Germany’s Moderate Approach to Digital Payments.
Introduction to Germany
An overview of Germany's currency, population and key statistics.
Germany uses the euro (€) as its official currency along with 19 other member states of the European Union. The euro banknotes in circulation in Germany include €5, €10, €20, €50, €100, €200, and €500. In addition to banknotes, coins are also widely used in Germany. The euro coins available are as follows: 1 cent, 2 cents, 5 cents, 10 cents, 20 cents, 50 cents, €1, and €2. While most euro banknotes and coins are readily accessible for transactions, it is important to note that the €500 banknote is not as commonly used. Some banking institutions and businesses may not have this particular denomination readily available.
The European Central Bank is currently examining the potential introduction of a digital euro. This digital currency would serve as a central bank-backed electronic form of payment, similar to physical cash, and would provide individuals with an additional option for conducting transactions. The investigation process commenced in October 2021 and is projected to conclude in October 2023.
Germany had a population of 83,783,942 as of mid-2020, according to United Nations data. Urban areas, particularly Berlin, Hamburg, and Munich, accounted for 76.3% of the population. The median age of the German population was 45.7 years. The PPRO WECE Report states that Germany's online population increased to 77.7 million by the end of 2019 from 74.1 million in 2018.
Based on the UN's more recent World Population Prospects report, Germany's population is estimated at 83,294,633 in 2023.
Germany's official language is German. It is also one of the official languages of the EU. While German is the dominant language, there are also several recognised regional languages and minority languages spoken in specific regions of the country, such as Low German, Danish, Sorbian, Frisian, and Romani.
Based on initial calculations by the Federal Statistical Office (Destatis), Germany's gross domestic product experienced a price-adjusted increase of 1.9% between 2021 and 2022. Accounting for calendar effects, the adjusted economic growth reached 2.0%.
Moving to savings, Germany's gross savings rate remained steady at 29.6% in March 2023, compared to the previous quarter. Data compiled by Learnbonds.com showed that Germany had the highest proportion of banked individuals in Europe in 2019 with 69.67 million people holding bank accounts. This accounted for an impressive banking rate of 83.74%. In contrast, only 53% of the population possessed debit or credit cards.
Internet & Mobile Phone Trends
Statista reported that over 90% of individuals between the ages of 14 and 59 in Germany have access to the internet, while only 52% of those over the age of 70 years engage in regular online activities. Datareportal revealed that the number of internet users reached 77.79 million as of January 2020, indicating a growth of 307,000 (0.4%) since 2019. The same source showed that internet penetration in Germany was at 93% in January 2020.
Additionally, according to the PPRO WECE Report, smartphone adoption increased to 79% in 2019 from 69% in 2018.
Germany ranks as the third-largest e-commerce market in Europe, benefiting from widespread internet and smartphone use. Notably, German consumers prefer online shopping, supported by robust delivery systems and strong confidence in the process. This discerning shopper base contributes to the highest product return rate in Europe. The PPRO WECE Report showed an increase in average annual revenue per paying user from $1,650.41 in 2019 to $1,824 by the end of 2020.
Additionally, eMarketer reported a rise in German retail e-commerce sales to $92.33 billion (€82.46 billion) in 2020 from $79.47 billion (€70.97 billion) in 2019.
Regarding cross-border e-commerce, German consumers predominantly purchase from China, the United Kingdom, and the United States.
Summary of Fiscal Policy
Germany possesses significant fiscal leeway, as evidenced by numerous consecutive years of substantial fiscal surpluses and a decreasing public debt ratio. The country is using this fiscal capacity by directing it towards bolstering potential growth through physical and human capital investments.
Additionally, extending tax relief to low-income households, in conjunction with stronger wage growth, will help reinstate their purchasing power. A prudent objective for fiscal policy is to attain sustainable full-capacity utilisation of the economy.
Given the budgetary consequences of the coronavirus pandemic and the expenses associated with the government's supportive fiscal measures, Germany will again need to rely on the exemption from the debt rule during the 2022 fiscal year.
After experiencing a growth rate of 2.9% in 2021, the International Monetary Fund projected a sharp slowdown in Germany's economic growth to 1.2% in 2022 due to elevated energy import prices and weak consumer confidence. It was expected that supply bottlenecks would persist even into 2023.
During this period, there was a high level of uncertainty surrounding these projections. More broadly, the most significant threat to the economic outlook was seen as a persistent and complete cutoff of Russian gas exports to Germany and Europe.
How People Pay in Germany
An overview of how people in Germany choose to make payments.
