Great read, Matt! Last time I was in Germany, a coffee shop owner told me that cash is better than cards. I thought, yeah, right, mate—just like candles are better than electricity ;)
Thank you! Yes that’s Interesting as there is a real cultural affinity to cash, which doesn't exist elsewhere. I'm surprised by the extent to which that cash is still so popular after all this time, and now Eastern Europe has moved ahead of Germany in terms of cashless payments and payments innovation in general I would say.
Great piece Matt. As a Munich resident and Oktoberfest regular I can confirm that cash is still very much king. I would love to model out if card payments would increase or decrease tips and the overall take. Drunk people being framed to tip 20% on a POS rather than the usual 10%? There’s a project there for someone…
Indeed. I've seen a photo from the US showing tip levels on a POS set at 30%, 50%, and 100%. But even though Germans are generally very polite, tipping more than 10% would likely feel strange. I'm surprised no one has offered a round-up tip model or some variation of that.
Thanks for your comment. I corrected the use of the term "quasi-cash" and instead noted that Girocard lacks some of the supposed benefits of using international card brands.
It differs from a Mastercard Debit card because you can't use Girocard online. It also doesn't come with the same chargeback protection or any benefits you can get with a Visa or Mastercard card. When merchants accept Girocard, the reporting they get is quite different and separate from other card types.
I'd be interested to hear what other reasons there may be for my preference for cash. My biggest surprise was that after the harmonisation of interchange rates across Europe, the big card brands did not grow in relative share.
Hi Matt, you are right. The girocard lacks some capabilities compared to Mastercard or VISA debit cards. It uses SEPA infrastructure (SEPA Card Clearing) for settlement which results in a different reporting as well.
I see many factors for the high proportion of cash payments. I look at both relevant factors: the issuing / consumer side and the acquirer / retailer side.
Issuing side
consumer
Consumer data privacy concerns - as you already mentioned
Lack of broad acceptance - see below
banks
Germany is a very fragmented banking market with 3 groups of banks: saving banks, cooperative banks and private banks. Many of those sold or never had an acquiring entity.
This fragmentation lead to a less focussed market development than in other European markets where banks act as issuers and acquirers .
Banks have never seen payment being of strategic relevance. And it is still like this.
Acceptance side/retailers
Price sensitivity of retailers. As a consequence,
many retailers only accept cash for various reasons (cheaper, tax evasion, …)
low acceptance for small value payments - you will still see many signs “cards accepted only above 10 €” in Germany
Speed. For example, the vary popular discounter ALDI only started accepting cards once the processing time for a card transaction was below the one for a cash transaction (and everyone who experienced it: the agents were super, super fast in handling cash and change).
I could continue with various additional smaller factors, but I think the key message becomes clear: whereas German consumers are lagging behind in adoption of new digital technologies in general, the market (banks, retailers, …) never pushed for digital payments together like in other markets.
And due to the fragmented structure of the banking market, the banks have never been able to agree on a common approach, which is necessary for payment solutions to take off.
I have been asked during my life many times, why German and digital payment is so difficult? My short answer: ‘We have a lot of banks in Germany, more than breweries, and we have a hell of a lot of breweries.’
Yes, I have seen from Open Banking how many financial institutions there are in Germany, as all the Sparkasse are different institutions. This means the list of banks in Germany is huge compared to any other European country.
It's so different from the UK, where our equivalent, Building Societies, rarely exists nowadays, although 100 years ago, each city or town had one or more.
But over time, our banks bought them out, and the number of banks themselves consolidated massively. Luckily, the consolidation hasn't hampered innovation due to the rise of banks such as Monzo.
What's interesting in Germany is that the neobanks, such as N26, Revolut, and some others, do not offer Girocard but only a Mastercard debit card or similar.
In reality, I barely understand the German banking sector, especially regarding things such as the extent to which local officials overlap with Sparkasse because this is culturally very different, and not much is written about it in English.
