Retail banking in Luxembourg: Why the individual customer is no longer a priority

ING’s chaotic exit from retail banking last year was a lesson in poor communication. The bank’s public relations “strategy” was, to put it plainly, a mess, and earned the lender bad press and even ridicule from its peers in the industry.

Surely the bank anticipated the blowback. It had to. The stark reality is – it simply didn’t care enough.

This indifference points to a more systemic issue: for many banks in Luxembourg, the small retail client just doesn’t matter enough. And that is the core problem. 

The ING fiasco isn’t an isolated incident in that regard. Poor service has been an underlying feature of banking in Luxembourg.

For example, instant or weekend payments don’t always work, even if banks insist that they do. One of the key obstacles is technical. Banks need to update old operating systems and switch to newer platforms, which is expensive. 

Bankers’ association (ABBL) has said “low customer demand” is slowing down that transition. If you are an individual with a bank account in Luxembourg, that explanation might sound bizarre, but if you are a bank, it’s probably accurate.

Luxembourg’s financial system is heavily skewed towards private banking and wealth management, where the demand for basic services like instant transfers is limited, the ABBL said. What the organisation was really saying, without saying it, is: retail banking is not the core business in Luxembourg for many banks.

They’re not wrong. A Luxembourg for Finance report notes that in 2021, retail banking was responsible for only 3% of value added to the overall financial industry, while private banking and corporate banking together contributed more than 40%.  

So the individual – like you and me – who gets their salary paid into an account and uses it to manage day-to-day expenses is too small for banks to really care about. We are not bringing in enough revenue. 

In fact, when ING announced it was shuttering its retail offering, they cited no clear path to profitability in retail banking, and a desire to focus on wholesale banking and private banking, which are, presumably, far more lucrative.

This isn’t entirely marketing spin. A BankingHub study shows that back in 2010, everyday banking products – current accounts, debit cards, basic payment services – made up over 60% of all retail-banking revenues in Luxembourg. Fast-forward to today, and that share is set to plunge to below 10% by 2025.

Banks may argue that Luxembourg’s population is just too small for them to offer a retail banking product that can be compared with those offered in much larger markets.

But it isn’t entirely true that banks in Luxembourg are struggling to stay afloat. Quite the contrary. In the year ING pulled the plug, its profits more than doubled (albeit thanks to high interest rates). Across the sector, net profit grew 10% to €7.24 billion in 2024 – more than twice the €3.09 billion of 2020.

So, banks are not exactly gasping for air. Maybe that is because they have to decided to shift their focus away from retail banking, and the ends justify the means.

What’s clear is that Luxembourg’s banking sector needs to offer a far more competitive retail product. As a global financial hub, we shouldn’t be offering retail banking as an afterthought – where instant transfers are a struggle, banking apps don’t work for days on end, and getting a rental guarantee takes months. The list goes on – but it really shouldn’t.

One year on from ING’s exit, a question for the financial ecosystem is this: what steps have been taken to ensure retail clients won’t face the same situation again? If there has been any real action, it’s remained a closely guarded secret.