The coronavirus pandemic may serve as the last straw to end cash dominance in Germany's payments market and set it on a clear digital course, with mobile use expected to grow rapidly in the near term, market observers said.
The outbreak has led to an abrupt shift in customers' behavior, with contactless payments and online shopping increasing rapidly in recent months. Within a short period of time, card and mobile payments have become prevalent in traditional retail, where typically cash was the preferred means to pay.
As many as 43% of consumers who participated in a May online survey of the Bundesbank have changed their payment habits as a result of the pandemic and of them, 68% used contactless payments amid worries about the spread of the virus through cash and contact with payment terminals. To meet the growing demand for touch-free payments at the point of sale, or POS, the banking sector raised the contactless payment limit on debit cards to €50 from €25 in April.
"It can be expected that a large part of the COVID-19-related changes in payment behavior will become permanent," said Peter Barkow, managing director of Barkow Consulting, a Dusseldorf-based advisory firm that also conducts research on German financial services, including a recent study on cash use amid the coronavirus pandemic for ING-DiBa AG.
In traditional retail, providers of mobile or other contactless payment solutions are best positioned to compete, with the likes of Apple Inc.'s Apple Pay being among the biggest winners, according to Barkow. Apple Pay, which launched in Germany at the end of 2018 with backing by around 15 banks, had over 370 banks offering its mobile service within a year.
Growth in mobile
Although the mobile payments sector is still underdeveloped in Germany, it is expected to expand rapidly in future. Even as lockdown restrictions are eased, the shift to contactless payments via card or smartphone has persisted, "which is why we expect even steeper growth in transaction figures for mobile payments in the future," said Maximilian Harmsen, a senior manager and lead of the digital payments team at PwC Germany. "There are signs of a lasting shift in consumer behavior."
Compared to the COVID-19 crisis level, PwC expects the adoption rate of digital payments to roughly double by 2023, Harmsen said. "Also, COVID-19 has increased the demand for alternatives to physical authorization," he said. "PIN pads are already being replaced and smartphones are becoming payment terminals."
Mobile POS payments in Germany will more than triple to $3.43 billion in 2023 from $1.00 billion in 2019, Swiss business data and research provider Statista has estimated. They still will remain a fraction of the overall digital payments transaction value, which is expected to rise to $145.76 billion in 2023 from $117.39 billion in 2019, Statista data shows.
End of cash-only culture?
Despite its well-developed payments infrastructure and openness toward technological innovation, Germany has lagged behind other developed economies in the transition to online and mobile payments because of the widespread use of cash. Just two years ago, cash accounted for two-thirds of consumer-to-business transactions in Germany, data by consultancy McKinsey & Co. shows.
A January survey by Deutsche Bank of 3,600 of its customers showed that 59% considered cash their favorite means of payment, compared to only 29% in the U.K. and 18% in France.
The high cash usage has made current accounts the main driver for payment revenues, with debit and credit card payments remaining fairly low in European comparison. At 0.52, Germany's card penetration per capita ranks low compared to the U.K.'s 2.48 and France's 0.94, JPMorgan said in its 2019 Global Payments Trends report.
A key barrier to higher card usage is also the fact that Girocard, which is the main debit card payment system in Germany with more than 100 million issued cards, does not have an online payment option and customers use their current account rather than card number for purchases over the internet.