Traditional reluctance and stringent regulations have hampered Germany’s card market, but online retail plus Government and bank initiatives provide surge. Improving infrastructure and declining fraud boosts the credit card industry, but cultural issues still evident as other categories grow faster, writes Ben Carey-Evans
Germany has the world’s fourth largest economy, a highly developed infrastructure, but a famously low level of card usage. It is often depicted as cash intensive and unwilling to adopt card payments on a large scale. The traditional belief is Germans culturally are not comfortable with debt. A view supported by the household savings rate being around 10% at the end of 2008, compared to 0.5% for the US and 8% for the EU as a whole.
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This is starting to change though, as E /M-commerce, a stable economy combined with initiatives and promotions are providing impetus.
The transaction value of card payments rose from 502,612m in 2008 to 630,600m in 2012. It’s projected to rise to 797,484m in 2017. However, 57% of all payments in Germany are still via cash.
E/M-commerce
One of the main opportunities for growth in recent years, and the immediate future, is the emergence of e and m-commerce. The share of internet shoppers increased by 63% in 2012. Online retail sales grew at 13% to reach 44.5bn in 2011, from 39.3bn in 2010. This has been enabled by security developments plus the use of social media and video to fuel expansion.
Expansion in M-commerce is even more rapid. Mobile friendly websites, shopping apps and fast delivery of goods have driven the surge. This has led to 85% of smartphone users having purchased goods and services through mobile shopping.
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By GlobalData"More and more people are using mobile devices. We believe every mobile device will become a commerce device. It will bring momentum to the electronics payment market," said a senior representative from MasterCard in Germany.
There is room for even more growth, as according to research from The Centre for Research in Retailing at the University of Cologne, Germany, 41% of consumers prefer mobile optimised websites to apps for shopping. Therefore, e-retailers are investing in the development of mobile friendly websites to attract more customers.
Prepaid cards
Prepaid cards increased more than any other category within the last four years. There were 80.4m open-loop prepaid cards in 2008 and 101.9m in 2012. Over 200m are forecasted for 2017.
Furthermore, there has been a steady decline in the percentage of cash payments in retail sales since 2012, despite an overall increase in transaction volume.
A MasterCard Germany spokesman, said: "The prepaid market is still in development in Germany.
"There are approximately 600,000 prepaid cards, whereas estimates for Italy count 12 million. More banks and non-traditional issuers are getting involved in this market though."
Stringent regulations still remain an issue, especially since the implementation of German Money Laundering Act in December, 2011.
The bill says that anyone selling, exchanging or recharging e-money products will be obliged to identify customers. It applies when a consumer’s purchase is in excess of 100.
Dr Hugo Godschalk, founder and director of cashless payment and card business consultancy firm, PaySys, said the prepaid industry will continue to grow in spite of this. "The market has not suffered since the implementation of the bill, but maybe growth would be higher without this kind of regulation."
He continued: "In reality there are a lot of difficulties in implementing and enforcing the act. Especially for small stalls, such as subway kiosks. Many of them weren’t aware they were selling e-money. It’s also very difficult for them to recognise and remember all of the customers."
Debit cards
Debit cards have become increasingly popular, owing to a greater adoption rate and technical improvements. The market is dominated by the GiroCard, which has a market share of just under 90%. Of its 92 million cards, over 80 million of them are co-branded with Maestro.
German banks have introduced contactless payment methods for purchases which are less than 25. A PIN or signature is not necessary as payments are made by simply holding the card in front of a reader.
Debit card use is projected to rise substantially following this endorsement of cashless transactions by the banks. We expect its transaction volume at ATMs and POS terminals to increase to 710.9m in 2017, from 569.4m in 2012.
The rise in the use of debit cards has been closely linked to an increase in ATMs and POS terminals. There were 3.9bn transactions in 2008, 4.8bn in 2012 and 5.7bn predicted for 2017.
While ATM transactions, and therefore cash withdrawals make up a large amount of these figures, POS transactions are rising at a marginally faster rate. ATM withdrawals have been increasing at a rate of 2.34% CAGR, whereas POS transfers is at 3.99%.
Credit cards
The one category of cards struggling to grow is credit cards. The German central bank, The Deutsche Bundesbank, said more than 50% of consumers prefer cash for purchases in excess of 100. While only 30% of consumers would choose credit cards for overseas purchases.
There are currently 33 million credit cards in Germany, a country with a population of around 86 million. Over 90% of those 33 million cards are charge cards, making the traditional credit card market is very small.