Traditional Payment Methods
The primary traditional payment methods used in Germany
A Visa credit/debit card is a financial payment card issued by banks or financial institutions. It allows users to make purchases, withdraw cash and can be used online and in person. Visa's processing network can handle over 65,000 transaction messages per second.
Mastercard is a worldwide payment network that links financial institutions, merchants, and individuals, facilitating seamless transactions. This renowned company provides a range of credit and debit cards issued through partner banks. Customers may enjoy supplementary benefits such as rewards programs, cashback offers, and insurance coverage depending on the specific bank.
American Express cards encompass a range of payment cards provided by the multinational financial services corporation, American Express Company. The Amex card portfolio includes diverse options like credit cards, charge cards, and prepaid cards. Renowned for their broad acceptance among merchants, these cards grant cardholders access to various advantages, including perks, rewards programs, travel benefits, and dedicated customer service assistance.
The Single Euro Payments Area (SEPA) is an EU initiative that harmonises direct debit payments across 36 countries in the eurozone. It ensures consistent payment processing for merchants and offers consumers the same level of security and convenience. SEPA covers all banks that provide euro-denominated direct debits and uses standardised identifiers like BIC and IBAN for payment transactions. It aims to create a unified payment market and promote cross-border trade within the eurozone.
Giropay is an online payment method introduced in 2005 by German banks. It allows consumers to make secure online payments using their existing bank accounts. No separate registration is required, and transactions are protected by the user's bank's online banking system. Giropay is widely accepted by most banks in Germany, and users can complete e-commerce transactions using their usual online banking credentials. It offers convenience, security, and broad coverage for online payments in Germany.
Alternative Payment Methods (APMs)
The top APMs used in Germany
Apple Pay, a mobile payment service from Apple Inc, allows users to make in-person, online, and in-app payments. It replaces chip and PIN transactions at contactless terminals.
PayPal is a frequently used digital payment system that allows clients to use their PayPal accounts, debit/credit cards, or bank accounts. Customers use PayPal for secure online shopping and to send/receive money.
Google Pay is a digital wallet and payment service developed by Google. It allows users to make secure payments using their mobile devices or computers. It supports various payment methods, offers compatibility across different devices, and provides features like loyalty program integration and transit ticketing. Google Pay prioritises security and convenience with tokenisation and biometric authentication. It has expanded to include digital banking services and continues to evolve.
Paysafecard is a prepaid card that enables anonymous e-commerce payments. It has over 650,000 points of sale in 50+ countries, allowing users to find nearby outlets easily. With a 16-digit PIN, users can make online purchases without revealing personal information. Paysafecard prioritises convenience, privacy, and security for consumers.
Founded in 2005, Klarna is a global payment and shopping service. It offers flexible payment options, including bank transfers, BNPL, and instalments. Klarna's Buyers Protection Policy ensures consumer protection. The payment options are integrated into the checkout process of partnering merchants. With 90 million active consumers and over 250,000 merchants in 17 countries, Klarna is a trusted and popular choice for convenient and secure payments.
How to Accept Payments in Germany
A guide to accepting payments in Germany.
How to Accept Online Payments in Germany
Before accepting online payments, you must determine which methods you prefer. Then you can choose a payment gateway provider, a service that authorises and processes online payments with their specific system. Although there are plenty of payment gateway options in Germany, the general process for online payments typically involves an acquirer, issuer, retailer, and cardholder in the following steps:
The cardholder initiates a payment by presenting their payment card to the retailer to purchase goods or services.
The retailer sends the payment details to the acquirer, who processes the payment request and sends it to the payment scheme (such as Mastercard or Visa).
The payment scheme sends the payment request to the issuer (such as a bank or licensed issuer) who issued the card to the cardholder.
The issuer checks if the cardholder has enough funds to complete the transaction and approves or declines the payment request. If the payment is approved, the issuer sends an authorisation code to the payment scheme.
The payment scheme sends the authorisation code to the acquirer, which then sends it to the retailer, completing the transaction.
How Long Does an International Payment from Germany Take?
The payment processing time may vary depending on the method and the recipient's bank. For instance, online money transfers through platforms like PayPal can quickly and conveniently send money to multiple destinations.
Bank debit/credit cards: International payments with bank debit or credit cards may take a few minutes to a few hours, depending on bank processing times.
Online money transfers: Platforms like PayPal can process international payments within minutes to hours, depending on the service and destination country.
Wire transfers: Traditional bank-to-bank transfers via SWIFT or wire may take one to five business days or longer, depending on the destination country, intermediary banks, and transaction requirements.
