According to a representative survey conducted by the Allensbach Institute for Public Opinion Research on behalf of the Initiative Deutsche Zahlungssysteme e.V. in 2022, people are now paying more often with a girocard at German checkouts than with cash. The girocard – the debit card system of the German Banking Industry Committee (DK) – is therefore the most common payment method in Germany, and for this reason, it is used much more widely than credit cards. Find out how credit cards and girocards differ – and when it makes sense to use which card.

What's in this article?

• An overview of the main differences between credit cards and girocards
  
• What is a credit card?
  
• What is a girocard?
  
• Credit cards and girocards: nine differences explained in detail
  
• When does it make sense to use a credit card or a girocard?
  

An overview of the main differences between credit cards and girocards

What a credit card and a girocard have in common is that they are tools for making cashless payments, including contactless payments, and for withdrawing money. However, while a credit card can also be applied for independently of a current account, the girocard is issued by German banks and savings banks – usually automatically when an account is opened – as the girocard must always be linked to an account.

A credit card also differs from the German girocard in terms of its worldwide acceptance: credit cards make global payments possible, both online and offline. A simple girocard, on the other hand, can only be used in Germany. For payments outside of Germany and for online purchases, the girocard needs an additional functionality. This means that the girocard must have a co-badge from Visa or Maestro, as well as a security code (CVV).

There is also a difference when it comes to settlement, as payments made with the girocard are debited directly from the associated current account. However, payments for purchases made with credit cards are debited collectively from the credit card account at the end of the respective month or at the beginning of the following month.

Account holders generally receive the girocard linked to their account at the time they open the account itself. The issuing banks and savings banks may charge fees for the use of the card. These can vary from one financial institution to another. To use a credit card, many providers will give users a credit card in conjunction with their current account, which is either completely free or free for the first year of use. However, waiving the annual fee at the start can mean that subsequent fees are higher than those collected by providers who charge a basic fee for the credit card from the outset. Credit cards may incur additional costs, including fees for withdrawing money from out-of-network cash machines or using the card abroad.

What is a credit card?

A credit card is a payment card for cashless payments. It is provided by the institutions that offer and issue credit cards. If you would like to use a credit card, you must apply for one. If the credit card application is approved, the card can be used worldwide for payments and cash withdrawals once it has been received and activated.

How does a credit card work?

The name says it all: the provider and issuer of the credit card grants the cardholder credit via the card. This means that the card can be used to pay even if the billing account linked to the credit card has no credit balance. This billing account is also called a reference account.

The credit – legally a loan – is usually short-term: all payments made with the credit card are initially collected on the associated account over the course of a month. The accumulated sum will then be debited at the end of the month or at the beginning of the following month from the billing account that the card user provides.

What is credit?

Credit is a deferred payment that is granted to credit card users by the institutions that offer and issue the cards. The maximum amount of money, also known as the credit limit, that cardholders can spend of each month is determined by the credit limit set in each individual case.

Both sides benefit from the credit limit. For the bank or savings bank, it offers security because once the limit has been reached, the card can no longer be used. It also protects cardholders against borrowing too much. And if their credit card is stolen, the limit also restricts thieves' ability to misuse it. It's also good to note that in the event of credit card misuse, the burden of proof lies with the bank or savings bank.

"Real" and "unreal" credit cards and three billing models: revolving, charge and prepaid

Credit cards work with different billing models. The cards are named according to the models:

Revolving credit card: this billing model is still used mostly in the Anglo-American region, but the number of credit cards billed using this model is also increasing in Germany. Card users must take action and pay the account transactions on the due date either in full or in instalments. Unpaid portions of the liabilities are subject to interest, which can sometimes be significant. Since this billing model involves credit that has actually been granted (loans), these cards are also called "real" credit cards.

Charge credit card: this billing model, on the other hand, is considered "unreal". This encompasses most credit cards in Germany. The card companies collect the credit card transactions on the limited credit card account and debit the amount once a month from the linked current account.

Prepaid credit card: this billing model is also considered to be "unreal", as there is no "real" credit behind it. This "unreal" credit card must be "topped up" with the desired amount of money before use. For this purpose, the amount is first transferred to the card so that it is then available as credit balance. Each time you pay with the card, the credit balance decreases by the respective payment amount. The prepaid function is advantageous for younger card users, for example, as they cannot spend more money than what they or their parents have prepaid for the credit balance on the credit card in advance.

What is a girocard?

The girocard is a debit card system that the German Banking Industry Committee (DK) introduced in 2007. It replaced the Eurocheque card, but in everyday usage, it is still referred to incorrectly as the "EC card".

The girocard is the most widely used cashless payment method in Germany. It is issued by the bank or savings bank when a current account is opened. Cardholders can use it to pay and withdraw money in Germany. For use abroad, the card requires a corresponding additional function – also known as a co-badge – which enables international payments. The joint online payment procedure of the German banks and savings banks, known as giropay, can be used for online payments.

The money, which can be spent cashlessly with the girocard – and now also contactlessly thanks to the near-field communication (NFC) transmission standard – is deducted directly from the associated current account. The girocard thus offers its users real financial control. The analogue plastic girocard can also be used as a digital version on smartphones and wearables. These include smartwatches and fitness wristbands, for example.

