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  1. Country Surveys
January 15, 2014

Country Survey: Germany

The German cards market has seen growth in the last few years despite economic slowdown, due to changing lifestyles, an increase in the popularity of online shopping and a rise in disposable income per capita. CI looks at how the government and central bank are encouraging card use

By Verdict Staff

The German cards market has seen growth in the last few years despite economic slowdown, due to changing lifestyles, an increase in the popularity of online shopping and a rise in disposable income per capita. CI looks at how the government and central bank are encouraging card use

Despite economic slowdown, the German card payments industry registered growth during the review period (2008-2012). The card payments channel recorded a review-period compound annual growth rate (CAGR) of 3.56%, to reach 247.6m cards in circulation in 2012 and a value of €519.8bn ($668.2 bn). Changing lifestyle demographics, an increase in the popularity of online shopping and a rise in disposable income per capita supported the growth of the volume of cards in circulation.

Modernisation and innovation of payment systems

Key initiatives are being taken by the Central Bank of Germany (Deutsche Bundesbank) to facilitate cashless transactions, including the adoption of the secure single Euro payments area (SEPA) system, the implementation of Europay, MasterCard and Visa (EMV) technology and development of e-payment systems. The introduction of SEPA systems across Europe will harmonise all European retail payment systems. Germany plans to completely migrate to EMV technology by February 1, 2016. EMV-based cards and point of sale (POS) terminals will facilitate the expansion of the contactless payment system and NFC technology in the retail sector.

Der Deutsche Sparkassen- und Giroverband (DSGV or the German Saving Bank Association) is enabling contactless technology across all bank savings cards in 2014. Additionally, Visa Europe launched its payWave enabled credit and debit cards alongside six German banks to provide a contactless payment service in 2012. Another important development in the German contactless payment system was the launch of the Touch & Travel mobile ticketing service by Deutsche Bahn in 2011. The service allows users to touch in and out at stations via ‘Touchpoints’, through the use of a near field communication (NFC) enable card or via a 2D barcode on a smartphone.

Government proposals to reduce the use of cash and promote payment cards

According to German Central Bank and International Monetary Fund (IMF) forecasts, the German economy is expected to be relatively stable despite financial uncertainties faced by most European countries. As a consequence, consumer spending is expected to grow over the forecast period (2013?2017). The promotion and development of payment cards will offer substantial growth for the industry. Cash is likely to become more expensive as a result of the 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 the Bundesbank at little or no cost.

Competitive marketing and pricing strategies help card issuers to gain market share

As competition among card issuers increases, marketing, product and pricing strategies are being employed to attract larger customer bases. Offers such as fuel, car rental, travel and restaurant discounts, alongside reward points, insurance benefits, personalised cards and no annual fees are some of the most common marketing strategies employed by issuers. Banks are segmenting their retail customers based on age, gender, income and spending patterns. Corporate customers are segmented by their specific service requirements. However, both are targeted with customised payment cards.

Barclays targets students with the Barclaycard for Students, while Landesbank Berlin launched the LLB Prepaid Visa Card which is aimed at those with a low credit rating.

Corporate cards designed to meet specific business needs have been introduced by firms such as Commerzbank who offer the Corporate Card to manage business travel expenses, or AirPlus, which has a purchasing card that helps companies in managing their invoices.

Government initiatives to promote card-based payments will drive market growth

With the Bundesbank’s decision to outsource more of its cash recycling facilities to private companies, cash transactions are likely to become more expensive over the forecast period. In this situation, it is thought that cash will become less attractive for retailers as the cash handling services that were previously provided by the Bundesbank were free or subsidised.

Contactless prepaid card thought to be the future of Germany’s card payments channelPOS terminals enabled with NFC or Radio-frequency identification (RFID) readers scan EMV chip and process payments instantlysignificantly reduces processing times and enable retailers to deliver a more advanced service. One example is the Deutsche Kreditwirtschaft’s initiative to imbed debit and prepaid cards with contactless payment technology and the Girogo project, which uses digital security technology called the Integrity Guard.

Major operatives who provide contactless payment technology include the German Saving Bank Association (DSGV), MasterCard Paypass and Visa Europe. Germany’s retail sector has successfully migrated to EMV technology, which provides scope for the adoption of contactless payment systems.In 2011, German rail transport company Deutsche Bahn rolled out its Touch & Travel mobile ticketing service. The service allows users to check in and out at rail stations via ‘touchpoints’ through the use of NFC cards, or 2D barcodes on smartphone devices. In June 2013, fuel retailer Shell entered into an agreement with Visa to introduce contactless Visa cards. This agreement is expected to be operational in 2014.