Merchant fees for online payments in Germany can vary depending on the payment method and the merchant services provider used. Here are some examples of typical merchant fees for online payments in Germany:
Credit and debit cards: Merchant fees for accepting online credit and debit card payments can range according to the transaction amount. It also varies depending on the type of card used and the merchant services provider.
Bank transfers: Bank transfer fees can vary depending on the bank used, with some banks charging a flat fee per transaction and others charging a percentage of the transaction amount.
Other fees surrounding online payments in Germany include charges incurred by merchants, payment processors, and financial institutions involved in the payment processing chain. Below are some common fees:
Interchange fees: Interchange fees are charges paid by merchants' banks to cardholders' banks to cover the costs of processing card transactions. These fees are usually based on a percentage of the transaction value and can vary depending on the type of card used and the merchant's industry.
Payment gateway fees: Payment gateway providers charge a fee for processing transactions on their platform, which may be a percentage of the transaction value or a flat fee per transaction.
Cross-border fees: If a merchant accepts payments from customers outside the country, they may be subject to additional fees for cross-border transactions, including currency conversion fees and international processing fees.
Merchant discount rate: A processing fee that merchants are charged for transactions made using credit or debit cards. This fee generally falls within 1% to 3% of the total transaction amount.
Security Challenges of Online Payments in Germany
Like in many other countries, online payments in Germany face various security challenges. One of the prominent security challenges in online payments is the issue of payment card fraud. This occurs when unauthorised individuals access sensitive cardholder information and use it for fraudulent transactions.
As e-commerce continues to grow in Germany, so does the risk of payment card fraud. Cybercriminals employ various tactics, such as phishing, malware, and data breaches, to obtain credit card details, which they exploit for unauthorised transactions.
Another security challenge in Germany is the prevalence of identity theft. Identity theft involves the fraudulent acquisition and use of someone's personal information, often for financial gain. When it comes to online payments, stolen identities can be used to create fraudulent accounts, make unauthorised purchases, or even commit other crimes. Protecting personal data and ensuring the authentication of users become crucial in mitigating identity theft risks.
The rise of mobile payments and digital wallets has also introduced new security challenges. While mobile payments offer convenience and ease of use, they also present vulnerabilities. Mobile devices can be lost or stolen, potentially granting unauthorised access to sensitive payment information. Moreover, mobile apps and digital wallets may be targeted by hackers seeking to exploit security weaknesses and gain unauthorised access to user accounts.
To address these security challenges, individuals and payment service providers in Germany must adopt various measures. Educating consumers about online security best practices, such as the importance of strong passwords, avoiding suspicious links, and being mindful when sharing personal information, is essential. Implementing two-factor authentication (2FA) can also enhance the security of online payments by adding an extra layer of verification.
Payment service providers, in particular, harbour a critical role in ensuring secure online transactions. They need to invest in robust fraud detection and prevention systems to identify and flag suspicious activities. Employing advanced technologies like machine learning and artificial intelligence can help identify patterns and anomalies in payment data, enabling timely detection and prevention of fraudulent transactions. Robust encryption protocols and secure payment gateways are essential to protect sensitive payment information.
Regulatory measures also play a crucial role in enhancing online payment security. In Germany, authorities and industry regulators must establish and enforce stringent security standards for payment service providers. Regular audits and assessments help identify vulnerabilities and ensure compliance with security requirements. Collaboration between stakeholders, including financial institutions, merchants, and law enforcement agencies, is vital to sharing threat intelligence and implementing coordinated efforts to combat online payment fraud.
Key Sectors & Industries in Germany
According to the US International Trade Administration and other various sources, the top 10 industries in Germany are:
Germany's automotive industry holds the position of being the largest sector in the country. In terms of revenue, the auto sector accounted for approximately 20% of the total earnings generated by the German industry in 2021, reaching a substantial turnover of €410.9 billion. The reputation of cars bearing the label "Made in Germany" is widely recognised globally, symbolising exceptional quality and advanced engineering techniques. One of the key factors contributing to the German automotive industry's competitive edge is its emphasis on producing higher-priced vehicles, solidifying its status as a prominent player in the international export market.
Engineering and Manufacturing
Germany's machinery and plant engineering sector has long been recognised as a dominant force in exports and innovation. Comprising predominantly small and medium-sized enterprises, including numerous lesser-known industry leaders, this sector serves as a vital component of the country's industrial framework. In 2020, this sector recorded an impressive turnover of €2.096 trillion.
