Cashless payments are becoming increasingly popular and bring with them a number of advantages. Cashless payments refer to payment with a card or smartphone app, or a SEPA Direct Debit payment or bank transfer. In this article, we've outlined the various options and explain how easy and secure cashless payments can be.
What's in this article?
- What is a cashless payment?
- What are the different cashless payment methods?
- How do businesses benefit from cashless payments?
- How do customers benefit from cashless payments?
- How secure are cashless payments?
- How much do cashless payments cost businesses?
What is a cashless payment?
The processing of payment transactions without cash is referred to as a cashless payment. Cashless payments can occur both online and in shops via a point of sale (POS). Cashless payments have opened up a wide range of opportunities for businesses and customers.
Technologies such as NFC-based mobile payment systems, contactless payments and digital wallets make it possible to pay quickly and conveniently all over the world. These payment methods play an important role in e-commerce, as they offer customers different options for payment.
What are the different cashless payment methods?
Cashless payments can be made using a variety of payment methods, such as credit and debit cards, online payment systems, and smartphones. Here's how the most common cashless payment methods work:
Debit and credit cards
Card transactions per capita in Germany have been rising steadily for years, and credit and debit cards have long been one of the most frequently used cashless payment methods. In Germany, the most frequently used debit card is the girocard (formerly known as the EC card).
Customers can use girocards and other debit and credit cards in shops by holding the card up to or inserting it into a card reader that supports the EC cash payment method. Verification is usually by PIN or signature. The card is charged as soon as the customer makes a purchase. For a debit card, the conditions of the current account apply. Each payment can be viewed individually in the online banking system or on the customer's bank statement.
Customers can also use other debit and credit cards to pay online without using another service provider, by entering the 16-digit card number, expiry date and the card verification number (CVV). The transaction must then be verified. With debit cards, this type of payment also debits the account immediately. With credit cards, on the other hand, the amounts are usually collected at the end of the month and then debited from the current account on file. Both debit and credit cards are secure and convenient.
The girocard can also be used for online payments if the customer uses a provider, such as giropay or Sofort (Klarna). Plus, they can always make an online transfer or instant payment using online banking.
Instant payment
To make an instant payment, the customer logs in to their online banking account and makes the transfer directly from their current account. The money is then credited to the recipient's account within seconds. To do this, the customer must provide the same payment information that is required for a typical bank transfer. Banks usually charge a small fee for this.
Invoice
With invoices, goods are delivered first and then paid for, usually by bank transfer. However, this also means that businesses have to make advance payments or simply trust that customers will pay. To make the transfer, customers can log in to their online banking account to make the payment, without having to go to a bank in person.
Mobile payments
Mobile payments are contactless payments using mobile devices, either via card readers that support the EC cash payment method or online. Many of these card readers use near-field communication (NFC), which means that they only work within a certain distance.
Online payments can also be made in this way, using digital wallets, such as Google Pay and Apple Pay, or with payment apps from various banks. These methods allow access to the account or debit or credit cards via smartphone, regardless of where the customer is located.
Online payment providers
Payment providers such as PayPal, Klarna, Giropay and Amazon Pay are also very popular. Each method works a little differently, but what they all have in common is that they act as service providers. Specifically, there are four options:
- The customer pays for the purchase through the service provider. This transfers the amount due to the shop and later debits it from the current account or credit card.
- The customer logs in to their online banking through the service provider. The amount is then debited immediately from the current account.
- The customer enters a prepaid credit card into a payment system. For the card to be used for payment, the amount must have been loaded beforehand.
- The customer pays money into an account created with a service provider and can use this money to make a purchase.
SEPA Direct Debit
SEPA Direct Debit payments allow businesses to debit amounts from the customer's account following written consent from the customer in the form of a SEPA Direct Debit mandate. This payment method has many advantages for both parties, especially for recurring payments, as it reduces the work involved in processing payments manually. SEPA Direct Debits are also supported internationally, in any country that is a member of the SEPA zone.
Advance payment
With the advance payment method, which is usually a bank transfer, customers must pay for the goods before they are dispatched. This method offers businesses a high level of security.
How do businesses benefit from cashless payments?
With the increasing prevalence of smartphones, credit cards and other digital payment methods, cashless payments are overtaking cash payments as the preferred payment method.
The variety of options enables businesses to attract more customers and generate more sales. Customers also tend to spend more when they pay without cash.
Cashless payment transactions are cost-effective for both customers and businesses, and also reduce the administrative effort involved. For example, there are no cash withdrawal fees. Businesses are able to deliver goods or services with minimal effort. Even though fees are sometimes associated with certain services, they're outweighed by the many advantages for businesses.
With cashless payment methods, businesses have access to more data about their customers' spending, allowing them to better respond to their evolving needs and preferences.
How do customers benefit from cashless payments?
Cashless payments allow transactions to be made instantly in shops or online. This is especially convenient when customers are on the go, as they no longer need to withdraw money and can make spontaneous purchases. With cashless payment transactions, customers no longer run the risk of losing their money or being robbed.
It's also faster to check out in person because there is no need to count out money, and it is also easier to check what amounts have been paid, as all transactions are logged digitally.
In addition, some cashless payment methods allow customers to set spending limits and receive notifications when these limits are exceeded. This gives customers more control over their finances.
How secure are cashless payments?
Cashless payments are very secure. Several security measures exist, such as entering PINs or passwords, as well as token-based authentication systems that protect against unauthorised access. Each mobile payment system also has several protection mechanisms against fraud and cybercrime. If businesses want to offer cashless payments, they must understand and adhere to certain security standards.
Some of the most important security standards are:
- Encryption: all payment transactions must be secured using the latest encryption technology to prevent unauthorised access by third parties.
- Authentication: customers can use various methods to authenticate themselves, such as entering a PIN or scanning a fingerprint. These processes cannot be bypassed by an unauthorised third party. In addition, 3D Secure (3DS) technology is often used as part of two-factor authentication (i.e. when proof of identity is provided through a combination of two factors, such as login data and a transaction authentication number for online banking).
- Privacy policy: all data collected from cashless payments must be protected against use by third parties. This includes not disclosing personal information to third parties without permission.
- Geoblocking: many cashless payment systems have geoblocking features that allow them to restrict payment methods to certain countries in order to prevent fraud.
These security standards play an important role in cashless payments and help to make financial transactions more secure.
How much do cashless payments cost businesses?
The cost varies depending on the type of payment method offered. As an example, businesses can expect to pay about €50 to €500 in investment costs for a card reader (depending on the device) and about 2% of each transaction amount. If an invoice is paid via Klarna, the cost is 3.25% plus €1.69 per transaction. For instalments paid via Klarna, it is 3% per transaction. PayPal charges a 3% fee and €0.39 per transaction. Businesses should check with the providers in advance about the exact costs and conditions.