Payment practices in Germany series I: coronavirus accelerates card payments

Horst Rüter of EHI Retail Institute offers an in-depth analysis of the way card payments have surged in Germany amid COVID-19, detailing the most prominent payment methods

Since 1994, the average decline in cash with a corresponding increase in cashless payments has been between 1 and 1.5 percentage points. In 2020 alone, cash payment has lost 5.6 percentage points and dropped to 40.9% of retail sales. Purchase on account has also decreased from 2.4% to 2.2% and card payments (with a physical or mobile smartphone-stored card) rose 5.8 percentage points to 56.3%, corresponding to an increase of EUR 20 billion.

Girocard on the rise

The Girocard of the Deutsche Kreditwirtschaft is the most popular of the card-based payment systems, with an increase of EUR 24.8 billion (plus 6.5 percentage points), followed by credit cards (plus 0.9 percentage points). Meanwhile, the SEPA Direct Debit lost 1.6 percentage points and dropped to 6.2%. The share of retail cards with a payment function remained stable at 0.6%.

The disruptive change processes of 2020 become clear when looking at payment transactions in stationary retail, which decreased from EUR 20 billion to EUR 18.25 billion, since the customers, although they bought considerably more per purchase, did so much less frequently. Furthermore, large parts of the non-food trade were closed for several weeks in December 2020 and March/April 2021. 

For cash payments, this means a loss of 2.5 billion transactions, a decrease of over 17% compared to the previous year. In 2020, there were 12.05 billion cash sales compared to 6.01 billion card-based transactions. Card payments increased by 798 million transactions, above all ones made with a Girocard. If the purchase frequency in shops had not decreased so significantly, the absolute increase in cashless payment transactions would have been even more pronounced.

Advertising cashless payments 

During the coronavirus pandemic, 4 out of 5 retail companies explicitly pointed out the ‘advantages’ of cashless payment through displays, stickers, flyers, posters and promotions. There are no longer hints that card payers are more expensive and therefore less wanted. During the pandemic, contactless payment, in particular, has been the norm, if not a favourite. While in December 2019 35.7% of Girocard transactions were processed contactless, this proportion rose to 60.4% by the end of 2020. The increase in the Girocard contactless limit without a PIN from EUR 25 to EUR 50 in mid-2020 also benefited this development.

Around 5 to 10% of contactless payments are already being processed with digitally-stored cards in smartphones or via apps, and the trend is increasing. This development has also received a significant boost from the coronavirus pandemic. Not only are the large NFC-based systems Apple Pay, Google Pay or the mobile Girocard, Payback Pay or Bluecode on the rise, but also more retailer-owned apps with payment functions such as the Netto or Edeka app, the Filibri app for paying directly at petrol pumps, or the recently introduced Lidl Pay functionality for the Lidl app. 

Financial benefits

The willingness of retailers to actively support card payments has, on the one hand, organisational reasons (hygiene, faster payment processes, reduced cash volume), but also financial aspects. On average, the Girocard authorisation fee, which a few years ago was firmly cemented at 0.3%, or at least EUR 0.08 per transaction, continues to decline. Through negotiation with the German Federal Cartel Office’s requirement and the EU-wide cap on debit fees to a maximum of 0.2%, acceptance of the Girocard is cheaper than ever before. As the EHI determined, the value recently averaged at 0.178% of sales, while large companies in the industry have even reached 0.139%. Due to the increasingly expensive cash supply and disposal, more retailers are now seeing financial advantages in accepting the Girocard.

This argumentation does not, however, apply analogously to credit cards for which card scheme fees and the proportion of corporate cards result in significantly higher total deductions than the 0.3% of sales stipulated by the EU. For example, the total charge for large retailers is currently 0.52% for accepting Visa cards and 0.64% for Mastercard acceptance, which is around four times as high as with the Girocard. Smaller merchants with fewer card transactions are asked to pay significantly more.

Evaluation of omnichannel

Due to the rapidly increasing importance of online business (including brick-and-mortar retailers), the EHI has for the first time carried out a joint analysis of the sales shares for brick-and-mortar retail (gross sales: EUR 435 billion) and online retail (gross sales: EUR 75 billion). The stationary ‘market leaders’ cash and Girocards, which are not or only minimally represented online, only account for 35.1 and 34.3%, respectively, of the total turnover of EUR 510 billion. Credit card payments, which are represented in both areas, are at 9.0% and purchase on account, which is popular in ecommerce, is at 6.7%. Direct debit, at 7.9%, has a higher share in the overall picture than in stationary business alone. As the strongest online payment method, in addition, to purchase on account, PayPal accounts for 3.7% of the total sales. Nine out of ten retail companies expect that Paypal, due to its high customer popularity, will be the first, after credit cards, to achieve a market share of more than 5%. 

Source: stores-shops.de

About Horst Rüter

Horst Rüter was born in 1962 and is a business graduate who now works as head of the research field ‘payment systems’ and is a member of the EHI management board. Since 1990 he has been responsible for the research topic ‘Payment’ at the EHI and its predecessors. The EHI has carried out the most representative studies on this topic in the German-speaking field every year since 1994, arranging a workshop with important representatives of large German retail companies and the payment industry, and organising the EHI Payment Congress, the top annual event in the industry.

About EHI Retail Institute

EHI is a scientific institute of the retail industry. The members of EHI include international retail companies and their industry associations, manufacturers of consumer and capital goods, and various service providers. We research topics relevant to the future of retailing, organise conferences and working groups, operate our own publishing house, and are partners to Messe Düsseldorf in staging the world’s biggest capital goods trade fair for the retail business, EuroShop. We offer individual research projects to address specific problems.