shopping is also growing in Liechtenstein, with 99% of people in the country having internet access in 2021. Though the country operates outside the EU, it maintains ties with the European Economic Area (EEA), allowing for Single Euro Payments Area (SEPA) transactions and smoother cross-border payments with EU member states.

Security and compliance are key features of Liechtenstein’s payment system. The country adheres to strict financial regulations and data protection standards, ensuring a safe environment for customers and businesses. Liechtenstein’s resilient and dynamic financial sector includes a mix of traditional banks and specialized financial service providers.

Payments in Liechtenstein are shaped by tradition, technological advancement, and a commitment to financial security. Below, we’ll look at these influences on the country’s payment scene and how to successfully enter the market, including considerations such as:

• Knowing what payments work best locally
  
• Dealing with regulatory complexities
  
• Making security a key concern
  

The state of the market

Nestled between Switzerland and Austria, Liechtenstein has a strong financial sector that’s home to domestic and international financial institutions. The Swiss franc (CHF) is the country’s official currency, and the Swiss National Bank (SNB) is Liechtenstein’s central bank.

Though cash remains popular for smaller transactions, particularly in rural areas and among older demographic groups, there is a growing inclination toward digital and card payments for everyday expenses.

Liechtenstein has seen a significant surge in the adoption of mobile payments, especially among younger people. There were 18,100 cell phone connections in Liechtenstein in early 2023, equivalent to about 46% of the total population, according to DataReportal, an indicator that residents are warming to mobile payments.

Payment methods

Regarding preferred payment methods, Liechtenstein has a diverse range of options.

Usage

Contactless payments are widely used in Liechtenstein, especially among younger customers who appreciate the speed and convenience. The concept of a “wallet-free” lifestyle is also gaining traction among this demographic, driven by the increasing capability of smartphones and wearable devices to complete payment transactions. In Liechtenstein, customers tend to use contactless methods predominantly for smaller transactions, such as those at supermarkets, cafés, and similar establishments, rather than for higher-value purchases.

Several key regulatory bodies help maintain the country’s financial stability and integrity. The Financial Market Authority Liechtenstein (FMA) serves as the country’s primary regulator, overseeing financial institutions including banks, insurance businesses, and asset management. The Liechtenstein Financial Intelligence Unit (FIU) combats money laundering and financial crime, ensuring the country’s compliance with international standards.

Liechtenstein’s commitment to transparency and adherence to international norms is evident in its participation in organizations such as the Organization for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF).

Popular B2C payment methods in Liechtenstein

• Cash
  
• Credit cards
  
• Digital wallets
  

Popular B2B payment methods in Liechtenstein

• Credit cards
  
• SEPA transfers
  
• Debit cards
  

Trends

Though traditionally associated with financial conservatism, Liechtenstein has seen changes in the ways the country makes payments. Cash still plays a significant role in everyday transactions, but there has been a shift toward electronic payments.

This shift has primarily been driven by technological innovations, including contactless payment solutions and mobile payment apps. Contactless payment methods have gained popularity as a quick, convenient, and secure payment method, especially in urban centers. The adoption of mobile payment apps, digital wallets, and QR code-based payments has also contributed to the country’s reduced reliance on cash.

Liechtenstein’s favorable regulatory environment has attracted various fintech businesses and blockchain-based businesses such as Union Bank AG, which focuses on blockchain banking solutions. Such institutions complement traditional banks, providing innovative services in this forward-thinking financial hub.

Ease and friction of entry

Even as a smaller market, Liechtenstein performs at a high level. Here’s what to know about how the country handles taxes as well as chargebacks and disputes.

Taxes

Value-added tax (VAT) is a financial obligation that applies to customers and businesses in Liechtenstein. VAT is levied at a standard rate of 7.7% for most goods and services in the country, though goods and services such as food and medicine are taxed at lower rates. Businesses must collect VAT on their sales and remit it to the government; noncompliance with VAT regulations can lead to substantial fines and legal consequences. For customers, the immediate impact of VAT is felt through higher prices for goods and services. It’s important for customers and businesses to understand and comply with VAT obligations to avoid financial penalties and legal repercussions.

Chargebacks and disputes

As a member of the European Free Trade Association (EFTA) and a country closely integrated with the EU, Liechtenstein adheres to EU directives and regulations that affect chargeback procedures. The revised Payment Services Directive (PSD2), a landmark EU regulation, mandates Strong Customer Authentication (SCA) for payment transactions. This authentication requirement often plays a pivotal role in resolving chargeback disputes. If a transaction is disputed, the level of authentication can be cited as a factor in determining its validity.

Liechtenstein’s approach to chargebacks leans toward consumer protection. This is consistent with broader EU values of the rights and interests of customers. The Consumer Code regulates these processes and places a substantial burden of proof on businesses to demonstrate the legitimacy of a transaction, especially in cases of unauthorized transactions. This shifts the onus from customers to businesses, making it more customer-friendly compared with certain aspects of chargeback processes in the United States.

As a result of its close ties to the EU, the microstate participates in SEPA, which has specific regulations governing chargebacks, particularly related to direct debits. These regulations afford customers the right to request a refund for any direct debit transactions within eight weeks.

International payments

Liechtenstein’s payment market intersects with global markets through its proximity to Switzerland, participation in SEPA, adoption of digital payments, and more. Though Liechtenstein is small in its geography and population, it has an integrated approach to its broader global financial context.

