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  1. Analysis
May 18, 2007

Cards test Germany’s cash economy

While cash has traditionally been the dominant payment method for the cautious and debt-averse German market, there are signs of growth in the numbers of debit cards When analysing the German cards market, it is useful to consider the role of cards within the context of all payment mechanisms available to consumers and businesses

By Verdict Staff

While cash has traditionally been the dominant payment method for the cautious and debt-averse German market, there are signs of growth in the numbers of debit cards. Banks are promoting debit card use and there is growing competition for market share.Sarah Williams reports.

Germany: Cash as percentage of retail transactions, 1996-2008When analysing the German cards market, it is useful to consider the role of cards within the context of all payment mechanisms available to consumers and businesses. Cash undoubtedly remains the dominant payment method for German consumers. Its share of retail transactions is declining, but fairly gradually. Cash payments have fallen from about 75 percent of total retail transactions in 1996 to 68 percent in 2004 and around 63 percent currently. Hauptverband des Deutschen Einzelhandels (HDE – the German retail association) anticipates that cash usage will continue to decline at a slow pace, reaching about 60 percent by the end of 2008. (See figure 1.)

Central to the German cards industry is electronic cash, or ec. It is the country’s national debit scheme and is regarded as having one of the highest security requirements in the world.

Debit card usage and acceptance are growing, albeit from a small base, and the cards are not a big challenge to cash at this time. However, this could present a major opportunity if and when large retailers start to accept debit cards. The push by banks to promote debit card use, combined with competition among payment associations and issuers for market share, makes this an interesting area for development.

Credit card uptake and usage trail behind; traditionally, credit cards have operated more like charge cards than revolving credit. Most Germans also have other borrowing options, which, coupled with a cultural unease about debt, has put the brakes on growth.

Prepaid cards are not a major presence; however, there is an obvious and huge opportunity should the model of prepaid displacing cash that has been demonstrated in other markets be adopted in Germany.

Debit cards grow

Germany by numbersThere were some 91.6 million debit cards in Germany by the end of 2005. They are generally branded with the national debit mark (ec) as well as being co-badged with Maestro, MasterCard’s debit brand, for use in international transactions. Debit card transactions account for only 12.5 percent of all non-cash payments by volume and 0.3 percent by value. Put another way, such debit card transactions make up 11.5 percent of all retail payments. (See figure 2.)

Over recent years, debit cards have gained tremendously in acceptance by consumers and merchants. In 2005, for example, major discount retailers Aldi and Lidl announced that they would start accepting debit cards, although neither store accepts credit cards yet. According to Jürgen Uthe, general manager for business services at MasterCard Central Europe, there is a huge opportunity to expand card usage if other retailers follow the examples of the discounters. “Once these retailers have equipped all their outlets with POS terminals there will be a very big opportunity. The banks are keen to promote card acceptance and they have been quite successful in gaining in sectors such as the food segment.”


Germany: Non-cash transactions by type of payment instrument, end 2005Debit cards are not viewed as huge revenue generators for retail banks. However, banks generally consider them an important part of their banking relationship with a customer, as they are linked to cardholders’ current accounts.

According to Volker Schloenvoigt, manager in the London office of card consultancy Edgar Dunn & Co, the reliance on annual card fees is problematic as there is no relationship with transactional activity. “When looked at on a per-transaction basis, growing card usage will generate costs that will exceed card fee revenues,” he said. Schloenvoigt added that reliance on interchange income is inappropriate as regulators consider interchange to be based on cost recovery methodology and do not see it as a revenue driver.

He notes that while transaction fees would be a suitable revenue source, as they would grow with increased card usage, the current lack of these fees in the marketplace makes their introduction very challenging from a customer perspective. The interchange rate on electronic cash cards is 0.3 percent, with interchange rates for credit and charge cards standing at 1.2 percent to 1.5 percent.

Competition in the debit card market

Germany: Associations' percentage market share, January 2007There is currently some conflict in the German debit card market between Maestro and card issuers. German debit cards usually have two badges – ec for domestic transactions and Maestro for use outside Germany. However, in a bid to increase penetration in Germany and take market share from ec, Maestro recently published new, lower interchange rates on debit transactions – this in a market where debit interchange is already very low. Maestro’s aim is to have a situation whereby German consumers’ debit cards will use Maestro both domestically and internationally.

It is not yet clear how successful Maestro will be in winning over issuers to using it as the sole badge on debit cards. However, the Maestro debit scheme was recently chosen by Germany’s Sparda banking group as the replacement for its domestic debit scheme in the run-up to the implementation of the Single Euro Payments Area (SEPA). Sparda is scrapping its electronic cash scheme in favour of using Maestro for both national and international debit card payments. Until now, Sparda’s debit cards had been enabled with the Maestro brand exclusively for cross-border payments, while German card payments were possible only through the ec scheme. Sparda said that with the transition to Maestro, it would become the first fully SEPA-compliant debit solution in Germany.

