Electronic direct debit (in German, “elektronische Lastschriftverfahren” or “ELV”) is a popular payment method in German retail. If you want to sell at the point of sale, you should understand available options and risks. This article will explain what the electronic direct debit procedure is, how it works, its advantages and disadvantages, and the requirements businesses must fulfill to offer it at the register.

What’s in this article?

• What is an electronic direct debit?
  
• How do electronic direct debits work?
  
• What are the requirements for electronic direct debits?
  
• What are the pros and cons of electronic direct debits?
  

What is an electronic direct debit?

Electronic direct debit, or ELV, is a common cashless payment method in Germany that is primarily used in retail. An ELV payment does not need a PIN; instead, customers provide a one-time direct debit authorization for the merchant. The merchant then debits the amount from the customer’s current bank account by direct debit.

ELV is processed quickly, but it can be reversed if there are insufficient funds in the customer’s account. This is a key difference from payment confirmation via PIN entry, where sufficient funds are checked immediately, and the payment can be rejected if there aren’t enough funds. A valid debit card is needed for electronic direct debits. This process cannot be done with a girocard.

The electronic direct debit procedure is done offline, in contrast to the online electronic direct debit procedure. Online electronic direct debit, or OLV, was specifically designed for online payments and aims to lower risks to businesses. Customer account data is checked against scoring parameters and nationwide blocking lists to reject payments—for example, if a card is blocked. However, the added security comes with a cost: there are additional fees for OLV.

What is the difference between a debit card and a girocard?

Girocards are a special type of debit card. Debit cards and girocards are often referred to as “bank cards.” Like a debit card, girocards are issued by banks and savings banks and are linked to a checking account, and both are used for cashless payments while shopping and for withdrawing money from ATMs. Additionally, when the customer uses them, the amount paid is immediately deducted from their account after payment—the key difference from credit cards.

However, the unique feature of girocards is that they are only available in Germany. With girocard, the German banking industry has come together to implement a single card payment system to make things more efficient and reduce costs for users. But German girocards also have additional functions that enable them to be used internationally: as a result of the merger with Visa’s international debit card system V Pay, girocards can now be used across Europe. A partnership with Maestro from Mastercard has also made it possible to use girocards for payments worldwide.

Since July 2023, very few girocards with the Maestro feature have been issued. According to Mastercard, the feature is not a good fit for online transactions. Mastercard allows only a few large banks, such as Deutsche Bank and Commerzbank, to keep issuing debit cards with the Maestro feature. But it’s unclear for how long. Cards with this feature issued by other financial institutions can only be used until the end of 2027, or until their expiration date.

How do electronic direct debits work?

ELVs operate on a straightforward principle: customers pay the agreed amount by swiping their debit card through the card reader or by using contactless payment. Alternatively, if their debit card is saved in a payment app, customers can hold their smartphone, smartwatch, or tablet up to the card reader. The debit card’s International Bank Account Number (IBAN) and Bank Identifier Code (BIC) are then transmitted.

For more detailed information on this process, refer to our guide on how card readers work. You can also get excellent support for payment processing on point-of-sale (POS) systems with our convenient Stripe Terminal.

After the debit card or device is scanned, a SEPA Direct Debit order is then created for the amount due. This is displayed on the card reader or is printed out. The customer checks the details and signs the device or the printed receipt. By doing this, they provide a one-time direct debit authorization for the ELV payment. Customers receive a receipt, in case they need to make a return or get a refund. Finally, the merchant sends the direct debit order to their bank, which then processes the payment. The customer’s bank debits the amount from their account and transfers it to the merchant’s bank.

You can find further information in our article on accepting credit and debit card payments.

What are the requirements for electronic direct debits?

To offer ELV, businesses must meet various technical, organizational, and legal requirements.

The basic requirement for ELV payments is having the right hardware to read debit card data. Stripe Terminal gives you various options for this: you can use a precertified card reader such as the S700 or a mobile device such as the BBPOS WisePad 3. If you want to use an existing iPhone or Android smartphone, you can combine this with Stripe’s Tap to Pay feature. In addition to ELV payments, you can also accept online card payments using Stripe solutions such as Stripe Payments and tools such as Payment Links, Checkout, or Elements.

To ensure smooth payment processing, it’s important to automate the integration of ELV payments into your existing accounting software, and to train everyone who will handle and manage payments on how to use card readers properly.

One of the organizational requirements for ELV is having a bank account. Merchants must have a business account through which direct debits can be processed. Merchants also need a creditor identification number, which can be obtained from the Deutsche Bundesbank (Germany’s central bank). This helps to clearly identify the payee in the SEPA zone. Additionally, merchants need to sign a contract with a payment service provider, such as Stripe.

Merchants should understand the legal requirements for using the electronic direct debit procedure, including tax law, the Payment Services Supervision Act (ZAG), and the Money Laundering Act (GwG) to protect themselves and their assets. Additionally, merchants must follow the General Data Protection Regulation (GDPR) because ELV payments involve handling personal data. To meet the obligation to inform about data processing (see Article 13 of the GDPR), merchants can provide written information in the checkout area using signs or flyers.

What are the pros and cons of electronic direct debits?

Electronic direct debits are especially known for speed, with payments being processed in just a few seconds. This is possible because no lengthy identity checks or online queries are needed, unlike with the OLV. Quick processing reduces wait times at the checkout and enhances customer service. Additionally, the costs for retailers are low. Electronic direct debits don’t need a complicated or costly setup, and there are no authorization fees as with other payment methods.

ELV is convenient for customers; they only have to present their card and provide a signature, which is another reason why the method is common and favored in Germany. Additionally, the customer’s account is typically not debited until a few days after the purchase, thereby increasing short-term liquidity.

The main disadvantage of ELV payments for businesses is the risk of payment defaults—for example, if the customer’s account has insufficient funds. Since the SEPA Direct Debit order is issued only once, it’s not possible to collect the amount again if there is an issue. Payment defaults can result in additional costs for the business, including fees for debt collection agencies or lawyers. Customers can also choose to reverse the amounts paid. In such cases, merchants initially bear the costs themselves. This means that electronic direct debits carry financial risks for businesses.

ELV can also be a risk for customers: if their debit card falls into the wrong hands, unauthorized purchases can be charged to their account. This is because the signature provided is not always checked or compared with the cardholder’s signature at the point of sale. A PIN request provides more security in this situation.

An overview of pros and cons with ELV payments

For more information on the potential benefits of card payments for businesses and customers, see our article on cashless payments.