German banks are playing a key role in shaping
the future of Europe’s cards and payments industry, as they seek to
find a way to keep the national debit scheme alive under SEPA.
However, with economies of scale hard to find, card growth levels
have some way to go to match the rest of Europe. Victoria
Germany is often touted as having one of the
strongest economies in Europe, and its payment infrastructure is by
no means considered unadvanced – so why do its consumers still
prefer to use cash or credit transfers when making payments?
Although the country’s debit card market boasts
some of the most impressive numbers in Europe in terms of cards in
circulation, credit cards are still viewed with wariness in this
debt-averse market, and cards as a proportion of all retail
payments are still miniscule when compared to other western
European countries.
However, the country’s economy would appear to
support the growth of payment cards. Real gross domestic product
year-on-year in the first quarter of 2008 represented 2.6 percent,
while the number of people in employment continues to rise – the
seasonally adjusted number of people in employment went up by
25,000 in April. The year-on-year rise was 1.6 percent.
But Germany also has a strongly embedded
savings culture. The household savings ratio in the first three
quarters of 2007 rose from 10.7 percent to 11.25 percent around the
end of 2007. Disposable incomes too are on the up, and are
estimated to rise by around 3.5 percent in 2008 and 3 percent in

A fragmented card market

The way the German banking industry is constructed means that
economies of scale (and consolidation) are a lot harder to come by
for issuers than in other European markets, although this appears
to be finally changing with the news of Citi Germany’s retail
business being acquired by a French banking group, and ongoing
speculation about the sale of Germany’s largest retail bank,
Deutsche Postbank.

Germany has a fragmented banking system
consisting of private sector banks, state-owned regional banks, and
local savings banks (or Sparkassen) and cooperatives, making it
harder for private sector banks, especially foreign ones, to crack
the market and ensure sufficient volumes of card numbers and
Of the 122 million payment cards in circulation
at the end of 2007, over 93 million were debit cards co-branded
with the national debit scheme, electronic cash (ec), and
MasterCard’s debit scheme Maestro. Debit cards represent 75 percent
of all payment cards in Germany, and ec accounts for 97.24 percent
of all debit POS transactions.
ec is a PIN-based debit POS system that has
been in existence since 1991 and is operated by the German banking
industry. It accounts for around 1.5 billion transactions annually
and is accepted at more than 560,000 POS terminals across
For cardholders, electronic cash transactions
are free of charge, although the interchange fee is 0.30 percent
for merchants. ec operates under a three-party model, unlike its
four-party rival debit schemes VPay and Maestro.
Originally, ec was built on proprietary
technical standards in order to leverage the existing domestic
debit processing environment. However, with the advent of EMV and
the implementation of SEPA, the technical basis of ec will be
migrated to accommodate international standards.
In April 2008 it was announced that ec would be
rebranded as ‘girocard’, which
, the body which represents the associations of the German
credit industry, stated was implemented in order to align it more
closely with the SEPA vision with the creation of a uniform logo
and brand. ec cards that expire will be reissued under the girocard

Credit grows – but gradually

Because of the dominance of debit payments, true revolving credit
card usage is still minimal, and many Germans (over 90 percent)
still use their credit cards more like a charge card by paying off
balances in full every month. Annual fees are a typical feature of
credit cards, and are the main component of issuer revenues given
that transaction volumes and the levels of revolving balances are
so small.

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As of the end of 2006, there were over 17.9
million credit or charge cards in circulation, although in 2007,
the Bundersverband Deutscher Banken (BDB), the German banking
association, asserted that there were around 23 million credit or
charge cards in circulation. Charge cards represent 18 percent of
all payment cards in Germany, compared to 7 percent for revolving
credit. However, usage is growing and there is still significant
growth potential.

Germany: Electronic cash transactionsAccording to the BDB, Germans largely
use their overdraft facility on their current accounts to make
retail purchases, which offer lower interest rates. Another
alternative to the credit card is to take up a small loan offered
by a bank, which may not necessarily be the consumer’s own

However, growth potential for credit must be
put into context – German consumers overwhelmingly prefer to use
cash to make payments. A survey carried out by global market
research firm TNS in 2007 found that 64 percent of Germans use cash
as their primary payment method, compared to 31 percent of people
in the UK. But the proportion of retail purchases being made with
cards is rising.

