Your market share is more likely to grow when you understand not only the wants and needs of your consumers, but how the payment preferences differ between your target demographics. As a result of the pandemic, online payments in Germany have had a remarkedly swift adaptation of the preferred payment types and methods, both online and offline.
Germans are known to be heavy cash users, and since this article was first published in 2018, cash remains the most used payment type at the point of sale. In fact, research from Global Data forecasts ATM cash withdrawals to increase from €245.7 million 2019 figures to €272.9 million (11%) in 2023. It’s no wonder mobile payments have been slow in adoption across some verticals in Germany.
Nevertheless, eCommerce in Germany is the third largest eCommerce market in Europe. The market was expected to surpass €69 billion in 2019, equivalent to nearly 9% of total sales in the country, and findings from JP Morgan account for the value of eCommerce transactions in Germany at €79 billion. While the impact of Covid-19 has resulted in consumers being more cautious with their spending, where Germany’s economy shrunk by 3% according to Focus Economics, Germany is expected to return to growth by the end of 2021.
In this article, we uncover the current state and future projections for online payments in Germany, including key insights from our Regional roundup 2021: Germany report.
The online payments landscape in Germany
Total eCommerce revenue for business-to-consumer transactions was valued at €94 billion in 2019, which had an expected compound annual growth rate (CAGR) of 9% to 2023.
A survey from Statista in 2020 revealed almost half of the respondents (48%) selected PayPal or similar options as their number one choice when asked which payment method they preferred for online shopping. Invoice came in as second preference at 21%, followed by debit or credit card (19%), direct debit payment through bank (6%) and mobile app, such as Swish or MobilePay (2%). Clearly, after years of paying with invoices topping consumer preferences, German shoppers are showing a hunger for new online payment methods.
Germany has a substantial online audience with an expected 77% of the population making online payments in 2021 and is expected to grow to 81.5% by 2024. This is a clear indicator of a growing appetite for online shopping across Germany’s considerable eCommerce market. The quick adoption of new payment methods shows consumer confidence and trust as online shoppers. Furthermore, as internet usage continues to increase with almost 70 million users in 2020, this presents an opportunity for businesses to convert more offline customers to their eCommerce offering.
What are the most popular online payment methods in Germany?
Data from our Regional roundup 2021: Germany report shows the most popular online method in Germany is online payments, such as PayPal and Amazon Pay (75%), followed by invoice (64%), debit card (56%), credit card (40%), prepaid cards and vouchers (30%).
Cash payments popularity in Germany
Germany has been a traditionally cash-forward country, and in 2020 this statistic did not change. According to Deutsche Bank Research, in 2017, Germans paid with cash for most of their purchase transactions – 74% by number and 48% by value. In 2020, 84% of German consumers paid with cash at the point of sale.
On top of that, in a 2018 Bundesbank report, 88% of Germans expressed their unchanged preference for cash payment, strongly rejecting the idea of abolishing cash or limiting its use. In the 2020 Bundesbank survey, the importance of cashless payments, especially cards, grew considerably. By late April 2020, Germany’s contactless limit increased to €50, and 43% of more than 5,000 respondents said they had changed their payment behaviour. 68% of the respondents who changed their behaviour were more likely to pay with a card.
While the number of cash payments has significantly shrunk due to Covid-19 driven changes, that is not to say consumers are entirely happy about it. Anna Steigemann, an assistant professor in urban studies at the Technical University of Berlin, comments that the tangible nature of money and seeing the physical cash as a result of a job well done is a core part of German culture. While the adoption of digital and alternative payment options has been rapid since the start of 2020, not seeing how much money is spent is part of why local consumers are more cautious of their spending.
Germans don’t like debt, and their preferences for cash over cards could be linked back to hyperinflation in the Weimar Republic, almost a century ago. During this economic crash, the people of this country lost a large chunk of their savings. The 2009 European Central Bank study, ‘Memories of hyperinflation’, stated that “this discussion suggests that memories of high inflation are a relevant factor in shaping a society’s preferences”. Bearing in mind that 50,000 Germans were surveyed for this report, this statement supports the original point and shows that scars take time to heal.
Physical cash makes it easier for Germans to track their spending. As reported by Bloomberg, the ECB estimates that the average person from this country has 103 Euros in their wallet. That’s over three times more than France and over double, compared to the Netherlands. The same report also reveals that only around six in ten establishments across the country accept card payments, reflecting consumer payment behaviours.
Card payments in Germany
According to Global Data, charge card payments are forecasted to increase by 48% from €117.6 million in 2019 to €174.7 million in 2024. This is compared to a 44% increase in credit card payments. Charge cards are credit cards that must be paid in full when a statement is issued. Debit card payments are set to see the smallest increase in transactions, increasing only 14% from €619.1 million in 2019 to €704.5 million in 2024. Clearly, the sheer volume of money signifies debit transactions are a staple card payment option for German consumers. The predominant debit card share of transactions in 2019 was split between food and drink (23%), clothing and footwear (15%), motor fuel (11%) and electrical goods (9%).
