Germans love their cash – this common belief has always been quoted when it came to explaining why paying with cards or smartphones wasn’t more popular in Germany. But the corona crisis has upset that old certainty. Now the real question is: Is contactless payment here to stay? An editorial.
How German consumers pay in stores is in need of a revolution – or at least that’s what some market players have seemed to believe for quite some time. And that’s why they think mobile payment with a smartphone should replace cash at the register. It was ten years ago that the first mobile payment provider was founded for just that, and in the years that followed, mobile phone providers launched their wallet solutions and more payment providers appeared. But none of them were able to convince consumers and, little by little, they disappeared from the market or lead – to this day – a marginal niche existence. Apple and Google are the only ones who’ve managed to establish themselves on the market – and not PayPal, which had been hailed as the emerging sole ruler of the payment world.
Then NFC was set as the standard, which prompted many retailers to buy new systems so they could offer the service. Over time, banks also realized that payment with NFC didn’t even require a smartphone. At the very latest, it was when debit cards with an NFC function were distributed by credit unions, cooperative banks and savings banks that the focus shifted from mobile to contactless payment. For credit card companies, however, it was nothing new – in Great Britain for example, Visa had already been offering contactless payment since 2007.
Contactless instead of mobile payment
What, then, did Apple and Google do right to trigger this development with their solutions? The conclusion drawn from the failure of German payment providers and since repeated like a mantra is: Mobile payment is not enough on its own, you have to offer customers added value. For example, by combining payment with the collection of loyalty points and automatic coupon redemption, as Payback has quite successfully demonstrated. But to this day, there hasn’t been a problem that mobile payment could solve. Regardless of whether I as a consumer pull my wallet or phone out of my pocket, payment is not made faster or easier by the latter. There’s simply no kind of incentive for customers to change their behavior. Instead, they look at the new solutions and simply ask themselves: “Is that necessary?”
The problem wasn’t really solved by Apple or Google either – they just had the advantage of market power. After all, the financial success of Apple and Google doesn’t depend on their payment services, which means the companies can afford to play for time. They’re also internationally active: Their success has never depended on German consumers.
For years now, analysts have been waiting for mobile or contactless payment to make a breakthrough and keep declaring a year to be the year it’s actually going to happen. It’s a lot like that kid you went to school with who always thought there was going to be a pop quiz before every math class.
Breakthrough thanks to the corona crisis?
So now it’s the corona crisis that is supposed to provide the incentive that’s been missing to change consumer behavior. Contact should ultimately be avoided, which means contactless payment is safer in terms of health than exchanging cash. And contactless payment has indeed reached a new all-time high: The German Banking Industry Committee (Deutsche Kreditwirtschaft, DK) reported to the German Press Agency that more than half of all debit card payments were made that way in April. For comparison: In December 2019, that share was at just 35 percent. Individual retailers also reported that card payments have increased significantly. Aldi Süd, for example, saw 20 percent more card payments and roughly a third more contactless payment transactions.
So is this the real breakthrough of contactless payment? There’s reason to doubt that. When people were asked why they currently pay more often with a card by Initiative Deutsche Zahlungssysteme e.v. (IDZ), 67 percent of those surveyed said “out of respect for check-out staff.” 56 percent indicated hygiene as their motivation, 45 percent said they wanted to keep their distance from staff and 44 percent paid with a card because their retailer asked them to. In the survey, 57 percent of all respondents said they pay more often with a debit or credit card due to the corona pandemic. So it’s the corona crisis – which we all hope will soon be over – that’s responsible for the Germans’ change of heart.
It is to be expected, however, that contactless payment might not manage to become so ingrained that it won’t fall victim to people’s return to their pre-corona routines. It’s also subject to scrutiny: Every time a contactless payment doesn’t work – which unfortunately still happens frequently – the whole system has failed in the customers’ eyes. They could have just paid with cash to begin with and spared themselves the waiting and embarrassment.
It’s long been a success
The fact that consumers were able to change their behavior at all during the crisis shows us that the opportunities for contactless payment in Germany are already widespread. Nearly everywhere that you can pay with a card, you can also pay contactless. And card terminals have even made it beyond department stores and supermarkets and are now in bakeries, salons and newsstands. That means contactless payment already made its successful breakthrough in Germany quite some time ago irrespective of the current scope of its use.