Cultural German reluctance was also evident, as despite the amount of conventional credit cards rising from 3.2m to 4.1m between 2008 and 2012, their value decreased in 2009 and 2010. The negative effect of the global economic crisis contributed to -3.2% and -4.0% falls respectively.
A brighter outlook is predicted though, as we forecast the systematic promotional offers on credit cards by banks, will result in increased average spend. Our projections say annual credit card spend will be up to 6,853m from 4,979m by 2017, a CAGR rate of 5.78%.
Further growth and Initiatives
Current payment card adoption rates are relatively low in Germany. An untapped and highly competitive market makes the industry very attractive as it creates better services at lower rates. Increased security measures along with a simplification of the payment process are also encouraging customers to use cards.
Government and banks’ initiatives are another factor driving the emerging market.
The Deutsche Bundesbank is looking to facilitate cashless transactions, including the adoption of the secure SEPA system, the implementation of EMV technology and development of e-payment systems.
Germany plans to completely migrate to EMV technology by February 1 2016. EMV based cards and POS terminals will facilitate the expansion of the contactless payment system and NFC technology in the retail sector. The DSGV (German Saving Bank Association) is enabling contactless technology in all savings bank cards by the end of 2014. Visa ope is set to launch Visa payWave enabled credit and debit cards with the help of six German banks to provide a contactless payment service by the end of 2012.
Another important development in contactless payment is the launch of The Touch & Travel mobile ticketing services by Germany’s rail transport company, Deutsche Bahn, in 2011. The service allows users to touch in and out at rail stations via ‘Touchpoints’, through the use of NFC or 2D barcodes on smartphones.
Cash is also set to become more expensive as a result of Bundesbank’s decision to outsource more of its cash recycling facilities to private companies. This is likely to make cash less attractive for retailers as cash-handling services were previously provided by Bundesbank at little or no cost.
MasterCard, said: "There has always been a perception in Germany among retailers and consumers that cash is free. This is slowly changing though as a result of ATM fees and Bundesbank’s partial pullback of cash logistics."
Promotions
Credit card use in Germany is around 32% compared to 62% in the US. Companies are devising various promotional offers to engage new customers. Discounts on fuel, car rental, travel packages and cruises, offers at selected restaurants, access to special events and rewards points are commonplace.
Attractive innovations are being targeted at the younger generation. Customised cards are now available, which omit fragrances, such as coffee, cinnamon, mint or orange, while a personal picture or design can be added to some. A number of insurance benefits are also offered, including travel, accident, maps and document, goods and cell and cash.
The scented cards were first issued in 2008 by Commerzbank, and supplied by card manufacturer, Giesecke & Devrient.
Co-branded credit cards have also been one of the biggest trends in the industry. They provide additional benefits tailored to the consumption habits of consumers. They constitute the majority of all credit cards in circulation in Germany. As of 2011, co-branded credit cards are available in sectors including travel, retail and entertainment.
Key German Banks
Landesbank Berlin Holding AG
A financial holding company based in Germany, parent company of Berliner Sparkasse, Berliner Bank and Landesbank Berlin.
The Sparkassen group consists of various savings banks in Germany. It has a 52% market share of the country’s saving accounts, 49% of current accounts and 41% of all banking outlets.
Strong capital base plus wide product and service portfolio are its key strengths.
During FY2011, the company’s net income before taxes declined from 317.00 million in FY2010 to 41.00 million in FY2011.
The company is well positioned to benefit from the rising Polish economy, which is projected to grow by 3.00% in 2012 and then accelerate to 3.60% in 2013.
The recent financial crisis has led to increased compliance costs and additional regulations, probably as an attempt by the government to prevent future crises.
Deutsche Bank
One of the largest banks in ope, with total assets of about US$3.04 trillion, as of September 2012. The bank has established itself among the top-5 corporate finance firms, based on Dealogic rankings and market shares.
Its total assets are 1,906bn, and it has 3,083 branches, as of December 2012
It launched high-performance retail banking platform, Magellan, which is expected to enhance the cost efficiency of its retail banking business.
Investment portfolio contains interest rate sensitive investments, such as corporate bonds.
Postbank became part-owned by Deutsche Bank in 2008, before it bought a further 30% stake, making it the majority shareholder in 2010. Deutsche Postbank is the biggest retail bank in Germany.
Commerzbank
Its dominant market position gives it an edge over its competitors. The bank serves 15 million private and corporate customers worldwide with its range of products and advisory services.
Its total assets were at 661.8bn in 2010.
Focus on corporate customers will help improve top-line performance.
Has intense competition with various companies and financial institutions in the EU and abroad that are into banking, insurance and wealth management businesses.
