2019 J.P. Morgan Global Payment Trends

2019 Global Payments Trends Report - Germany Country Insights

GERMANY INSIGHTS REPORT

 


With a market characterized by bank transfers, high return rates, a love of catalogs and a conservative approach to spending, Germany’s e-commerce sector is undoubtedly influenced by habits formed in the pre-internet era. Merchants that can integrate and adapt to these local idiosyncrasies should find themselves poised to win future business in this major European e-commerce hub. To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.

Introduction

 

E-commerce growth is set to expand at a rate of 7.3 percent per year up until 2021, supported by the large size of the German online sector and solid economic growth in the country.1 The German economy grew at an above-trend pace in 2018, although quarterly events have been very volatile,2 for example, unusually cold weather was credited with having a negative impact on economic activity in the first quarter of 2018.3 The German labor market continues to improve, with record low levels of unemployment, and wage growth has stepped up strongly, which is supporting domestic demand (and consumer spending in particular).4  In turn, this is helping to support online sales, which account for around 14 percent of the total European market.5

This document is based on projected figures and is subject to change at any time.

Returns are rife in a cautious, considered e-commerce market

 

Germany is one of Europe’s e-commerce big-hitters: with business to consumer e-commerce sales of €73 billion,16 ranking the country third behind the UK and France in our J.P. Morgan Global Payments report series.* That said, growth rates have slowed from double to single-digit rates in recent years, a trend we expect to see continue.17 This growth deceleration is echoed in other mature European e-commerce markets including France and the UK.  

Going forward, the market is forecast to expand at a compound annual growth rate of 7.3 percent to 2021.18 However, the individual German shopper still spends less online than their fellow Europeans. The average annual online spend in Germany is €1,149, well below the European average of €2,186.19 This low basket spend is partly due to Germany being a nation of discerning shoppers, who will readily return products if they aren’t right. The German return rate is the highest in Europe, with 53 percent of online shoppers returning at least one item in the past year.20 This willingness to go through the returns process may be a legacy of Germany’s existing mail-order culture, where items are ordered from catalogs and only paid for after the customer has received the products and is happy with them. This post-purchase payment format is known as open invoicing, and has persisted into online shopping culture.

In terms of market dynamics, both male and female shoppers alike are embracing online shopping, with a 13.4 percent and an 8.5 percent increase in sales, respectively, for these populations in the past year.21 One opportunity is in homewares and appliances. With a 26.5 percent increase, this category was the fastest-growing German online shopping category in 2017, followed by groceries (21.3 percent) and consumer electronics (20.9 percent).22 Another potential area of growth is fashion, as shoppers in Germany spend more on clothing products online than their French and British counterparts – 32 percent of total e-commerce sales, compared with 20 percent in both France and the UK.23

 

Home-grown legacy brands dominate e-commerce

 

New entrants hoping to crack the German e-commerce market will be competing with highly successful domestic businesses and the ubiquitous US giant Amazon, which is the number-one e-commerce merchant in the country. Otto evolved from a mail-order catalog business into Germany’s second-biggest online retailer, and is followed in third place by another homegrown champion, fashion retailer Zalando.24  The trio collectively accounts for 43 percent of total e-commerce sales in Germany,25 presenting a potential barrier for newcomers. This market dominance may be the reason why Germans are less likely to shop cross-border than the European average, spending 24 percent online with foreign e-commerce merchants, compared with the European average of 33 percent.26 On the other hand, there is an opportunity to collaborate as all three sites function as sales platforms for other brands.

These platforms will, however, be highly exposed to a new VAT regulation. Germany is in the process of imposing tighter tax controls on e-commerce platforms ahead of the rest of the EU. In August 2018, the government approved a draft law that would make these platforms liable for the non-payment of German VAT (19 percent standard; seven percent reduced) by third-party sellers on their sites.27 This measure became active from 2019, ahead of the EU’s plan to impose similar regulations by 2021. The new law could create a large administrative, technical and legal burden for e-commerce platforms, which will be obliged to recover the VAT from third-party sellers operating on their respective sites.

