Germans love their cash—this truism has always been used to answer the question of why so few people in Germany pay with cards or even mobile phones. But the coronavirus crisis is calling this old certainty into question. This raises the question: Is contactless payment here to stay? A commentary.
The way German consumers pay in stores needs a revolution—or at least, that's what some market participants seem to have believed for a long time. Therefore, mobile payments using smartphones were supposed to replace cash at the checkout. The first mobile payment providers were founded for this purpose ten years ago; in the following years, mobile phone providers launched their wallet solutions, and other providers emerged. However, none of them was able to convince consumers, and they gradually disappeared from the market or—to this day—have eke out a niche existence. Only Apple and Google managed to establish themselves on the market—and not PayPal, which a few years ago was still touted as the future ruler of the payment world.
This also led to the adoption of the NFC standard, prompting many retailers to purchase new systems to offer the service. Banks also gradually realized that NFC payments didn't require a smartphone at all. By the time credit card cards with NFC functionality began to be issued by cooperative banks and savings banks, the focus had shifted from mobile to contactless payments. For credit card companies, however, this was all old hat—in the UK, for example, Visa had been offering a contactless payment function since 2007.
Contactless instead of mobile payment
So what did Apple and Google do right to trigger this development with their solutions? The conclusion drawn from the failure of the German payment providers, which has been repeated like a mantra ever since, is: Mobile Payment Mobile payment alone isn't enough; you have to offer the customer added value. For example, by combining payment with collecting loyalty points and automatically redeeming vouchers, as Payback demonstrates quite successfully. However, to date, there is no problem that mobile payment could solve. Regardless of whether I, as a consumer, pull out my wallet or my cell phone, paying is neither faster nor easier with the latter. Customers simply had no incentive to change their behavior. Instead, they looked at the new solutions and asked themselves, in the words of Gerhard Polt: "Is this really necessary?"
However, Apple and Google haven't really solved this problem either—but they did have the advantage of their market power. Apple's and Google's financial success isn't dependent on the success of their payment services. The companies can therefore afford to play for time. Moreover, they operate internationally: their success has never been dependent on German consumers.
For many years now, analysts have been waiting for the breakthrough of mobile or contactless payment, repeatedly declaring one year to be the year in which it will finally happen. It's a bit like the old schoolmate who was certain there would be a surprise test before every math class.
Breakthrough thanks to the Corona crisis?
Now the Corona crisis is supposed to the previously missing incentive to change behavior. After all, contact should be avoided, so contactless payment is safer from a health perspective than exchanging cash. Indeed, contactless payments have reached a new all-time high: In April, more than half of all Girocard payments were made this way, according to the German Banking Industry Committee (DK) in a statement to the German Press Agency. By comparison, in December 2019, this share was still 35 percent. Individual merchants are also reporting that card payments are increasing significantly, with Aldi South For example, 20 percent more card payments and around a third more contactless payments.
Is this the breakthrough in contactless payment? Doubts are justified. When asked why they are currently paying more by card, the Initiative German Payment Systems eV (IDZ) 67 percent of respondents said they did so "out of respect for the checkout staff." Fifty-six percent cited hygiene reasons as their motivation, 45 percent said they wanted to keep their distance from staff, and 44 percent paid by card because their retailer asked them to. In the survey, 57 percent of all respondents stated they were paying more frequently with debit or credit cards due to the coronavirus pandemic. The coronavirus crisis—which we all hope will soon be over—is therefore the reason for Germans' change of heart.
It's probably to be expected that contactless payment hasn't yet become so commonplace that it won't fall victim to a return to pre-coronavirus routines. Moreover, it's under scrutiny: Every time contactless payment fails—and unfortunately, this still happens quite often—it's a failure in the eyes of the customer. They could have just paid in cash and saved themselves the wait and embarrassment.
Success has long been there
The fact that consumers are actually able to change their behavior during the crisis shows us that contactless payment options are already widespread in Germany. Almost everywhere where card payments are possible, contactless payments are also possible. And card terminals have now spread from department stores and supermarkets to bakeries, hairdressers, and kiosks. This means that contactless payment has long since achieved its breakthrough in Germany, regardless of the current level of use.
