* The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.
Germany has a fascinating and ever-changing payment landscape. This Western European country is not only a cash country but also a big fan of direct debits. So what is the future of German payments? We interviewed Axel Weiss of the German Savings Banks Association (DSGV), which is coordinating this year’s German Banking Industry Committee (GBIC). Our infographic summarises all you need to know about the German payment landscape.
Q. Germans are the European champions for direct debit use, with an average number of direct debits per capita of 131 versus 49 for the average European. How do you explain this characteristic?
There is a common understanding that direct debit is a simple and secure payment instrument where the consumer has the advantage of not having to be responsible for initiating a payment at the right point in time. Since the introduction of the German legacy, the Direct Debit scheme for consumers in the early 1960s, customers have been well informed about their extensive rights to refunds. This was a major feature that promoted consumer trust in direct debits. In addition, creditor banks constantly monitor the R-transaction risk and related credit risk to ensure that the Direct Debit scheme performs optimally.
Q. Card payments do not seem to be as popular in Germany as they are in the rest of the European Union ( ); they represent nineteen percent of Germans’ cashless transactions versus forty-nine percent in the . Why are Germans reluctant to use their cards? Are contactless card payments nevertheless a trend in Germany, as they are elsewhere in Europe?
Although Germany is a successful direct debit country, cash payments are often preferred for single payments and smaller amounts in daily life. However, the digitisation of the payments landscape will influence both this behaviour and the introduction of new payment products.
We are expecting that new technologies, in combination with mobile devices like virtual cards, will increase the use of cards – especially by younger people. This will include contactless payments.
Q. Germany is known for its attachment to cash. What is the share of cash payments versus cashless payments? Do you see an evolution?
According to a 2017 survey by the Deutsche Bundesbank, cash is the main payment instrument in Germany, representing seventy-four percent of all payment transactions (by number). This is, however, a decrease of five percent since 2014. Payments of up to fifty euros in particular are, to a large extent, made in cash. Furthermore, some payments are traditionally made in cash because of their beneficiaries, such as private individuals, restaurants or vending machines. Sometimes cards are not accepted by certain vendors.
On the other hand, the new survey found out that the cash share of all sales in euros is now less than fifty percent. This is a decrease of six percent since 2014.
I am sure that the possibility of contactless payment initiation by card or smartphone will provide a strong incentive to use electronic payments. This could increasingly replace costly cash transactions.
Q. The majority of German payment service providers plan to propose Instant Credit Transfer services to their customers by the end of 2018. What is the forecast for the development of instant payments in Germany?
Instant payments will enhance the product offerings of banks.
We think that instant payments will be a more appealing replacement for cash payments in certain use cases, for example, the Peer-to-Peer ( ) environment and e-commerce environment.
Other areas could include cash-management solutions for corporates. Depending on the market acceptance and the product offerings, instant payments could reach a significant market share of all credit transfers in the mid-term. My estimation is that instant payment will achieve a market share of around twenty percent within the next five years.
Infographic: The German payment landscape
(click to enlarge and download)
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Axel Weiss
Axel Weiss joined the German Savings Banks Association (DSGV), the umbrella organisation of the German Savings Banks Finance Group, in 2002. He is head of the Payments Strategy unit. Prior to joining the DSGV, Axel Weiss was employed at the Landesbank Baden-Württemberg as a project manager in banking operations. Before this, he was a branch manager at a private bank. He is a banker and holds a degree in business administration.