Electronic gift cards are the upcoming phenomenon in Germany

Growth opportunities presented by the Germany cards and payments industry led Sweden-based application developer Wrapp to launch an e-gift card. The card has already been a success in other developed economies such as the UK and Russia. Wrapp was created for Facebook and targets smartphone users, who can buy, receive and redeem electronic gift cards on mobile phones or in-store from participating merchants. The Wrapp app is available for Android and Apple smartphones.

Rising retail sales is driving the volume of card based transactions

Despite economic crises, Germany’s retail sector performed well and recorded a growth during the review period. Retails sales turnover grew from €405.2bn in 2008 to €432.2bn in 2012 at a review period CAGR of 1.63%. As the economy is recovering from the impact of the crises, this value is further expected to increase over the forecast period at a CAGR of 2.23%, from €442.0bn in 2013 to €482.7bn in 2017.

Increasing smartphone penetration is creating significant opportunity for m-commerce growth

M-commerce growth has been possible due to high smartphone and tablet penetration rates, the development of mobile-friendly websites, shopping apps and the fast delivery of goods by e-retailers. Mobile commerce turnover reached €7.2bn in December 2012.

With the adoption of advanced safety and security measures such as secure PIN systems, virtual credit cards, virtual keypads, one time passwords and dynamic passwords, the use of financial cards for mobile commerce transactions is increasing. Heightened smartphone penetration and an evolution in the payment system, is expected to create rapid expansion opportunities for m-commerce over the forecast period.

Use of video and social media is encouraging e-commerce

Due to increasing internet penetration rates and improvements in telecommunication infrastructure, online retail has become familiar among German consumers. Security developments in e-payment and m-payment systems have enabled steady growth in e-commerce. The use of video and social media for enhanced product presentation and e-commerce services is fuelling growth. The integration of video in e-commerce improves the overall shopping experience and increases customer loyalty. The key firms in German e-commerce are: Amason, eBay, Weltbild, Otto and Tchibo. Online retail sales grew by 24.8% in 2012 in comparison with the previous year. Notably card purchases at online retailers accounted for the highest CAGR of 22.28%, increasing from €2.6bn in 2008 to €5.8bn in 2012.

Customers use financial cards for e-commerce transactions on delivery facilities, credit transfers, direct debit transfers, e-payments and m-payments. As security measures improve, e-commerce growth further support the industry.

Channel Share Analysis by Card Category

The prepaid cards category accounted for 46.2% of the total cards in circulation in 2012. The debit cards category held the second-largest share of 42.7%, followed by charge cards with 9.7%. The credit cards category held the smallest industry share of 1.5%. Over the forecast period, the number of debit cards is expected to increase from 107.1m cards in circulation 2013 to 111.7m in 2017, at a CAGR of 1.06%. The prepaid cards category is expected to post the highest forecast-period CAGR of 3.06%, rising from 117.3m cards in 2013 to 132.3m in 2017.

Size and Forecast of the Card Payments Channel

The card payments channel posted a CAGR of 3.56% in terms of the volume of cards in circulation during the review period. This growth was driven by the charge and prepaid cards categories, which registered respective CAGRs of 5.93% and 5.49%. The review-period growth was due to the rising banked population, growing disposable income, expansion of ATMs and POS terminals and the greater acceptance of payment cards.

Analysis by number of cards in circulation

The total number of cards in circulation increased from 215.2m in 2008 to 247.6m in 2012 at a review-period CAGR of 3.56%. The total number of cards in circulation over the forecast period is anticipated to increase at a CAGR of 2.22%, from 253.3m in 2013 to 276.5m in 2017.

Analysis of Charge Card Payments and Growth Prospects

Although the charge cards category represents a third-largest category share of the card payments channel in terms of card volume, transaction value and transaction volume, it expected to gain momentum with a growing number of HNWIs in the country. In 2012, Germany’s rate of high net worth individuals (HNWIs) was the third largest in the world, representing 1.2m of the population.

The charge cards category’s penetration increased from 23.1 cards per 100 inhabitants in 2008 to 29.2 cards in 2012. Over the forecast period, penetration is expected to increase from 30.6 cards in 2013 to 34.7 cards per 100 inhabitants in 2017.

Overall Category Size and Forecast

The charge cards category grew in terms of the volume of cards in circulation at a review-period CAGR of 5.93%. The charge cards category held the third-largest channel share of 9.7% in 2012.

In terms of number of cards in circulation, the charge cards category grew from 19.0m cards in 2008 to 23.9m cards in 2012, at a CAGR of 5.93%. Over the forecast period, the charge cards category is forecast to register a CAGR of 2.99% and grow from 25.0m cards in circulation in 2013 to 28.2m in 2017.

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