Online payment in Germany: security and tradition

Germans are conservative and this is reflected in their traditional attitude towards online payment: open invoice and direct debit (SEPA-ELV) are the most popular methods of German online retail payment. By ignoring this aspect, merchants will suffer abandoned purchases. What should online merchants bear in mind in order to be successful in Germany?

It is a fact that credit card payments are the world’s top cashless method. However, this does not apply worldwide and certainly not in Germany, where only 35.7% (Source: DIMOCO: Direct Carrier Billing in Germany, 2014) own a credit card and only 10% (Source: EHI Retail Institute, EHI Research study: Online-Payment 2015 – Distribution of Payment Systems) use it. Germans love security and tradition, which also applies for payments. Online shopping is no exception, with Germans relying on familiar and trusted types of payment. The challenge for merchants and payment service providers is to incorporate common offline payment methods into the world of ecommerce.

Open invoice is definitely most popular

In Germany, open invoice is, by far, the most popular payment type. How can this popularity be explained? Germans grew up with catalogues from companies, such as Otto and Quelle. Many remember the great piles on their parents’ and grandparents’ coffee tables. Large mail order companies enjoyed success with the slogan: “try before you buy”. Germans became used to merchants bearing the cost in advance. Today, around 80% of German online shoppers state that open invoice is their preferred payment method (Source: ibi Research: Payment as a success factor: the influence of payment processes on your sales, 2nd edition, 2013). It is particularly popular among women. The second most popular payment method is direct debit (DD). It was popular in Germany even before the SEPA changeover in 2014, but has since received a significant boost. A study conducted in December 2014 shows that SEPA direct debit combines a high customer acceptance rate with minimal costs to merchants (Source: E-Commerce-Leitfaden: The Future of Payment, 2014). However, in addition to chargebacks, direct debit also contains procedural obstacles such as pre-notification and mandate administration. Consequently, many merchants no longer have this payment method on offer.

A further preferred payment method, which is increasingly popular in Germany, is instalment payments or convenient part payments. Aggressive promotion of flexible financing by major electronics retailers has greatly influenced this trend and the demand for instalment payments has risen in ecommerce. Customers are not necessarily opting for instalment payments out of financial need, but rather because it offers them greater flexibility.

Abandoning risk if desired payment type is not offered

Germans are creatures of habit. When making purchases online, approximately 24% abandon their purchase if their trusted payment type is not offered. A further 27% only continue with their purchase if there is a satisfactory alternative (Source: ECC Cologne/Aschaffenburg University of Applied Sciences: Payment in e-commerce, 2014). Conversely, it has been proven that merchants who offer open invoice suffer 79% abandoned payments at the check-out. If direct debits are included, the rate is still high, at 40% (Source: ibi Research: Payment as a success factor: the influence of payment processes on your sales, 2nd edition 2013). Where instalment payments are offered, merchants see shopping bag values rise by 11% and sales by 7% (Source: E-Commerce-Leitfaden: Instalment payment in e-commerce, 2014).

No risk for buyers or merchants

So, Germans prefer familiar payment methods without any advance costs. This means merchants have to incur these costs and therefore bear the full risk. Previously, it was difficult for many online shops to offer the most popular payment options in Germany. Payment processing, risk management and dunning processes are all time consuming and require a certain degree of knowledge and, as a result, default payments are almost inevitable in order to avoid deficits in payments. The average cost for every payment default is about EUR 66 (Source: ECC Cologne/Aschaffenburg University of Applied Sciences: Payment in e-commerce, 2014).

In recent years, new service providers have entered the market with solutions that assume total responsibility for processing unsecured payment types. These include buyer risk identification, invoicing, dunning processes, bookkeeping and customer communications. This saves the merchant time, allowing him to concentrate on his core business: sales. The merchant’s great demand for this service: according to a recent study, 41% of merchants are planning to outsource secure open invoice processes to a professional service provider soon and 20% intend to offer secure direct debit services (Source: E-Commerce-Leitfaden: The Future of Payment, 2014).

RatePAY offers a full service and 100% payment guarantee

At RatePAY, we understand the payment preferences of Germans. Being an expert for the processing of unsecure payment methods, we specialise in open invoice, instalment payments and direct debit. Merchants who don’t offer these options in Germany may miss out on 50% of sales (Source: EHI Retail Institute: Online-Payment-Study 2014). RatePAY offers all merchants a full payment guarantee, enabling inclusion in their portfolio without any risk.

For more information about RatePay, please check out a detailed profile of this company in our dedicated, industry-specific online company database.

About Miriam Wohlfarth

Miriam Wohlfarth, Managing Director and co-founder of RatePAY, has been working in online payments for over 15 years. Prior to RatePAY, she was country manager in Germany at Ogone (Ingenico Payment Services) and the Royal Bank of Scotland (RBS) – Bibit, Germany.

About RatePAY 

RatePAY offers local payment methods, such as open invoice, instalment payments with real-time online acceptance and direct debit with a 100% payment guarantee for online shops selling to Germany, Austria and Switzerland. In addition to factoring, RatePAY offers also individual modular solutions. RatePAY is a member of the Otto Group.