Great read, Matt! Last time I was in Germany, a coffee shop owner told me that cash is better than cards. I thought, yeah, right, mate—just like candles are better than electricity ;)
Thank you! Yes that’s Interesting as there is a real cultural affinity to cash, which doesn't exist elsewhere. I'm surprised by the extent to which that cash is still so popular after all this time, and now Eastern Europe has moved ahead of Germany in terms of cashless payments and payments innovation in general I would say.
Great piece Matt. As a Munich resident and Oktoberfest regular I can confirm that cash is still very much king. I would love to model out if card payments would increase or decrease tips and the overall take. Drunk people being framed to tip 20% on a POS rather than the usual 10%? There’s a project there for someone…
Indeed. I've seen a photo from the US showing tip levels on a POS set at 30%, 50%, and 100%. But even though Germans are generally very polite, tipping more than 10% would likely feel strange. I'm surprised no one has offered a round-up tip model or some variation of that.
Thanks for the article. But to state Girocard is like cash, is totally wrong. Girocard is a debit card like a Mastercard Debit card.
And by the way, there are multiple reasons why cash is still in strong use. It is not only data privacy but a consequence of various factors.
Thanks for your comment. I corrected the use of the term "quasi-cash" and instead noted that Girocard lacks some of the supposed benefits of using international card brands.
It differs from a Mastercard Debit card because you can't use Girocard online. It also doesn't come with the same chargeback protection or any benefits you can get with a Visa or Mastercard card. When merchants accept Girocard, the reporting they get is quite different and separate from other card types.
I'd be interested to hear what other reasons there may be for my preference for cash. My biggest surprise was that after the harmonisation of interchange rates across Europe, the big card brands did not grow in relative share.
Hi Matt, you are right. The girocard lacks some capabilities compared to Mastercard or VISA debit cards. It uses SEPA infrastructure (SEPA Card Clearing) for settlement which results in a different reporting as well.
I see many factors for the high proportion of cash payments. I look at both relevant factors: the issuing / consumer side and the acquirer / retailer side.
Issuing side
consumer
Consumer data privacy concerns - as you already mentioned
Lack of broad acceptance - see below
banks
Germany is a very fragmented banking market with 3 groups of banks: saving banks, cooperative banks and private banks. Many of those sold or never had an acquiring entity.
This fragmentation lead to a less focussed market development than in other European markets where banks act as issuers and acquirers .
Banks have never seen payment being of strategic relevance. And it is still like this.
Acceptance side/retailers
Price sensitivity of retailers. As a consequence,
many retailers only accept cash for various reasons (cheaper, tax evasion, …)
low acceptance for small value payments - you will still see many signs “cards accepted only above 10 €” in Germany
Speed. For example, the vary popular discounter ALDI only started accepting cards once the processing time for a card transaction was below the one for a cash transaction (and everyone who experienced it: the agents were super, super fast in handling cash and change).
I could continue with various additional smaller factors, but I think the key message becomes clear: whereas German consumers are lagging behind in adoption of new digital technologies in general, the market (banks, retailers, …) never pushed for digital payments together like in other markets.
And due to the fragmented structure of the banking market, the banks have never been able to agree on a common approach, which is necessary for payment solutions to take off.
I have been asked during my life many times, why German and digital payment is so difficult? My short answer: ‘We have a lot of banks in Germany, more than breweries, and we have a hell of a lot of breweries.’
Thanks for your detailed response.
Yes, I have seen from Open Banking how many financial institutions there are in Germany, as all the Sparkasse are different institutions. This means the list of banks in Germany is huge compared to any other European country.
It's so different from the UK, where our equivalent, Building Societies, rarely exists nowadays, although 100 years ago, each city or town had one or more.
But over time, our banks bought them out, and the number of banks themselves consolidated massively. Luckily, the consolidation hasn't hampered innovation due to the rise of banks such as Monzo.
What's interesting in Germany is that the neobanks, such as N26, Revolut, and some others, do not offer Girocard but only a Mastercard debit card or similar.
In reality, I barely understand the German banking sector, especially regarding things such as the extent to which local officials overlap with Sparkasse because this is culturally very different, and not much is written about it in English.
https://www.bruegel.org/blog-post/germanys-savings-banks-uniquely-intertwined-local-politics