Germany has a new online payment method. Launched during the final quarter of 2015, paydirekt facilitates ACH-funded payments between consumers and merchants.
Germany already has various alternative online payment types, such as Sofort, Giropay and RatePAY. This
new, local proposition running on ACH rails is being seen as a strategic play by the private and cooperative banks to secure their share of Germany’s €40 billion e-commerce market pa.
e-commerce in Germany
Online shopping in Germany can be clunky for consumers and risky for merchants, especially if they ship goods before receiving payment. Invoice is the most frequently used way of paying for online goods and services in Germany. 28% of e-commerce sales were paid on invoice in 2014, according to data from an EHI Retail Institute study of online payments.
Direct debit and PayPal were the next most frequently used payment methods online, with 22% and 20% of sales respectively.
Debit and credit card usage online is less common in Germany than in other countries. Domestic debit cards do not always bear the account number, and credit cards make up only 11% of online sales.
Paydirekt could be seen as a way for the banks to defray the costs of owning and operating the core banking infrastructure — which is also used by competing online payment methods. It is a way to increase the value of the current account proposition to customers, and secure additional revenue streams in view of the downward pressure on interchange fee income.
The banks formed a company to develop the technical requirements for paydirekt. The members include Commerzbank, comdirect bank, Deutsche Bank, Postbank, DZ BANK and WGZ BANK.
Private banks involved in the project include: ING-DiBa, TARGOBANK, Bankhaus Max Flessa, Consorsbank, Degussa Bank, MLP Finanzdienstleistungen, NATIONAL-BANK, Oldenburgische Landesbank, SÜDWESTBANK and Volkswagen Bank.
The savings banks and Santander Consumer Bank have also signalled their intent to participate.
How it works
Consumers register for paydirekt via their online banking portal. They set up a username, password and bank account details, and access to the paydirekt account thereafter is via these details. Merchant liaise with their acquirers around contractural and commercial terms, and integrate paydirekt on their websites via an API.
The new service is being positioned to both consumers and merchants as secure, private and quicker [for delivery of goods] by virtue of the direct, bank account-backed payment.
The classic chicken-and-egg problem
More than 50 million participating German bank accounts are capable of being used online. As at December 2015, paydirekt GmbH was reporting 150,000 consumer registrations during a 6-week period.
One of the main challenges to growing the service is the familiar chicken-and-egg problem. Which comes first, consumer registrations or merchant acceptance?
Ultimately, any successful payment method must build critical mass among consumers and merchants at the same time, and as quickly as possible. paydirekt may have restricted potential in this regard as it domestic-only service. Moreover, consumers and merchants must bank with one of the participating private or cooperative banks to sign up.
Due to the time, cost and hassle of implementing a new payment method, merchants may take a wait-and-see approach to implementing paydirekt, thus slowing roll-out. This increases the importance of payment service providers (PSPs) and other integrators, who can provide acceptance of multiple payment types through one connection. Paydirekt has announced that it has agreements with around half a dozen PSPs.
Banks are also dependent on their Verlage, the entities responsible for providing the back-office infrastructure and services. Registration via online banking triggers a back-end to back-end registration process. The Verlage must enable banks to offer this via their online banking portal.
Any new payment type needs to offer something distinctive and/or appeal to a particular unserved or underserved customer segment to gain traction. With so many different alternative online payment types in an already crowded market, time will tell whether paydirekt can achieve sufficient cut-through.
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