• Currency conversion: Currency conversion is a fundamental part of financial transactions in Liechtenstein, particularly for travelers and businesses engaged in international trade. Travelers can exchange their foreign currency for euros at financial institutions, currency exchange centers, and ATMs. Exchange rate markups typically range from 1% to 3% over the interbank rate, with some banks charging a flat fee, usually 5 to 10 CHF, for currency conversion services. When using ATMs for currency conversion, travelers pay service fees ranging from 2 to 5 CHF per transaction.

• SEPA participation: Liechtenstein participates in SEPA and adheres to its standardized payment formats, which helps create simpler cross-border euro-denominated payments and further boosts payment security and efficiency.

• EEA membership: Liechtenstein has a unique geographical proximity to and economic relationship with Switzerland. As a member of the EEA, Liechtenstein enjoys close ties with Swiss payment systems and banking infrastructure. This relationship mirrors the interconnectedness of Switzerland with European markets, where cross-border transactions are common and the Swiss franc and the euro are widely used.

Security and privacy

Liechtenstein’s commitment to payment security, compliance, and regulation mirrors the stringent standards set by the EU. The principality’s financial authorities work diligently to safeguard customer interests, keep data safe, and combat financial crimes such as money laundering and the financing of terrorism. Here are some of the factors:

• Data protection laws: As a member of the EFTA with close ties to the EU, Liechtenstein adheres to EU regulations, including the General Data Protection Regulation (GDPR). The GDPR sets stringent standards for customer data protection, mandating explicit consent for data collection and granting customers the right to be forgotten. Compliance with GDPR is a cornerstone of Liechtenstein’s data protection framework.

• Anti-Money Laundering (AML) laws: Liechtenstein follows EU AML and Countering the Financing of Terrorism (CFT) laws. Financial institutions in the principality are obligated to establish AML/CFT programs, monitor transactions for suspicious activities, and report findings to the authorities. Noncompliance can result in substantial penalties.

• FMA: The FMA of Liechtenstein plays a pivotal role in overseeing financial activities, including payments, for compliance with international and EU standards. The organization also enforces AML/CFT regulations to protect the integrity of the financial system.

• Role of the FIU: Liechtenstein also stays vigilant against money laundering with its own regulatory mechanisms. The Liechtenstein FIU, known as Tracfin, specializes in detecting and investigating suspicious financial activities.

Key success factors

Liechtenstein’s payment market has inherent challenges related to its small domestic market, reliance on international trade, limited access to payment networks, and more. These are some of the factors that can help you succeed in this market:

• Be attuned to the smaller market: Liechtenstein is a small country with a population of about 39,000 people. This limited domestic market size poses challenges for businesses seeking to establish a broad customer base. Smaller markets can make it difficult for businesses to scale, leading to higher per-customer acquisition costs and potentially lower profits.

• Strategize for the exchange rate: Liechtenstein uses the Swiss franc as its official currency. But this reliance on a foreign currency makes exchange rate fluctuations a consideration, which can affect the cost of imports, exports, and cross-border payments.

• Know the country’s interconnectedness with international markets: Given its small domestic market, Liechtenstein relies heavily on international markets for trade and commerce. Though this provides access to a global customer base, it also exposes businesses to changes in international demand, economic conditions, and geopolitical factors. Liechtenstein’s businesses are highly dependent on the economic stability and growth of their key trading partners.

• Be prepared for competition with other global financial hubs: Liechtenstein faces competition from nearby financial hubs, including Switzerland and Luxembourg. These established financial centers have well-developed banking and payment infrastructures, attracting businesses and investors. To stay competitive, Liechtenstein needs to offer unique value propositions and specialized financial services.

Key takeaways

To mitigate some of these challenges, businesses operating in Liechtenstein should consider diversifying their customer base and exploring opportunities in niche markets. Establishing strong partnerships with financial institutions and payment service providers can also help address issues related to regulatory compliance and access to payment networks. Here’s a rundown of key ways businesses in Liechtenstein can elevate their customer payment experience:

Accept locally popular payment methods

• Embrace the Swiss franc: Swiss franc payments are prevalent in Liechtenstein, so businesses should offer CHF as a currency option. Integrating local payment options such as PostFinance Card or TWINT, preferred by many Swiss customers, into your payment processing can also improve the customer experience and encourage more transactions.

• Use SEPA for cross-border transactions: Though Liechtenstein is not part of the EU, it participates in SEPA. Businesses can capitalize on SEPA to facilitate cross-border transactions within the eurozone efficiently. This is especially valuable for businesses engaging in international trade and ecommerce.

Face compliance challenges head-on

• Monitor GDPR compliance: Liechtenstein adheres to the EU’s GDPR, which requires businesses to prioritize data privacy and security. Responsibly handling customer data builds trust and minimizes regulatory risks and potential fines.

• EEA and Swiss regulations: Because Liechtenstein is a member of the EEA and a close neighbor to Switzerland, businesses must deal with a complex regulatory environment. This can lead to regulatory challenges, compliance costs, and the need for legal expertise to address applicable laws and standards.

• Other EU regulations: PSD2 is a key component of Liechtenstein’s regulatory landscape. The directive’s regulations emphasize SCA for payment service providers. Transactions often require two-factor authentication, improving security and reducing fraud risks.

Put security first

• The role of payment service providers (PSPs): Payment service providers operating in Liechtenstein, including international platforms such as Stripe, adhere to local regulations and often go beyond basic requirements to enhance security. These providers employ advanced technologies such as machine learning algorithms to detect fraudulent patterns and protect customer data.

• PSD2’s influence: Among other provisions, PSD2 sets standards for payments security, keeping Liechtenstein in line with EU member nations.

• Payment Card Industry Data Security Standard (PCI DSS): Businesses operating in Liechtenstein must comply with PCI DSS, which requires they meet technical and operational standards to keep customers’ data safe.