Why do you like to pay in cash?

Germans like to pay in cash. Whether at the kiosk, at the bakery or butcher: small amounts in particular are almost always paid in cash. If you don't have any money on hand, you can of course use your card. However, if digital payment is not possible, customers are calling for more digitization. According to a study by the market research institute Bitkom, around two thirds of German citizens are annoyed because they cannot pay cashless everywhere. 62 percent are even of the opinion that card payments should be legally mandatory in Germany. Nevertheless, three quarters of payments in German retail are made in cash, although digital payments are possible in nine out of ten shops. So why is it that digital payment methods are relatively slow to establish themselves in this country?

Card payments have become cheaper for merchants

At first glance, things seem to be progressing: In 2018, German retailers recorded higher sales for the first time from card payments (48.6 percent) than from payments with cash (48.3 percent). This is the result of a current study by the retail research institute EHI Retail. According to the study, the main driver of this development was the girocard system of the Deutsche Kreditwirtschaft (DK), which alone accounts for more than 30 percent of sales and has become significantly cheaper for retailers thanks to an alignment of conditions with the SEPA direct debit procedure.

The fees that merchants pay for cashless payments vary depending on the card. According to Horst Rüter, Head of the Payment Systems Research Department at the EHI Retail Institute, it is currently 0.185 percent of sales on average. The dealers negotiated the exact percentage with the DK. "The earlier monopoly fees of 0.3 percent of sales by the Federal Cartel Office were thus canceled," says Rüter. For a purchase of 50 euros, which is paid for by card, a retailer currently has to pay an average of around nine cents - in contrast to 15 cents in the previous model. According to calculations by the EHI, this negotiation requirement saved retailers around 175 million euros in 2018 compared to the previous monopoly situation. Credit card payments, which account for almost seven percent of the payment volume, cost the retail trade the most: fees between 0.9 and three percent of sales are incurred.

For customers, the falling transaction costs also mean that the unpopular minimum amounts for card payments are becoming increasingly rare. "Up until a few years ago there was a minimum fee of eight cents for Girocard payments, and there were also fixed processing fees of often ten cents eat up the profit ", explains Ulrich Binnebößel, managing director of the Handelsverband Deutschland (HDE), the origin of the minimum amounts.

Customer behavior changes only slowly

But even if the girocard system is now more affordable for retailers and card payments make up the largest part of retail sales: Germans prefer to grab cash at the checkout. According to the study, over 76 percent of all retail purchases in 2018 were paid for in cash.

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However, this is not due to the lack of availability of digital payment options, but rather to the slow change in customer behavior, says Binnebößel: “In particular, we notice very small payments, which today are still predominantly made in cash. This behavior is still firmly anchored and is only slowly dissolving. ”This is also shown by a study by the Bundesbank on payment behavior in Germany in 2017. According to this, amounts up to five euros are 96 percent paid in cash, amounts up to ten euros 88 percent. “The higher the amount, the more often card payments are made. This results in the discrepancy between the share of card payments in sales and the number of transactions, ”summarizes Binnebößel.

No problems for customers with cash payments

According to Rüter, card payments are possible in around 90 percent of retail stores in Germany. However, not all industries are pulling along: “It is still difficult at kiosks, booths and drinking halls, as a pint of beer or a pack of cigarettes is still often paid for with clinking coins. But that's okay too - from our point of view, everyone should pay as they want, ”says the EHI expert. But many businesses in the trade-related handicrafts such as butchers, bakeries or restaurants have "considerable catching-up potential".

However, the rule of thumb “small amount in cash, larger amount with card” is not the only reason for this. Binnebößel believes that it is possible that individual retailers have not yet been signaled that they need it, because customers do not insist on card payments: “Germany is still the country of cash and cash payments are no problem anywhere. Customers therefore have no problem that can be solved with card payments ”. The number of customers who classify cash as a nuisance and expect alternatives is only gradually growing, according to the HDE managing director.

Cash payment is cheaper for merchants

With the introduction of the contactless Girocard, however, there would also be an expansion of card acceptance in the previously cash-heavy industries, observes Binnebößel: "Customers are increasingly expecting card payments, so merchants should deal with card acceptance and especially with new technologies in this area".

Card payment has developed into a “must have” and every retailer should be active here, according to the HDE managing director. According to Rüter, contactless payment also encourages people to pay smaller amounts by card: "The earlier speed advantage of cash is no longer given today thanks to contactless payment," says the EHI expert.

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According to Binnebößel, it is not possible to say in general which payment method is the cheapest for retailers. Among other things, it would depend on the frequency of payments at the till and the costs incurred through cash, such as change or deposits. However, if you only look at the costs of a single transaction, cash is still relatively cheaper than card payments, explains the HDE managing director.

This is also shown by a study by the Bundesbank. According to her, cash payments of up to 50 euros in particular are cheaper because the fixed costs are lower. According to the study, a cash payment costs an average of 24 cents compared to 33 cents for payments with Girocard or direct debit. According to the HDE managing director, the costs for both cash and card payments are included in the general price calculation of the retail trade. Cash payers would to a certain extent bear the costs of card payments and vice versa.

For Binnebößel the question arises whether a retailer should use card payments instead of cash. He says retailers have to offer both types of payment: “As of today, you cannot do without cash, many customers want to continue to pay that way. However, an increasing number of customers require card payments ”.

Structural peculiarities ensure faster changes abroad

The payment landscape in Germany is therefore becoming increasingly digital, but the reputation of the cash country will remain for some time. Many other countries, such as Sweden, have switched to card payments more quickly. According to the Swedish Central Bank, only 15 percent of payment transactions there are processed in cash. But this is not only due to the payment behavior of Germans or the additional costs that still exist for local companies. Above all, structural peculiarities are driving cashless payments abroad: "In Sweden, given the ratio of area to population density, it is much more difficult to supply the population with cash via ATMs and bank branches than in this country," explains Rüter. This promotes the trend towards digitization.

China and India were also much faster in adopting digital payment methods. According to Rüter, this had mainly to do with the fact that there was previously no comprehensive, established structure for cashless payments. The abolition of certain banknotes in India has meanwhile become an existential problem for some people. Rüter: “Fortunately, we're not doing this with a crowbar, but in a market-based way. It's a little slower, but voluntary. "

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