Germany is the fifth largest global robot market, with around 22,000 industrial robots deployed across diverse industries. These robots comprised approximately 6% of the total global installations in 2021. Although there was a decline in the number of installed robots from its peak of 27,000 in 2018 to 22,000 in 2019, several industries continue to heavily rely on robots, including motor vehicles, automotive parts, metal and machinery, electrical and electronics, chemical rubber and plastics, food, logistics, medical, and others.
Germany is internationally recognised as the third-largest medical technology market globally, surpassed only by the United States and Japan. With an impressive annual revenue of approximately $35.8 billion, the German medical device market stands as one of the most financially rewarding healthcare markets on a global scale, contributing 25.6% to the overall European market. Its market size is twice that of France and three times that of Italy, the United Kingdom, and Spain.
With its well-developed infrastructure, ample hospital beds, and highly trained personnel, Germany's healthcare is among the best in Europe. The healthcare sector in Germany plays a significant role in the country's economy, accounting for approximately one in every six jobs and contributing around €678.2 billion to the nation's GDP, representing roughly 12% of its total output. Notably, healthcare exports generate €131.2 billion, constituting 8.3% of Germany's overall exports.
In 2021, Germany's domestic energy generation witnessed a significant growth of 4.9%, reaching a total of 3,552 PJ, which accounted for 29% of the overall energy consumption. Notably, renewable energy emerged as the leading domestic energy source, comprising 54.7% of the total, although this marked a 4% decrease from the previous year. Lignite followed closely behind with a share of 32.4%. Furthermore, domestic natural gas production experienced a slight increase of 4.6%.
In 2021, Germany ranked third in global imports and exports of consumer-oriented agricultural products. It was the most important European market for foreign producers. The German retail market is characterised by consolidation, saturation, strong competition, and low prices. Germany is a cost-efficient location in the centre of the EU. While price sensitivity is common among consumers, a segment of wealthy consumers prioritises value for money and are willing to pay higher prices. Despite this, Germany still maintains some of the lowest food prices in Europe, with citizens spending only about 14% of their income on food and beverages.
Tourism and Hospitality
During the year 2021, Germany's hospitality industry experienced notable financial success, generating an impressive revenue of €67.2 billion. This accomplishment was accompanied by a substantial influx of tourists, with a staggering 163 million arrivals recorded in German travel accommodations. Furthermore, the cumulative number of overnight stays at these accommodations reached an impressive figure of 450.83 million.
E-commerce plays a vital role in the retail landscape of Germany, and the growth of B2C online sales has been remarkable. Over the years, there has been an exponential surge in B2C e-commerce, particularly in Germany. At the start of the 21st century, B2C online revenue in Germany witnessed a significant increase, jumping from one to €3 million. Fast forward to 2021, the figures skyrocketed to approximately €87 billion.
The German economy relies significantly on the information and communications technology (ICT) sector. Over the past 10 years, the revenue generated by the IT industry in Germany has experienced consistent growth, reaching an impressive total of €113 billion in 2022. Projections for 2023 indicate further growth, with the estimated revenue expected to reach €120.2 billion.
In 2022, Germany witnessed significant imports, with petroleum gases, cars, crude oil, blood fractions including antisera, and automobile parts or accessories emerging as the country's top five imported products in terms of value. Remarkably, these five categories alone accounted for 18.3% of Germany's total expenditure on imported goods for the year. On the other hand, when it comes to exports, Germany showcased its prowess in various industries. Cars took the lead as the most valuable export product in 2022, followed by medication mixes in dosage, automotive parts or accessories, blood fractions including antisera, and processed petroleum oils. Collectively, these major exports contributed to 21.7% of Germany's overall export sales.
Regulations in Germany
The regulatory environment of Germany.
Summary of the Regulatory Environment in Germany
To maintain fairness and operational smoothness in business ventures in Germany, entrepreneurs are required to comply with a range of laws and regulations, which include:
Company law: This includes regulations governing companies' establishment, operations, and dissolution.
Employment law: This includes regulations governing employment contracts, working conditions, and employee rights.
Product liability law: This includes regulations governing the legal liabilities and responsibilities of manufacturers, sellers, distributors, and other parties involved in the production and sale of goods.
Intellectual property law: This includes regulations governing copyrights, patents, and trademarks.
Competition law: This includes regulations governing competition and antitrust matters to promote fair competition.
Consumer protection law: This includes regulations governing the rights of consumers, product safety, and advertising standards.