Visa Europe is working hard to build a debit card presence in Germany to rival MasterCard. V PAY, Visa’s SEPA-compliant debit scheme, is at the forefront of Visa Europe’s expansion in the debit market. In December 2006, Visa Europe signed an agreement with the association of German co-operative banks, DZ Bank and WGZ Bank, representing a major breakthrough for V PAY in one of the most important debit markets in Europe. The agreement means that V PAY will be co-badged with Germany’s ec scheme. Visa has said it views this as “a massive deal for V PAY, as it covers about 23 million cards and 1,200 banks in the German market”.

In January 2007, German acquirer B+S Card Service agreed to open up its merchant network to V PAY. B+S now offers V PAY to all its EMV-compliant merchants as well as new merchants. B+S accounts for 135,000 Visa merchant outlets and acquires over 40 percent of Visa POS transactions in Germany. Visa acknowledges that its current share of the German debit market is almost zero, but is confident that V PAY can make a major impact.

Some banks, however, are unsure. “To change the electronic cash/Maestro card is not an easy thing,” said Wolfgang Schneider, vice-president for cards at Commerzbank’s retail business unit. “You have to change your processing and the education of cardholders and merchants. While we don’t earn much money on debit, it’s still an important issue. With cardholders, if you change major product features it may cause them inconvenience.”

Credit cards – a distant second

Germany: Key issuers' percentage market share, end December 2006There are 0.26 credit cards per inhabitant in Germany and credit card spending amounts to only €452 ($611) per person annually, including both commercial and retail transactions. In terms of market share, according to retail industry research body EHI Retail Institute, MasterCard accounts for 48.2 percent of issued credit cards in Germany, with 11 million cards issued. Visa is a close second with a 44.2 percent market share and 10.05 million cards. American Express and Diners have 7.2 percent and 1.65 million cards, and 0.4 percent and 0.1 million cards, respectively. (See figure 3.)

According to a survey carried out by EHI Retail Institute, credit cards make up 5 percent of all transactions. Uptake and usage is low for several reasons, which combine to reinforce each other.

First, German credit cards have traditionally operated more like deferred payment devices linked to current accounts, in that bills are debited automatically and in full every month, giving the banks no credit balances on which to charge interest. Most customers have other borrowing options, including an automatic overdraft equivalent to three months’ salary on their current accounts. It has been foreign players, such as Citibank, Barclaycard, Royal Bank of Scotland (RBS) and ING, that have really pushed the concept of true revolving credit cards. Large local players then responded, launching their own such products. Indeed, Deutsche Bank has stated its aim is to completely switch customers from deferred payment cards to genuine credit cards.

Second, Germans have long been regarded, for historical and cultural reasons, as conservative spenders. Germany’s weak economy over the past several years has meant that growing worries about job security and the future of Germany’s generous ‘cradle-to-grave’ welfare state have made Germans more cautious than ever about getting into debt. German consumers tend to pay off their balances in full, with as many as 95 percent effectively using their credit cards as charge cards.

Third, card acceptance is low, even among large retailers. Some German banks are now trying to emulate the success of foreign banks in the credit card business, in an attempt to boost profitability. The European Commission is threatening, within two or three years, to halve the interchange fees payable by many German merchants. If that happens, shops should feel happier about accepting cards, giving German consumers more flexibility and perhaps encouraging them to make more transactions of greater value, which would help German banks recoup some revenues lost to reduced interchange.

The outlook for credit cards in Germany is mixed. According to Ulf Geismar, director at Edgar Dunn & Co: “What you’ve been seeing in recent years is a gradual shift from the use of cash towards cards. However, the card mix is definitely biased towards debit rather than credit cards. If anything, the predominance of debit over credit is likely to accelerate in the future. Having said this, there is likely potential for increasing credit card use in very specific applications such as revolving credit at point of sale and travel and entertainment transactions, both business and personal.” 

e-money cards

GeldKarte is the German chip-based electronic purse system. There were 64.6 million e-money cards in circulation in Germany as of the end of 2005. The chip can be loaded with up to €200, and is advertised as a means of making medium-sized to very small payments, down to the low euro or even cent range, as no processing fees are deducted by banks. However, usage levels are still fairly low: total payment transactions are only around €90 million in a country with over 82 million inhabitants. According to GeldKarte, the average amount loaded onto the card is €25.

Some observers are of the view that Germany could become one of the strongest prepaid markets over the next few years due to its current heavily reliance on cash as a means of payment. 