Surprisingly enough, card payments only surpassed cash payments in 2018. The Cologne-based EHI Retail Institute reports that consumers' card payments accounted for 48.6% of total retail sales, overtaking 48.3% of cash payments. Indeed, in 2017 there was an upsurge in contactless card payments, which went up for the first time to over 1%. In December 2019, contactless transactions accounted for 35% of all debit card payments. But by late March 2020, that figure had increased to more than half, according to Deutsche Bank Research.
Bundesbank research showed that an average point of sale (POS) transaction takes around 22 seconds, compared with roughly 29 seconds for card and PIN payments and approximately 38 seconds for card and signature transactions. Contactless payments took half as long as this in 2020, however, the transaction duration depends greatly on the payment amount. For amounts up to €100, cash is the quickest payment method. Above that amount, card payments seem to be faster.
Merchants need to get ahead of the curve by adding mobile POS terminals for land-based outlets. They should also integrate services that allow customers to keep a close track of their spending – such as eWallets – to their websites for a smoother transition into online payments.
Mobile payments in Germany
Currently valued at €32.4 billion, the mobile commerce market size is set to soar to 54.5 billion by 2023 as consumers adopt voice functionalities to make orders and social commerce influencers the younger demographics. Mobile transactions take up 33% of total eCommerce sales in Germany, with consumers increasing their mobile spending on lower-value, non-bulky items, compared to expensive electronics or home goods.
By 2020, PayPal was the most popular mobile payment method in Germany (57%). Google Pay™ (40%), Apple Pay (33%) and Payback Pay (23%) came in next, loosely followed by Barclays bPay (8%), Bitpay (6%) and Boon (5%).
Germany’s turbulent financial past is one of the primary reasons that the shift towards digital was moving at a much slower pace than in other Western European countries. With an unprecedented pandemic came an unprecedented switch to mobile payments, particularly from Germany’s retail sector which demanded card and contactless payments to help reduce the in-store risk of infection. Furthermore, digital media and online services such as food delivery, dating and fitness classes are popular amongst younger demographics.
Alternative online payments offered in Germany
Alexander Berrai, Country Manager – Germany at emerchantpay, comments, “In the payment space, Germany is an extremely segmented market. Many payment methods are being used, and a wide range of options have to be offered to be ready to go to market.”
For non-German merchants entering the German-speaking market in Europe, he also notes that alternative payment methods (APMs) such as Sofort, SEPA Pay, Pay on invoice, and EPS are essential to understand to grow within the market. And these are on top of the previously mentioned APM’s in the Online payments landscape and Mobile commerce sections. Businesses must be on top of local payment preferences and work with a payment service provider who can share tailored, regional insights for optimal performance.
APM’s such as Sofort and Giropay access the payer’s bank account when a transaction is being made. These APM’s are considered very secure among consumers and benefit merchants as they cannot be reverted, lifting the weight of chargebacks. The success of digital wallets in this country isn’t so surprising when we consider the conservative nature of the German consumer, and since this will likely continue to grow, it’s a payment method worth keeping an eye on.
Profile of the German online shopper
Multiple studies conclude that within Europe, Germany is second only to the United Kingdom in the value of business-to-consumer (B2C) eCommerce sales. But that does not mean that millennials, a sought-after demographic for eCommerce, are the majority of shoppers. According to online platform Picodi in 2018, fewer than one-quarter of online shoppers in Germany were ages 45 and older. This compared with 24% of 18- to 24-year-olds and 36% of 25- to 34-year-olds. A further 22% of digital shoppers aged 35 to 44.
In 2020, eCommerce association Bevh revealed one in eight euros spent per household was spent online, and one in three online buyers is older than 60 years old. 50 to 59 year-olds were next (24%), followed by 40 to 49 year-olds (17.6%). It’s clear the pandemic impacted younger demographic spending in 2020.
With regards to consumer behaviour, the German online shopper is very particular. The recent eCommerce Foundation report on Germany suggested the rule of three for webshops: rules, punctuality and efficiency. German consumers prefer localised online retailers in their native language, preferably with a .de domain. But Germans are no stranger to cross-border online shopping. 69% of cross-border transactions come from within Europe, 44% from China, 32% from the US and only 29% come from the UK.
Another key aspect for German shoppers is their love for returns: their 14-day right to return their purchases accounts for 70% returns in fashion and up to 10% in electronics. This is where the punctuality factor comes in; accurate product description and presentation is fundamental to combat this phenomenon.
Is PayPal used in Germany?
PayPal is the leading APM in Germany. For eCommerce transactions in 2019, there were 312,000 daily active users in Germany on PayPal. 57% of German consumers used PayPal most for mobile payments, and similar online payment methods to PayPal and Amazon Pay were preferred by 74% of German consumers in 2020.
Leverage your payment service provider insights
The opportunities seem very promising for eCommerce merchants wishing to expand in Germany. With a significant online spending growth potential and increasing use of eWallet payment methods, the German online payments landscape remains among the most up and coming in Europe.
Our team based in Munich have a deep understanding of the German-speaking market and can help merchants across many industries navigate the segmented payment landscape. We understand the pain points merchants are currently facing and create payment solutions that help overcome these challenges for long-term growth.
At emerchantpay, our offering is available through a single, simple integration so our merchants can access all the payment methods they need without having to integrate with multiple, complex payment gateways. Contact us for more information about our alternative payment methods and global payment gateway.
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