Germany’s Aversion of Credit Cards

Every third person in Germany now owns a credit card, yet it is only used for every 67th payment in Germany. This behavior cannot be explained rationally. A look at the emotional picture of the Germans shows the same.

Global Powerhouse VISA

No matter where you go in the world, the lettering of the credit card company Visa is already there. Sometimes the four letters shine out at visitors on oversized billboards directly at the airport. Sometimes they appear as a small, dusty logo at the cash desk of a petrol station somewhere in the countryside.

It’s no coincidence that Visa is a brand of enormous value. Experts estimate it at almost 100 billion euros. This means that the lettering is said to be more attractive to customers than those of IBM, McDonald’s and Coca-Cola.

Even in Germany many people know the blue-orange logo, but it doesn’t succeed with the attraction, not even 35 years after the first Visa Card was offered in this country. Despite all the brand and marketing power, the credit card has a niche existence – and there is little to suggest that this will change again at some point.

The reason is as simple as it is sobering for Visa, but also for the other major Anglo-Saxon credit card brands Mastercard, American Express and Diners Club: Germans do not need the plastic cards with the distinctive embossing within their everyday lives.

Credit Card’s Market Share in Germany has Increased Significantly

By no means is it the case that no one in Germany has a credit card in their wallet. The proportion has even increased in recent years. According to Universal Hires, this is mainly caused due to revolution in the banking industry with new banking providers such as N26 or Revolut stepping into the market. When signing up with a mobile bank, customers are more likely apply for a credit card alongside a bank account as there are no annual charges involved. In addition, their credit cards and bank accounts are fully-app based.

A survey by the Bundesbank on payment behavior in Germany stated that 36 percent of people own a credit card. In comparison, the proportion was only 27 percent ten years ago. Especially in the group of 35 to 55-year-olds, many have a credit card in their back pockets. But in most cases it remains there. Statistically, according to the Bundesbank survey, it is only used every 67 payment transactions. The frequency has hardly changed in the past ten years.

Most Germans have the credit card only because they know that they have fewer problems with it abroad. Otherwise, they still like to pay cash or take the Girocard, which many people still call EC card despite a name change many years ago. Even when shopping on the internet, where cash and Girocard don’t work, many Germans still prefer not to use their credit card.

The Germans Seek Security

When looking for reasons, you don’t have to look far. Actually, it can be summed up in one sentence: From a customer’s point of view, there is little that a credit card can do better than coins and notes or the classic bank card.

The Bundesbank’s study provides interesting figures on this as well. When asked which features are indispensable or rather important for people when choosing their preferred means of payment, security against loss, a good overview of expenditure, ease of use and familiarity as well as the protection of privacy stand out with well over 90 percent of the mentions in each case.

Cash still meets almost all these criteria by far the best. It can be said that payers are familiar with its use and find it easy to use.

Different Customer Behavior in the USA

It is not surprising that cash is the undisputed leader in the favour of the Germans. The popularity of coins and notes is traditionally particularly high in this country. In seven out of ten cases, Germans still use them to pay at the cash desk – just a few years ago this was still the case in eight out of ten cases.

In the United States, on the other hand, people have for many years been using cards more frequently than notes in their everyday lives. Credit cards are routinely used at the checkout. There is hardly any scepticism about card payments there.

On the contrary, Germans are already more reluctant to use the Girocard than cash when it comes to issues such as security, an overview of expenditure and above all the protection of privacy.

Many people are unsettled by the electronic data trail generated by a card payment; they do not want anyone to be able to trace what they spend their money on.

In the case of the credit card, the reservations are even greater: 30 percent of the people surveyed by the Bundesbank assume that their privacy will be protected when using a giro card, while only eight percent assume that their privacy will be protected when using a credit card.

Credit Card in Germany: Differences in Opinions

It is clearly not about rational arguments, but above all about sensibility. The credit card is too inconvenient, too slow, too strange for many people. For many, the judgement is based less on personal experience and more on hearsay. While only 25 percent of all those surveyed approve of a credit card as “easy to use” and “fast payment”, more than 50 percent of credit card holders give it this rating. Thus, those who are accustomed to the credit card see the payment method in a much more positive light.

This is no comfort for the major credit card providers, because how can the reputation and thus ultimately the acceptance of their product be improved among Germans if they hardly ever use their credit card? It is true that in Germany the proportion of cash is falling every year.

On the one hand, this is a very slow process. On the other hand, it is not the credit card that benefits from this, but above all the banks’ Girocard. It has been able to expand its market share in recent years.

This is also due to the fees. It is true that the credit card does not cost customers a cent over and above the annual fee. But there are still differences for merchants. For them, a credit card is usually more expensive.

There is no doubt that the number of checkouts where credit cards can be used has increased in recent years, and even discounters such as Lidl and Aldi now accept them. But when a customer asks a merchant whether he prefers credit or giro cards, the answer is usually the same: Girocard, please.

Visa and Mastercard Putting in Place New Fees

This has not changed since the European Union capped direct charges: the merchant may hardly be charged more for a credit card transaction than for a giro card transaction.

However, credit card providers have now come up with various additional charges over and above these so-called interchange fees.

The credit card companies officially do not want to know about problems in Germany and with Germans. “We are very satisfied with our business”, says the Visa Germany president Mr. Kiel. Looking ahead to the next few years, he is focusing primarily on mobile payment via smartphone. “Contactless payment is a success story,” says Kiel. Visa makes it possible for people to pay quickly in passing – whether by card or directly by smartphone. Which also applies to the other major credit card company Mastercard.

Sparkassen on the Brink to Improve Their Giro Cards

Today, two thirds of all larger retailers can already process contactless payments at their checkouts. This means that a customer simply holds his card or smartphone a few centimetres in front of the payment terminal and the amount is debited. For amounts of up to 25 euros, he does not even have to enter a PIN.

But a customer does not need a credit card for this either. Because many girocards can do this too. The two banking groups – Sparkassen banks (typical German savings bank) and cooperative banks – only issue new cards with the radio symbol printed on them. By 2020, there will be at least 75 million bank cards with contactless function.

What remains is online commerce as a place of hope. But even here, the statistics so far do not speak in favor of the credit card. The share of credit card sales has recently even dropped slightly to eleven percent. Germans prefer to buy online on account (28 percent). Direct debit and Paypal follow with around 20 percent each.

There is not much to suggest that the majority of Germans will actually need the credit card again.