Data protection law: This includes regulations concerning the collection, use, and storage of personal data. Germany has multiple governmental entities overseeing those various regulations. Key legislations related to employment include the Civil Code, General Equal Treatment Act, and Act on Documenting Essential Applicable Conditions for Employment Relationships. Meanwhile, for data protection, the main legislation is the General Data Protection Regulation (GDPR). In Germany, the primary data protection law is the German Federal Data Protection Act (BDSG), which applies to companies operating within the country.
How Card Payments are Regulated in Germany
Germany has implemented regulations for card payments under the second Payment Services Directive (PSD2), which became part of German national law in January 2018. The corresponding legislation in Germany is known as the Zahlungsdiensteumsetzungsgesetz (ZDUG), which incorporates provisions from the Payment Services Supervision Act and the civil law regulations found in the German Civil Code. Adjustments were made to other laws, such as the German Banking Act, to align with these changes. The PSD2, an EU directive governing payment services and providers, aims to enhance the security of payment transactions, improve consumer protection, stimulate innovation, and promote competition within the market.
Do I Need a Licence?
Yes, to start a business in Germany, you generally need a license or permit depending on the nature of your business. The specific requirements can vary depending on the industry and the legal structure of your business. Some professions and activities may require specific professional qualifications or certifications. Non-EU citizens may need to obtain a residence permit and meet certain conditions related to their residence status. It's advisable to consult with the local chamber of industry and commerce or a business consultant to determine the exact licensing requirements and procedures applicable to your specific business venture in Germany.
Payment Solutions in Germany
An overview of how to accept payments from customers in Germany.
Payment Gateways and Providers in Germany
Due to the rapid emergence and evolution of new payment methods, companies must ensure that their customers have a seamless and efficient payment experience. To address this need, payment technology company APEXX has developed a solution that enables German merchants to accept payments from multiple providers.
Recognising the importance of catering to the diverse payment methods that customers prefer, businesses need a streamlined and efficient processing solution. With the help of its Payment Orchestration Layer (POL) platform, APEXX provides a central hub that connects various payment methods and banks.
The ability to manage multiple payment methods through a single platform is a key advantage of the POL solution from APEXX. It also offers a variety of features designed to help businesses improve their efficiency.
Intelligent routing is one of the most prominent features of the APEXX POL solution. It uses a methodology that considers various factors, such as cost, risk, and currency, to choose the appropriate payment method for each transaction. This eliminates the possibility of failures and helps companies reduce their transaction fees.
Integrating APEXX POL with existing payment systems is effortless. The platform offers pre-built plugins and various APIs that enable integration with various payment platforms, including e-commerce sites and POS systems. This flexibility enables companies to seamlessly integrate the system, eliminating issues and disruptions.
As a leading payment provider, APEXX helps companies in Germany and other countries improve their efficiency and manage their payment processing. Through its flexible payment orchestration framework, it enables them to effectively process multiple payment methods and improve their customer satisfaction.
Cheapest Payment Solutions in Germany
To reduce fees in their payment stacks, merchants in Germany can implement the following strategies:
Negotiate fees: Merchants should negotiate with their payment providers for better rates, which can include transaction fees, interchange fees, and monthly fees. Choose a suitable payment provider: Merchants should research and compare different payment providers to select the one that offers competitive rates and low fees.
Use alternative payment methods: Merchants can reduce fees by using alternative payment methods such as e-wallets or bank transfers instead of traditional card payments.
Prevent chargebacks: To avoid chargebacks and additional fees, merchants can offer clear product descriptions, prompt customer complaint resolution, and refunds when necessary.
Implement fraud prevention measures: Merchants should adopt fraud prevention measures to prevent fraudulent transactions, which can lead to chargebacks and additional fees.
Monitor payment processing fees: Merchants should keep a close eye on their payment processing fees and use payment analytics tools to track their expenses and identify areas where they can reduce costs. Merchants can also consider using payment aggregators such as APEXX, which allow them to accept multiple payment methods through a single platform, reducing the need for multiple payment providers and lowering costs.
BNPL in Germany
Germany's BNPL market has experienced significant expansion in recent times, displaying impressive growth. BNPL payments are projected to witness an annual increase of 60.7%, resulting in a total of $19,334.9 million in 2021. This surge is attributed mainly to the thriving e-commerce industry within the nation, which is actively contributing to the popularity of this digital payment method. Consequently, the prospects for BNPL payments in Germany appear promising. Furthermore, the gross merchandise value of BNPL in Germany is anticipated to soar to a staggering $69,252.1 million by 2028 from $12,032.0 million in 2020. With such forecasts, German merchants can use APEXX to integrate different payment systems or providers to provide BNPL options like Klarna to their customers and effectively manage their payment systems.