Perhaps as a legacy of a widespread mail-order culture, e-commerce merchants new to Germany should note that online spending is not limited to major cities. The number of e-commerce sales that originate in communities with a population of less than 50,000 people is high at 60 percent and should be factored into any marketing initiatives.28

Mobile commerce becoming increasingly influential

 

The German mobile commerce market is expanding at a double-digit rate, driven by increasing smartphone penetration and the emergence of digital wallet payment options. Mobile transactions account for 27 percent of total online sales29 and mobile commerce is now worth €19.7 billion.30 The sector is expected to grow at a compound annual growth rate of 18 percent to 2021, becoming a €38.2 billion market.31

Smartphone penetration in Germany is rising, with 71 percent of consumers owning one of these devices, amongst the highest rates in the region.32 However, German shoppers remain concerned about the risks of mobile transactions.33 This might be alleviated by the rapid growth of digital wallet usage in the country,34 as these digital-first payment solutions are perceived as having good security. They also help facilitate in-app payments. At the moment internet browsers are still the primary way to complete transactions on a smartphone in Germany.35

Cards battle for prominence in a country wedded to open invoicing

 

Card penetration in Germany is low, at 0.52 per capita,36 and card payments are thwarted by the fact that, while cards can be used online, one of the major domestic brands is largely not enabled for internet use in Germany. Girocard is the major debit card system, with 100 million cards in circulation37 that do not work online. As a result, cards only account for 13 percent of the payments market.38

Instead, Germany’s conservative approach to online spending is coupled with a preference for using traditional, bank-based payment methods for purchasing. Open invoice and direct debit payments account for 40 percent of online sales – a drop of just one percent on the previous year, and involves consumers paying for goods via bank transfer after they have received them.39

There are a number of reasons behind the ongoing support for these payment types. Bank account penetration is extremely high in Germany, with 99.1 percent of over-15 year olds holding an account.40 Germany’s pre-internet history of catalog use also created an expectation that goods should be paid for after, rather than before, they are received. However, open invoicing comes with potential problems including a higher risk of non-payment post-purchase, and time spent reconciling invoices.

 

Payment providers adapt to quirks of German market

 

Bank account-based payments now face serious competition from digital wallets, which could also help card usage grow as digital wallets allow credit and debit cards to be linked to their accounts. Digital wallets are forecast to grow at a compound annual growth rate of 22.5 percent per year, driven by increasing smartphone app use, and will account for 28 percent of the market in 2021.41 PayPal® dominates the German digital wallet space, accounting for 20 percent of transactions.42 The firm’s market share could increase as it continues to refine its German service. For example, in October 2018 it began rolling out the ability for German shoppers to add PayPal to their Google Pay accounts. Google Pay is an app that allows users to pay for products with their smartphones. PayPal can also link directly to shoppers’ bank accounts – offering Germans the popular bank transfer payment option in an updated, smartphone-based format.

High chargeback rates decline, and strict regulations increase

 

E-commerce fraud in Germany is in line with the European average,* with two percent of online buyers suffering fraud.43 This is positive and, generally speaking, fraud and chargeback rates across Europe have been falling in recent years,44 possibly a symptom of greater penetration of authentication systems such as 3D Secure. However, there are some threats specific to the German market that merchants should be aware of. The low use of payment methods with strong security measures, such as cards, is one area of concern, and could make merchants vulnerable to fraud. Germany also suffers from large numbers of domestic fake e-commerce sites, which are set up to defraud customers.45

Key takeaways

 

  • E-commerce sales in Germany are worth €73 billion,46 ranking the country behind only the UK and France
  • Mobile transactions account for 27 percent of total online sales47 and mobile commerce is now worth €19.7 billion48
  • Cards only account for 13 percent of the payments market49

 

Data may vary from historical figures, due to certain categories being re-stated as new information sources have become available.

* J.P. Morgan 2019 Payments Trends – Global Insights Report series includes the following European countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Norway, Poland, Portugal, Spain, Sweden, Switzerland, The Netherlands, UK.

 

Global Payments Trends Reports

International e-commerce success can hinge upon understanding the needs, nuances and growth patterns of individual nations. J.P. Morgan’s Global Payments Trends Reports aims to offer merchants the knowledge they need for global success through in-depth, country-by-country analysis.

