With around 3,400 investment funds with more than €5.2trn assets under management, Luxembourg offers a wide client base for fintech firms. With growing regulatory and digitalisation demands, the ecosystem is only expected to grow in 2024, argue key financial sector players.
At the heart of Luxembourg’s fintech ecosystem is the Luxembourg House of Financial Technology (the LHoFT). According to CEO Nasir Zubairi, 85 firms are based on their premises, and financial institutions are continuing to demand tech solutions to drive efficiency and lower costs.
“On a global scale, there are questions being asked in relation to investment into fintech, but in Luxembourg we’re still seeing strong growth. There’s a lot of demand from both domestic and foreign businesses for the types of solutions that our startups offer,” said Nasir Zubairi, CEO of the LHoFT.
Luxembourg for Finance CEO Nicolas Mackel—who will be the new Luxembourg Ambassador to the EU in Brussels—agrees. “Digital transformation has become an area of critical importance for financial firms: clients are becoming increasingly digitally savvy and thus demanding of efficient solutions,” he says.
Multinationals and homegrown players alike
Major payment players who have set up their European headquarters in Luxembourg include the American multinationals Amazon and Paypal, as well as the Japanese tech conglomerate Rakuten, to name a few.
But there are numerous examples of homegrown companies operating in the fintech space that have announced wins in recent months. One example is Moniflo, a values-based investment platform founded and led by Georges Bock, which announced in January it had concluded its €3m round of funding. It launched an app this February, and plans are underway for European expansion, first to Germany by the end of February.
Another example is the payment solution provider, Payconiq, which since its launch in 2012 has integrated into the lives of 50% of Luxembourg’s population, according to its website. In 2023, Payconiq International was acquired by the European Payments Initiative, a move which would “accelerate [Payconiq’s] mission to contribute to an innovative payment solution for consumers and businesses across Europe,” CEO Guido Vermeent said at the time.
Tokeny, a tokenisation platform, has also had a string of wins lately: in September 2023, it achieved SOC2 Type I compliance, making it the world’s first platform of its kind to obtain the certification. Financial services provider Apex Group in December also announced their strategic lead investment into the platform.
Strength in regtech
Zubairi emphasises the strength of the regtech sector—which represents around 30-40% of the fintech companies in the grand duchy, according to Luxembourg for Finance—and the sector should have opportunities as new regulations develop and are implemented.
On 2 February, the Council of EU Ministers unanimously approved the EU AI Act, intended to ensure AI system safety and classify risks. At the time of writing, two parliamentary committees were set to vote as part of the next steps.
As actors wait to see how this will play out, other regulations are in their implementation phase. These include the Markets in Crypto-Assets Regulation (MiCA), which entered into force in June 2023 with a full application deadline of December 2024, as well as the Digital Operational Resilience Act (DORA), live since 16 January 2023 with an implementation timeline of 24 months.
Such regulations “will have a direct impact on the way firms manage, implement and utilise technology. They create sometimes an immediate constraint or challenge, but overarchingly regulations are there and we have to look at them as opportunities,” Zubairi explains. “With MiCA, for firms working in the crypto or token space, the credibility that regulation delivers will help them.”
Value for Luxembourg
The LHoFT, which fosters innovation and education in the fintech space, is launching several initiatives this year. Following previous editions in Luxembourg and Togo, it recently announced the first edition of its Catapult: Inclusion SE Asia, which for the first time will accommodate 20 fintech firms for the first week of the programme, based in Thailand, with 10 among those to proceed to week two in Luxembourg.
Another special programme will be devoted to Ukraine.
New programmes on the horizon
In a few months, the seven firms selected for the Catapult Fundtech 360°, a programme co-sponsored by the Association of the Luxembourg Fund Industry (ALFI) and MiddleGame Ventures, will be announced, with one coming from as far as Singapore. Later in the year, LHoFT will also launch a Catapult Green Fintech programme, to accelerate and support 10-12 companies that create value related to ESG. As a result of the uptick, Zubairi says more staff will be hired.
With around 120 banks and over 280 insurance and reinsurance companies, there should be plenty of opportunities for fintech firms in Luxembourg. Mackel also sees plenty of opportunities in the grand duchy and praises LHoFT’s work to further boost the fintech ecosystem.
“Unlike in many other areas, Luxembourg does offer fintech firms a relevant market, given the important operations many large financial institutions have in the grand duchy,” Mackel explains.
Editor’s note: This article first appeared in Forbes Luxembourg here.