Credit card and girocard: nine differences explained in detail

It's important to be aware of the following nine differences between a credit card and a girocard:

Prevalence

Given its prevalence, the girocard is the ultimate German bank card. Just under half of those surveyed by the Allensbach Institute stated that they had mostly paid by card (48%) at checkout during their last shopping trip, while 46% had paid in cash. This demonstrates that card payments are steadily replacing cash payments as the most popular payment method for actual payment transactions at checkout.

In addition, 58% of respondents stated that they prefer the girocard to the credit card when paying by card. Meanwhile, the survey indicates that the use of cash is increasingly rare among the younger and middle-aged generations, and that cards are being used more frequently, even for amounts under €50. Only 34% of people aged 16 to 29 prefer to pay small amounts in cash. This is down from 47% in 2021. Among those aged 30 to 44, 37% still prefer to use cash to pay small amounts (51% in 2021).

The contactless function of the girocard is used across generations: almost every other person (49%) from the generation aged 60 and over now pays using contactless. In the younger and middle-aged generations, 81% and 83%, respectively, use the contactless function.

Acceptance

Thanks to its prevalence, 82% of the German population prefer the girocard or another debit card for cashless payments, according to a 2021 study by the central bank of Germany (Deutsche Bundesbank). At checkout, 11% choose credit cards, while 7% prefer mobile payment methods.

According to the German Banking Industry Committee (DK), the girocard is accepted at over 900,000 payment terminals throughout Germany. And girocards with a co-badge such as "V-Pay" from Visa make German debit cards suitable for use abroad.

In addition, girocards can be used to pay online in Germany thanks to the giropay payment method or other alternatives, such as Apple Pay. Credit cards, on the other hand, are a globally accepted means of payment both offline and online.

Issuers

Current account holders in Germany obtain a girocard from their bank automatically when the account is opened. Some current account contracts also offer credit cards. In principle, it is also possible to apply for credit cards from card providers independently of an account.

Debiting periods

When paying by credit card, the direct debiting of the payment amount is offset by a time delay (credit function). In terms of timing, this means that the total for the credit card transactions is usually debited from the linked current account at the end of the month or the beginning of the following month. This gives users a maximum of one month to obtain the liquidity they need to pay their expenses by credit card. When paying by girocard or debit card, the direct debiting of the payment amount is debited from the associated current account immediately after payment.

Fees and costs

Depending on the bank or savings bank, users can expect the following fees for a girocard:

• Monthly or annual fee for account use
  
• Fee for the card
  
• Fee for online banking
  
• Fees for credit transfers made
  
• Fees for creating account statements
  
• Fees for withdrawing cash
  

Customers often pay an annual fee for a credit card, in addition to potential fees for using the card abroad.

Withdrawing money

With the girocard, bank and savings bank customers in Germany can withdraw cash from cash machines. Usually, this does not cost anything, as long as the cash machine belongs to the banking association's own network. Otherwise, withdrawal fees are often due. Credit card holders can also obtain cash from cash machines, either free of charge or for a fee, depending on the type of card.

Other cash dispensers in Germany, including supermarket, chemist, DIY shop and petrol station checkouts, generally accept girocards for withdrawing money up to a limit but with no other restrictions, whereas credit cards are not accepted.

Security technology

Credit cards are actually among the most secure methods of payment. The high level of security when paying by credit card results from the use of modern encryption and security technology. A security code is printed on the back of the credit card, which greatly reduces the risk of unauthorised online payments by third parties.

Conversely, girocards do not have this type of code on the back. Payment is made with the card and a PIN (personal identification number).

Interest

If there is insufficient credit in the current account, the bank will collect as much money as allowed for by the individually agreed overdraft limit. However, overdrafts incur high interest rates. Credit cards, on the other hand, are made for this type of situation, with the card's credit limit being interest-free until the agreed repayment date. However, if you're using a revolving credit card billing model, for example, interest can be incurred if payment is not made in full by the due date.

Extras

The customers of a credit card company often benefit from added extras, such as hire car or trip cancellation insurance, as well as bonuses including restaurant vouchers and other discounts when they use their credit card to pay for a hire car, trip or restaurant visit. Customers of girocard, on the other hand, are not generally offered anything like this.

When does it make sense to use a credit card or a girocard?

Which is the best payment method to use in everyday life in Germany? And are there situations where one makes more sense than the other?

In Germany, the girocard is the most widely used and accepted payment card for cashless payments. It can be used without restriction, provided that the associated current account has sufficient funds. However, the simple girocard cannot be used abroad as plastic money. It first needs additional functionality to enable international payments, such as V-Pay from Visa or the discontinued Maestro model from Mastercard.

Credit cards have proven to be very useful for online purchases. Even abroad, and especially outside of the European Union, a credit card is the ultimate payment card. This is particularly true because it often works out cheaper to use. Even if it is often cheaper to withdraw money and pay with the girocard abroad, cash-machine operators can charge additional costs.

In principle, a credit card also makes sense if you don't have enough money in your current account for a planned purchase at present, but you expect to be able to cover the difference within the payment deferral period granted by the credit card. This is a tried-and-tested model for maintaining liquidity when income fluctuates, especially for self-employed people. In addition, compared with the usually more expensive alternative of an overdraft from a current account, it is also cheaper.

Our recommendation: using a girocard makes sense within Germany – elsewhere, a credit card is better.

Learn more about cashless payments. If you would like to discuss how Stripe can help you issue payment cards to your customers, get in touch with our Sales team.