Payments in Germany: An in-depth guide

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  1. Introduction
  2. The state of the market
  3. Payment methods
    1. Current usage
    2. Emerging trends
  4. Ease and friction of entry
    1. Chargebacks and disputes
    2. International payments
    3. Security and privacy
  5. Key success factors
  6. Key takeaways
    1. Diversify payment options
    2. Fortify security measures
    3. Build consumer trust
    4. About Stripe

Accepting payments from customers in Germany means gaining access to Europe’s largest economy, but participation in this market requires a detailed understanding of how German customers deal with payments – as well as what regulations and laws constitute the rules of engagement for businesses.

Below, we’ll help businesses examine the important strategies for succeeding in Germany’s payments landscape:

  • Offering a variety of payment options
  • Implementing strong fraud prevention measures
  • Building consumer trust

The state of the market

Germany is influential in the world of international payments. Its role in the European Union (EU), along with its expansive trade partnerships, has solidified the country as a lynchpin of global financial transactions. Cities such as Frankfurt function as central financial hubs for Europe and the world.

The Federal Financial Supervisory Authority, or BaFin, jointly with the German Bundesbank supervises and regulates the financial market in Germany. Additional oversight comes from the European Central Bank, which oversees monetary policy and financial stability for the Eurozone countries and directly supervises significant banks. The EU’s regulatory frameworks set benchmarks for payments and consumer privacy, such as the General Data Protection Regulation (GDPR) and the upcoming Payment Services Directive (PSD3).

Germany’s official currency is the euro, and customers expect to see purchases presented in their local currency. While many countries have rapidly shifted towards digital methods, Germany’s reliance on cash has proven more persistent. Coupled with a slow but steady adoption of mobile payments and the persistent rise of e-commerce, payments in Germany are a blend of tradition and innovation. This combination has enabled Germany to shape the future of global payments and serve as a model and test bed for new developments.

Payment methods

Germany uses a range of payment methods. Here’s a rundown of payment methods in this market:

Current usage

For in-person B2C payments, cash and debit cards dominate, with debit card transaction volume totalling about 5.9 billion in 2020. Credit card adoption is lower compared to many other European countries, but the local girocard card scheme is the most common cashless payment method in Germany.

Digital wallets, including PayPal, lead B2C online transactions, with 46% of German customers preferring PayPal when buying a product online as of 2022. Buy now, pay later (BNPL) services are also gaining popularity, with both branded and unbranded solutions playing a role. Services such as Klarna represent branded BNPL solutions in Germany, while unbranded BNPL methods – also known as “pay by invoice” – appear under the business’s name, not the BNPL company’s name.

  • Debit cards (e.g. girocard)
  • Credit cards
  • Bank transfers (e.g. pay in advance)
  • Digital wallets (e.g. PayPal)
  • BNPL services (e.g. Klarna and pay by invoice)
  • Bank transfers
  • Direct debits (e.g. SEPA)
  • Credit cards
  • BNPL services

Online shopping and the increasing convenience of card payments are gradually altering the German customer’s preference for cash and pushing them toward a more balanced mix of cash and digital payments. A Deutsche Bundesbank report found that Germans used banknotes and coins for 58% of their purchases of goods and services in 2021, down from 74% in 2017. Although credit card usage in Germany is still not as popular as in other European countries, there have been shifts in recent years. Debit card circulation surpasses credit cards in part because of a cultural antipathy towards borrowing. But as online shopping gains traction, more customers are inclined to use credit cards for these transactions. Additionally, contactless and mobile payments are increasing in popularity with younger populations.

Ease and friction of entry

Entering any new market involves unique considerations in terms of taxes, disputes, international payments, and security protocols. Here are a few things that businesses should keep in mind when considering expanding into Germany:

Chargebacks and disputes

Chargebacks, a mechanism through which customers dispute transactions, can present challenges for businesses operating in Germany, just as they do in other countries. The Federal Financial Supervisory Authority (BaFin) sets specific guidelines about how businesses should manage financial transactions, including chargebacks. EU directives also play a role, especially the Second Payment Services Directive (PSD2). If a business can demonstrate that stringent authentication was in place, it can often influence the outcome of a chargeback claim.

