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. 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-stores 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 ecommerce, 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 stores 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 checking account apply. Each payment can be viewed individually in the online banking system or bank statement.

Customers can also use other debit cards and credit cards to pay online without using another service provider by entering the 16-digit card number, the expiration date, and the card verification number (CVV). The transaction must then be verified. With debit cards, this type of payment also immediately debits the account. With credit cards, on the other hand, the amounts are usually collected at the end of the month and then debited from the checking 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 from 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 checking 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 first shipped 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 they only work within a certain distance.

Online payments can also be made here using digital wallets such as Google Pay and Apple Pay, for example, 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:

1. The customer pays for the purchase through the service provider. This transfers the amount due to the store and later debits it from the checking account or credit card.
   
2. The customer logs in to online banking through the service provider. The amount is then immediately debited from the checking account.
   
3. 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.
   
4. 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 shipped. 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 customers and for businesses, and reduce administrative effort. For example, there are no cash withdrawal fees. Businesses are able to deliver goods or services with minimal effort. Even though there are sometimes fees 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 the evolving needs and preferences of their customers.

How do customers benefit from cashless payments?

Cashless payments allow transactions to be made instantly in stores or online, which is especially convenient when customers are on the go, since 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. There are several security measures, such as entering PINs or passwords, as well as token-based authentication systems that protect against unauthorized 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 unauthorized access by third parties.
  
• Authentication: There are various methods that customers can use to authenticate themselves, such as entering a PIN or scanning a fingerprint. These processes cannot be bypassed by an unauthorized 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 TAN 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 make financial transactions more secure.

How much do cashless payments cost businesses?

The cost varies depending on the type of payment method offered. For example: for a card reader, businesses can expect to pay about 50–500 euros in investment costs depending on the device, and about 2% of each transaction amount. In the case of payment by invoice through Klarna, the cost is 3.25% and 1.69 cents per transaction, and for installments through Klarna it is 3% per transaction. PayPal charges a 3% fee and 0.39 cents per transaction. Businesses should check with the providers in advance about the exact costs and conditions.