Payment Innovations in Germany

 September 19th, 2018

Having one of the strongest economies in the world, Germany is still notorious for its aversion towards digital innovations in payments. Cash is the reigning means of payment, especially for smaller everyday expenses like grocery shopping or the restaurant bill.

Despite their love for physical money, some recent developments in German payment behavior are indicating an ongoing change. Online shopping is immensely popular and more and more contactless payment options for retail stores have surfaced amidst the sea of coins and bills. Can those innovations find a place in the lives of the German public or will Germans stick to the established form of handling their payments and continue using cash?

The German Way of Paying


Before we dive into the possible changes of the German payment culture, we first have to understand as to why the average German is so reluctant when it comes to new ways of payment that don’t include a piece of paper or some chunks of metal. Paying with cash is first and foremost anonymous and provides independence from any financial establishment that might block your card or give you a bad credit.

The next concern is the topic of security. Unless it gets directly stolen out of your pocket, physical money is as secure as it gets. After the first few contactless payment options have been advertised in the German media, it didn’t take much longer until the first stories of people being robbed on the go reached the public ear, which left a rather negative impression on the matter.

Another problem is the acceptance of such innovations. Although more and more businesses are trying to promote contactless methods (e.g. the Girocard from the Sparkasse), there are still not many stores or restaurants that actually support these new technologies outside of big chains like Lidl or ALDI. Why should you deal with the hassle of using so many different payment options when you can just stick with cash and call it a day?

Any Signs of Change?


In order to predict a possible change in this payment behavior, we can look at a comparably similar modern innovation that requires cashless payments: online shopping. Buying goods online is already normality in Germany: 72% of Germans purchase goods and services online on a regular basis. German ecommerce has experienced a huge increase in the recent years, growing by 10.9% in 2017 alone. This tendency is easily explainable as online shopping is effortless, comfortable, and does not require nearly as much time and energy as traditional shopping does. Bank transfer is the preferred way of paying online in Germany at the moment, but alternative payment methods (APMs) as PayPal, Apple Pay, or Android Pay are on their way to the top. It is predicted that APMs will overtake bank transfers as the most popular way of paying online by 2021.

Although a survey from the Deutsche Bundesbank reveals that the vast majority (88%) of people are against the abolition of cash, the growing adoption of APMs in online commerce suggests that they might warm up to modern ways of payment if enough time for adjustment is given. In the same survey, 38% of the respondents say that traditional bank transfers are taking too long to be processed and they welcome faster transactions that are provided by instant payments, such as PayPal or the Sparkasse Instant Payment service. Speaking of time, there is another point that should be addressed:

Generational Difference


From the aforementioned 88% of Germans that are against a cashless payment culture, 96% state that this comes from a concern for certain groups in the society, for example the elderly, who would have a hard time adjusting to a world without cash. But the younger the people, the quicker they accept new innovations in the payment industry and new technologies in general. A survey from MasterCard reveals that a staggering 63.8% of 18-34-year-olds want to pay cashless as often as possible and wish for less reliance on cash in the future.

The Merchant’s Side


In the end, the merchants are the ones who have to take the additional step to actually adapt new innovations to both stay competitive and meet expectations of their customers.

Thus, the modern merchant has to take the blooming online-shopping business into consideration and provide their customers with an online portal as a way to purchase their products. Even though many Germans still prefer buying something after they’ve seen it in person, being able to search for an item online is a must-have in today’s business world if you want to attract and keep new customers.

Establishing an online presence is not everything that businesses should pay attention to, as e-payments are not only for the convenience of the local customers. Retailers and especially restaurants in tourist-heavy locations need to adjust to the ongoing cashless revolution around the world if they want to keep up with the competition. Recent events like the 2018 FIFA World Cup Russia™ show just how important cashless payments are for a flourishing tourism industry.

All in all, Germany is still surprisingly backwards at the moment in terms of payment innovations. Traditional cash is the king and bank transfers are still the preferred way of paying online. Nevertheless, recent developments are indicating a needed change in the payment landscape and maybe a little bit of time is everything Germany needs to adjust to the digital payment revolution around the world.

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