Merchant acquiring

Although there are over a dozen merchant acquirers in the German credit/charge card market, only a few play a significant role. They include B+S Card Services (with a portfolio of 200,000 merchants), ConCardis (40,000 merchants) and Citigroup. There is a different structure for debit card acquiring, which carries a 0.3 percent interchange rate set by the Zentraler Kreditausschuss (ZKA), Germany’s central banking committee.

Unlike credit cards, debit card acquiring operates on a three-party model: the ZKA issues licences to network operators which then lease terminals to merchants. The debit card market is dominated by a small number of players because it is a volume business, and players compete on the technical infrastructure side. Issuers are not satisfied with the number of acceptance locations.

Customer loyaltyOne successful innovation is the PayBack loyalty scheme, launched in March 2000. PayBack’s partners include retailers Apollo-Optik, Aral, Danisches Bettenlager, dm-drogerie markt, Galeria Kaufhof and WMF. In March 2007, the popular card was relaunched under the name PayBack Plus, equipped with a cashless payment function for cardholders to use at no cost. In 2006, €159 million was spent on PayBack. PayBack payments are made as with an ec card, using the bar code reader at the point of sale. The purchase price is either deducted directly from the customer’s bank account or paid off in monthly instalments. Customers do not have to change banks to use the card.

A survey carried out in late 2006 by market research company TNS Emnid showed that the average German carries 4.5 cards in his/her wallet. The clear favourite is the ec/Maestro debit card (82 percent); health insurance cards take second place with 77 percent. The Payback card and credit cards offered by a range of companies are in joint third place with 32 percent each.



CI estimates that in 2006 Citibank had approximately 1 million German credit card customers. Cards offered by Citibank in Germany include Citibank MasterCard Plus/Gold/Student, Citibank Visa Plus/Gold and Citi/AAdvantage Visa Gold, as well as Vodafone MasterCard Standard/Silver/Gold/Platinum. In October 2006, Citibank announced that customers in Germany would be able to withdraw cash for free with their credit cards, albeit with higher annual fees. The annual fee for customers wishing to use the ‘free cash’ service will increase by €10 to €30 for Classic cards, to €40 for CitiBest Gold cards and to €76 for Gold cards.

Royal Bank of Scotland

RBS entered the market in 2003 through its acquisition of the card portfolio of Santander Direkt Bank. In January 2005, Retail Direct Europe (a consumer finance arm of RBS Group) launched the X-ite credit card products in Germany. Their design features the rounded corner first seen on the Mint card in the UK. CI estimates that in 2006 RBS had around 1.2 million German credit card/consumer loan customers. The X-ite card is issued in co-operation with MasterCard. In the view of RBS, it presents a “completely new offering” to the German market, with attractive product features and additional customer benefits through co-operation with partner companies. X-ite is currently offering deals such as 0 percent interest for six months.

Landesbank Berlin

Landesbank Berlin is the leading credit card issuer in Germany, with over 1.5 million cards issued. In 2006, Bankgesellschaft Berlin became Landesbank Berlin Holding. Landesbank Berlin operates its retail banking business under the brands Berliner Bank and Berliner Sparkasse and has more than 2 million retail customers.

In 2005 the bank became the first provider in Germany to develop the Xbox Visa prepaid card. It was also the first bank in Germany to bring out the X-Box Visa PictureCard, with an upright design featuring a hologram magnetic strip. Cardholders can choose the individual design of their own card.

The bank also owns a stake in B+S Card Services.


According to company information, Barclaycard is the second-largest credit card issuer in Germany, with 1.3 million cards issued. The company offers five types of cards in the German market. Barclaycard entered the German market in 1998 and was profitable from its first year.

According to Barclaycard, downward pressure on interchange had led to card issuers such as Barclaycard concentrating on revenue generation through maintaining revolving balances. Barclaycard accounts for 6 percent to 7 percent of credit cards issued in Germany, but according to the company it accounts for 65 percent of outstanding balances. Net interest income per account on its classic product is over 100 percent higher than the market average, and on the gold product it is 400 percent higher.


KarstadtQuelle describes itself as Europe’s leading retail and tourism group. Its core activities include Karstadt department stores in German cities, domestic and international mail order companies, and the tourism business. KarstadtQuelle Finanz Service, the banking arm, has almost 1 million credit card customers in Germany. It offers a number of credit cards including Karstadt Card, which is available as an annual charge-free MasterCard, and the KaDeWe Solitaire Card, which can also be issued as a MasterCard. In the 2006 financial year, the bank achieved a 7.5 percent rise in the euro value of sales in its credit card business, which it points out is outstripping growth in the market overall.

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