Businesses and financial institutions are required to adhere to these rules, which can be stricter than in other countries, to avoid legal complications. Businesses in Germany often work closely with legal advisors well-versed in BaFin’s guidelines to ensure they are meeting all local compliance requirements related to chargebacks.

International payments

Whether your business involves in-person transactions from tourists, e-commerce purchases from abroad, or B2B payments in different currencies, here are key considerations for accepting international payments in Germany:

  • SEPA transfers
    As a member of the EU, Germany belongs to the Single Euro Payments Area (SEPA), which includes Germany and 35 other countries, allowing for quick credit transfers throughout Europe.

  • Currency conversion
    For cross-border transactions such as wire transfers, credit and debit cards, and mobile payments that involve other currencies, currency conversion will be necessary either on the customer or business side, and is likely to increase costs. For businesses involved in international trade, currency conversion can affect profit margins. Some companies choose hedging solutions to mitigate the risk associated with fluctuating exchange rates, and some use forward contracts to lock in specific rates for future transactions.

  • Platforms from emerging markets
    Germany has had growing interactions with emerging markets such as China. This is evident from a rise in payments platforms such as Alipay and WeChat Pay in German retail spaces, which is largely driven by tourism and trade between the two nations. While these platforms are distinctly Chinese, their presence in Germany indicates a level of international payment system interoperability, particularly in the retail sector.

  • Reporting obligations
    International payments are also subject to a statutory reporting obligation. Under the Foreign Trade and Payments Act (“Außenwirtschaftsverordnung” or “AWV”), businesses must report any international transfers above €12,500.

Security and privacy

Germany’s approach to security, compliance, and regulations is generally considered more stringent than that of some other markets within and outside the EU. While this might pose challenges for businesses seeking entry into the German market, it also builds consumer trust and contributes to the country’s reputation for stability and security. Here’s a rundown of security and regulation highlights around payments, data, and trade in Germany:

  • Data protection laws
    Germany follows the Bundesdatenschutzgesetz (BDSG), its national Data Protection Act, along with the EU’s GDPR. The GDPR contains stringent measures for data collection, storage, and processing. Violation can result in fines of up to €20 million or 4% of global turnover, whichever is higher.

  • Financial security regulations
    The Federal Financial Supervisory Authority (BaFin) jointly with the Bundesbank oversees payment services providers among other financial institutions. Payment service providers are subject to the Payment Services Act (Zahlungsdiensteaufsichtsgesetz or ZAG). Recently, the Minimum Requirements for Risk Management (MaRisk) for payment service providers have been made available for consultation by BaFin. These requirements outline risk control measures that must be observed by the institutions in scope. Strong Customer Authentication for online transactions is required in accordance with the EU’s PSD2 rules.

  • Consumer protection laws
    Consumer protection is mainly granted on the basis of the German Civil Code and the Act against Unfair Competition (UWG). These regulations require transparent pricing, right of withdrawal, and proper labelling. Consumer centers (Verbraucherzentralen) play an active role in legal enforcement.

  • E-commerce guidelines
    The Telemedia Act (TMG) and the German Civil Code regulate online businesses. They specify encryption standards for payment gateways and mandate clear statements regarding terms and conditions, return policies, consumer credit, and shipping fees.

  • Digital identity protocols
    The German eID system, enabled under the EU’s eIDAS Regulation, employs biometric features for identification for electronic transactions. This includes facial recognition, fingerprint scans, and digital signatures.

  • Government cybersecurity policies
    The Federal Office for Information Security (BSI) outlines best practices including the use of encryption, firewalls, and the frequent updating of software. Firewalls, per the BSI guidelines, must be employed to filter both incoming and outgoing network traffic.

  • Anti-Money Laundering regulations
    The German Money Laundering Act (GwG) requires full customer verification. Businesses must file suspicious activity reports with the Financial Intelligence Unit (FIU). Failure to comply could result in fines and licence revocation.