About J.P. Morgan

 

J.P. Morgan offers a full suite of payments services to enable a seamless connection across the payments continuum for clients. We bring our consultative expertise, data-driven insights, and local service around the globe to provide a more unified view of payables, receivables and cash management. Merchant Services is the payment acceptance and merchant acquiring business of JPMorgan Chase & Co. (NYSE: JPM) – a global financial services firm with assets of $2.6 trillion and operations worldwide.i According to The Nilson Report, it is also the top merchant acquirer of e-commerce transactions in Europe.ii

 

i JPMorgan Chase & Co. Q4 2018 Earnings Report 2018.

ii The Nilson Report, #1132 May 2018.

 

For more information, please contact:

 

Your J.P. Morgan Relationship Manager or visit: https://www.jpmorgan.com/europe/merchant-services/payment-insights

 

Information contained in this document has been prepared by third parties or obtained from sources which are believed to be reliable; but neither Chase Paymentech Europe Limited nor any of its affiliates warrant the completeness or accuracy of the information contained herein. Chase Paymentech Europe Limited and any of its affiliates shall have no liability to the user or to third parties, for the quality, accuracy, timeliness, or for any special, indirect, incidental or consequential damages which may be experienced because of the use of or reliance on the data or statements made available herein. Third party trademarks, brand names, products and services are only referential and Chase Paymentech Europe Limited and its affiliates disclaims any sponsorship, affiliation or endorsement of or by any such third party.

 

Chase Paymentech Europe Limited, trading as J.P. Morgan, is regulated by the Central Bank of Ireland. Registered Office: J.P. Morgan, 200 Capital Dock, 79 Sir John Rogerson’s Quay, Dublin 2 D02 RK57, Ireland. Registered in Ireland with the CRO under the Registration No. 474128.

Directors: Catherine Moore (UK), Carin Bryans, Dara Quinn, Steven Beasty (US), Eilish Finan

Copyright© 2019

 

1 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

2 Western Europe Economic Research, JPMorgan Chase Bank, September 2018.

3 Western Europe Economic Research, JPMorgan Chase Bank, September 2018.

4 Western Europe Economic Research, JPMorgan Chase Bank, September 2018.

5 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

6 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

7 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via CIA, 2017.

8 World Bank Open Data, ‘Germany.’ Accessed December 2018.

9 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

10 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

11 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

12 E-commerce Foundation, B2C E-commerce Germany 2018, 2018.

13 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Newzoo, 2018.

14 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

15 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ECB Statistical Data Warehouse, 2018.

16 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

17 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2017.

18 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

19 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

20 PostNord.com, September 2018. ‘E-commerce in Europe 2018.’ Accessed October 2018.

21 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2017.

22 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2017.

23 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via eMarketer & E-commerce Europe, 2016.

24 E-commercenews.eu, September 2018. ‘Top 100 Online Shops in Germany 2018.’ Accessed October 2018.

25 E-commercenews.eu, September 2018. ‘Top 100 Online Shops in Germany 2018.’ Accessed October 2018.

26 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Eurostat, 2017.

27 Baden-wuerttemberg.de, May 2018. ‘Regulations against VAT fraud in online trading launched.’ Accessed October 2018.

28 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2017.

29 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

30 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company.

31 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company.

32 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Newzoo, 2018.

33 eMarketer, ‘The State of Mobile commerce in France and Germany.’ 2018.

34 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

35 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

36 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via ECB Statistical Data Warehouse, 2018.

37 Girocard.eu. ‘About Girocard.’ Accessed October 2018.

38 EHI Retail Institute, EHI-Studie Online Payment 2017, 2017.

39 EHI Retail Institute, EHI-Studie Online Payment 2017, 2017.

40 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2017.

41 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

42 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company.

43 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Eurostat, 2017.

44 Fico, 2018. ‘European Fraud Map 2017.’ Accessed December 2018.

45 Daserste.de, August 2018. ‘Fake-Shops im Internet.’ Accessed October 2018.

46 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

47 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via BEVH, 2018.

48 J.P. Morgan Payments Trends – Global Insights Report 2019: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company.

49 EHI Retail Institute, EHI-Studie Online Payment 2017, 2017.

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