Germany is one of Europe’s largest payment cards markets, and is the third-largest in terms of annual card transaction value. It is still far from being recognised as a fully mature market, however, as the average number of monthly card transactions by consumers in Germany was 2.5 in 2014; much lower than France (9.4) and the UK (6.5).
Despite the gradual growth in non-cash payments over the last decade, consumers in Germany still have a strong inclination towards cash for the majority of transactions. Payment cards are still predominantly used to withdraw cash from ATMs.
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Girocard maintains its stranglehold in the German debit card market
Consumers in Germany use debit cards for most transactions and the national debit card scheme, Girocard is the most frequently used payment card, including Visa and MasterCard debit cards.
Girocards are enabled with EMV technology, which offers enhanced security for POS terminal transactions. Payment guarantees to retailers by all the participating banks makes the Girocard a popular choice of payment card among retailers.
The interchange fees charged for Girocard are between 0.2% and 0.3%, which is much less than Visa with 1.08% and MasterCard with 1.10% in 2014.
As Girocard transactions accounted for 90.2% of the overall debit card transactions, the low interchange fee charged for Girocard reflects to a great extent on the merchant service charges prevailing in the market.
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By GlobalDataIn Germany, the average merchant service fee for debit cards was 0.34% in 2014. The combination of factors collectively led to the higher acceptance of Girocards at retail outlets in Germany between 2010 and 2014.
However, with the new regulation capping interchange fees at 0.2% for consumer debit cards, effective from June 2015, Girocard is anticipated to face stiff competition from Visa and MasterCard over the next five years.
Effect of interchange fee on the German credit card market
In Germany, credit cards occupy a trivial share in the overall payment cards market. Due to overdraft facilities on the majority of regular bank accounts, the need for short-term credit facilities is reduced.
Consumers in Germany are using credit cards to benefit from interest-free credit periods; this facility is not available for overdrafts, and banks calculate the interest rate from the day the overdraft facility is utilised.
The German credit card market is anticipated to be affected negatively by the interchange fee cap at 0.3%, especially for banks that issue Visa and MasterCard-brand credit cards.
These banks are anticipated to witness severe revenue erosion and to compensate, banks are anticipated to increase annual fees or reduce reward benefits to credit cardholders, limiting credit card market growth potential.
Mobile contactless payments are gaining prominence in Germany
NFC-based mobile payments are gradually gaining prominence in Germany, as retailers and mobile operators actively promote NFC technology to improve their business. Consumer preferences for secure payment services that allow them to purchase products are also gaining ground in Germany.
Many of these services are based on NFC technology, and companies are embracing this technology to benefit from the expansion of the mobile payment (m-payment) market.
In April 2015, for instance, Vodafone Germany, Deutsche Telekom and Telefonica, along with six major German retailers, launched a program in Berlin to introduce upgrades to 2000 POS terminals across 500 retail outlets that accepted mobile contactless payments.
Likewise, in February 2014, MasterCard announced collaboration between Deutsche Telekom, Telefónica Deutschland, Vodafone and MasterCard’s subsidiary, Trevica, to offer mobile contactless payment for customers of MasterCard’s partner banks.
The service will allow banks’ to connect to a single platform instead of connecting to individual mobile operators.
Postbank announced the launch of mobile contactless payments pilot in May 2015.
During the pilot, Postbank will be using mobile contactless payments platform provided by payment and the transaction services provider Worldline. Users need to have a NFC-enabled smartphone to make payments at any of Visa’s payWave terminals in Germany.
According to Worldline, upon the successful completion of pilot, the service will be expanded to other areas such as couponing or ticketing.
E-commerce market growth offers prospects for card-based payments
Germany is the second-largest e-commerce market in Europe after the UK.
E-commerce registered a CAGR of 21.32%, between 2010 and 2014, to reach $99.9bn (75.3bn) in 2014.
The growth of e-commerce in Germany was facilitated by internet and mobile penetration, and the enhanced availability of faster broadband connections.
The use of video and social media for enhanced product presentation and services in e-commerce is further fuelling growth.
The integration of video in e-commerce improves the overall shopping experience, and therefore, greatly increases customer loyalty.
The leading companies in the German e-commerce market are Amazon, eBay, Weltbild.de, Otto.de and Tchibo.de.
With a high internet penetration, the German e-commerce market is expected to grow at a CAGR of 17.05% between 2015 and 2019, to reach $188.6bn in 2019.
An increasing number of online retailers are offering a same-day delivery service to enhance the customer’s experience. Amazon is offering an ‘Evening-Express’ same-day shipping option.
Similarly, eBay is also testing ‘eBay Now’, a shopping app aimed to offer delivery in less than two hours.
German shoppers also opt for alternative online payment services such as PayPal, Sofort and Giropay for online purchases.