EHI Retail Institute, a German marketing consultancy, found that in
2006, 34.1 percent of total retail turnover in the country was
transacted by card-based payment methods, compared to 32.9 percent
in 2005. EHI estimates that card-based payments will make up around
40 percent of retail turnover by 2010.

“In the next few years we will increasingly see
signs of a ‘cannibalisation effect’ between the various cards and
card systems” says Horst Rüter, head of EHI’s payment systems
research division. According to Rüter, it will be interesting to
see what pressure, in particular as far as cost price is concerned,
international brands such as Maestro will exert on the existing
national systems.

Battleground for the networks

Germany has become something of a payments battleground in recent
months, and at stake is the future of ec.

As one of the most debit-heavy markets in
Europe, all eyes are on Germany as its domestic banks hustle and
negotiate over the future of ec, in the face of concerted efforts
by the international card schemes Visa and MasterCard to persuade
German issuers to migrate their portfolios towards their respective
debit schemes V PAY and Maestro in order to achieve full
international acceptance – typically, the ec badge is used for
domestic transactions, while Maestro is used for cross-border
transactions or transactions outside Germany.
Many German issuers cite the extra fees
attached to the international card schemes as a reason to stick
with ec and transform it into a pan-European SEPA-compliant
While Maestro may have enjoyed a market-leading
position so far, Visa trumpeted the growing traction of its
SEPA-compliant V PAY debit scheme in June 2007 with the
announcement of an agreement with ZKA enabling ec to be cobranded
with V PAY. ZKA stated that this solution would be “recommended and
supported explicitly by the German banking industry”.
Following on from that, the Deutsche Sparkassen
und Giroverband (DSGV), the association of German savings
institutions, decided to upgrade its infrastructure to support the
issuance of V PAY cobranded cards.
Germany may represent the last frontier in
preserving a national debit scheme as it is by no means certain
that ec issuers will fully migrate to Visa or MasterCard. Indeed,
its bank issuers are in intensive negotiations with various parties
to explore ways in which ec can collaborate with other pan-European
schemes or other national debit schemes to expand acceptance and
boost usage.
In June 2008, it was announced that EUFISERV,
the cross-border European ATM network of which ec is a member, had
established closer ties with Belgium’s Coppefis, Portugal’s Caixa
Geral de Depósitos and the Swiss Post Office (PostFinance), as well
as the French savings banks Caisse d’Epargne and the Euro Alliance
of Payment Schemes (EAPS), of which ec is also a member.
Aside from ec, EAPS consists of the German ATM
system as well as the POS and ATM systems MultiBanco (Portugal) and
PagoBancomat (Italy), the Spanish EURO6000 scheme, the UK ATM
scheme Link and EUFISERV.
The cooperation partners represent 222 million
debit cards, 190,000 ATMs and more than 2.1 million POS terminals.
When compared to Maestro’s 250 million Maestro cards in Europe,
it’s clear to see why EAPS believes it has a tangible alternative,
although many industry experts express skepticism that an
independent third debit scheme in Europe can get off the ground due
to technological and infrastructure issues.
With EAPS making ec the basis of its
pan-European vision, in a statement announcing its expansion, it
said: “The Euro Alliance has been the first and only European
alternative to Maestro and VPay to date that has been successfully
launched in the market. The Alliance currently handles
approximately 20 million transactions per year. This increases the
participating credit institutions’ independence of other service

Germany: Credit card market share

Key players

Landesbank Berlin

Landesbank Berlin was the largest credit card issuer in Germany as
of the end of 2007, with over 1.8 million credit cards in
circulation, compared to 1.5 million a year earlier. During 2007
Landesbank Berlin issued over 324,000 new credit cards.