  • Trade compliance regulations
    The Foreign Trade and Payments Act governs trade sanctions jointly with directly applicable EU regulations, while the EU Union Customs Code (UCC) regulates international customs rules. The UCC specifies documentation, product classification, and import and export control measures, with penalties for non-compliance.

  • Fraud detection technologies
    Increasingly, algorithms for real-time transaction monitoring are based on machine learning to identify suspicious patterns. The Money Laundering Act and banking regulations impose the use of appropriate technologies for monitoring transactions and detecting fraud.

  • Future regulatory changes
    Amendments to the GDPR, Anti-Money Laundering laws, and anti-crime laws are under continuous discussion, requiring businesses to stay updated and adapt their compliance measures accordingly.

Key success factors

Germany’s payment systems, though strong in many aspects, grapple with several challenges ranging from technological inertia to cybersecurity concerns. Successful businesses address these issues with a multifaceted strategic vision.

  • Varied payment methods
    Compared to its European neighbours, Germany has been slow in adopting digital payment solutions. As of 2021, 69% of Germans said they intend to continue using cash, according to a Bundesbank report. For in-person transactions, accepting cash can help businesses close sales with customers averse to other payment options. And for online payments, offering a variety of payment options will increase a customer’s chances of finding one of their preferred methods.

  • Strong fraud prevention measures
    Although Germany ranks among the top countries in cybersecurity, the increasing sophistication of cyber threats places ongoing stress on its payment systems. A study by Cybersecurity Ventures predicts that global damages from cybercrime will cost $10.5 trillion each year by 2025. Implementing fraud prevention measures such as 3D Secure and machine learning algorithms can help businesses enhance their fraud detection capabilities.

  • Carefully verified customer identities
    Authenticating customer identities also protects companies against fraudulent transactions. Using address verification service (AVS) and card verification value (CVV) checks can verify the authenticity of card-not-present transactions.

  • Building trust among local buyers
    Though a slow process, setting up a local entity could be beneficial for businesses looking to drastically scale their operations in Germany. Partnering with local companies, on the other hand, is a faster way to gain trust among local buyers. At the same time, being upfront about pricing, transaction fees, timelines, and cancellation policies, will help build customer confidence in your business.

Key takeaways

To keep pace with evolving customer expectations and technological advancements, businesses operating in Germany can improve customer payment experiences through a well-rounded strategy. This includes diversifying payment options, fortifying security measures, and working to gain consumer trust. These efforts are deeply complex and require a range of tactics based on knowledge of the German market and consumer preferences. Here’s a brief recap, along with some tips to help improve your strategy:

Diversify payment options

  • Go beyond the basics
    Embrace popular digital wallet alternatives such as PayPal, Apple Pay, and Google Pay. Partnering with relevant payment processors simplifies integration.

  • Know your specific customer segments – and give them what they want
    Offer invoice options for B2B transactions or instalment plans for larger purchases. Consider BNPL providers to cater to this growing trend.

  • Localise the checkout process
    Translate payment pages and error messages into German, display prices in euros, and ensure currency conversion clarity.

Fortify security measures

  • Make data protection a top priority
    Adhere to strict German data privacy regulations such as GDPR. Implement secure payment gateways, ensure PCI compliance, and communicate your data security practices transparently.

  • Do everything possible to mitigate fraud risk
    Use fraud detection tools, employ 3D Secure authentication for online transactions, and provide clear reporting channels for suspicious activity.

  • Build trust with certifications
    Display security badges and certifications on your website, such as TÜV or Trusted Shops, to reassure customers.

Build consumer trust

  • Opt for transparent practices as much as possible
    Be upfront about pricing, transaction fees, and cancellation policies. Clearly communicate payment processes and timelines.

  • Offer personalised support wherever you can
    Provide German-speaking customer service representatives who can address payment-related enquiries promptly and efficiently.

  • Communicate regularly and proactively
    Regularly inform customers about new payment options, security updates, and any potential disruptions. Consider offering newsletters or FAQs in German.

About Stripe

Since Stripe became available in Germany in 2017, startups and large enterprises including Axel Springer, SHARE NOW, and Avocadostore have used Stripe software to accept payments and manage their businesses online.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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