Landesbank Berlin attributes its leadership
position partly due to the large number of cobranding programmes it
has in place in conjunction with retailers and organisations in the
service sectors, enabling it to offer discounts and value-added
benefits. Landesbank Berlin has partnerships with organisations
such as Microsoft, Amazon and Air Berlin.
Its cobranding programme with Amazon has been
particularly popular with more than 100,000 cards issued since it
was launched in November 2006. In January 2008, Landesbank Berlin
acquired the sales financing division of BHW Bank
The acquisition includes a customer base of
179,000 customers with private loans and 125,000 credit cards and
around 8,300 active dealer relationships. The credit volume amounts
to around €485 million ($764.1 million).

Barclaycard Germany

Indicative of its international expansion efforts, Barclaycard
ranks as the second-largest credit card issuer, with 1.33 million
credit cards in circulation at the end of 2007, up from 1.3 million
a year earlier.

In 2007 Barclaycard Germany launched a
dual-function card in conjunction with German supermarket chain
Netto – the card functions both as a Maestro/ec card and a
MasterCard credit card. In October of 2007, it launched new
Visa-branded credit cards under classic, gold and platinum formats,
along with the ‘double’ format, a primary card with a companion
card, and it also reduced annual fees on certain products,
particularly those aimed at younger consumers.
In June 2008 it was announced that Barclaycard
Germany would be expanding its service portfolio to offer
instalment loans, targeted at the self-employed who are usually
excluded from receiving such offers. The company offers loans from
€1,000 to €35,000 with a maturity from 12 to 84 months, and the
entry-level interest rate is 3.9 percent per year.


Up until 11 July, Citibank ranked as the fourth-largest credit card
issuer in Germany with around 1 million credit cards in circulation
at the end of 2007.

However, the recent announcement that Citi’s
German retail business would be sold to France’s Credit Mutuel for
more than $8 billion brings to an end Citi’s retail presence in the
country where it first established itself in 1926.
Citibank has 340 branches in Germany and
employs 6,800 staff, serving 3.25 million customers. In terms of
overall consumer credit, Citi had a 7 percent market share but has
had to contend with falling revenues. Citibank made net profit of
€365 million in 2007, 15.5 percent below the year-ago period. Net
interest income fell 9 percent to €1.06 billion.
The decision to sell Citi’s retail banking
business in Germany came as the result of a global strategic review
conducted by Citi’s CEO Vikram Pandit, and is aimed at redirecting
capital to Citi’s core businesses and emerging growth
Citi said it remains “strongly committed” to
its remaining German businesses, including its full service
corporate and investment banking business and its European data
centre, which is the biggest Citi data centre outside the US.

Deutsche Postbank

Deutsche Postbank fared considerably better than some of its rivals
in 2007 and gained market share across nearly all consumer
segments, along with the recruitment of 1 million new customers to
bring the total to 14.5 million across Germany.

In particular, Postbank gained a large number
of new customers with its strongest product, its charge-free
current account. With around 587,000 newly-opened private current
accounts, it increased its new business by some 25 percent.
At the end of 2007, the bank managed 4.9
million private current accounts compared with 4.7 million in the
previous year. In relation to credit cards, Postbank again
increased its figures significantly by almost 9 percent to 1.1
million cards by the end of 2007. Deutsche Postbank was recently
subject to takeover rumours involving a number of European banks,
but as of going to press, no announcements had been made.
Deutsche Postbank also had 6.32 million debit
cards in circulation at the end of 2007, compared to 6.25 million
in 2006.


Commerzbank had 965,000 credit cards in circulation at the end of
2007, and the last year saw the bank engage in an extensive
marketing and advertising exercise to boost numbers and
differentiate itself in an increasingly crowded market.

The bank reports that brand awareness among
consumers has improved significantly and has helped it to expand
the number of cooperative sales ventures.
Since June 2007, Commerzbank has been in
partnership with online auction house eBay and now offers a
cobranded credit card via eBay’s website.
Commerzbank also issues classic credit cards
under the Visa and MasterCard brands, and an American Express gold
card. It also issues a ‘CorporateWorld’ MasterCard credit card
aimed at business customers.