Long live the girocard…

The swan song for the most popular debit card in this country has often been sung – and now again, with the imminent discontinuation of Maestro, the traditional co-badge solution of the girocard is also facing its end. But is the girocard really doomed to die? Who benefits from this scaremongering? And what is the future of the girocard?

Where does the girocard actually come from?

Everyone in Germany knows it and probably still calls it the “ec card”: the girocard. Only the older ones among us will remember that this was issued as a cheque card and pure payment guarantee card by German banks more than 50 years ago. At that time, no one knew that this Eurocheque card would lay the foundation for later electronic payment. With the help of the magnetic strip, the card was later expanded to include a debit function and it was possible to withdraw cash from ATMs or pay at petrol stations, grocery stores or restaurants together with the PIN. At this point, it should be briefly mentioned that “ec” was originally the name for the Eurocheque system and both “electronic cash” and the logo long used for today’s girocard were derived thereof. It is interesting to note that the rights for the brand and the logo are held by Mastercard and the use by The German Banking Industry Committee (GBIC) as the governance and operator of the girocard system was based on an agreement between these two parties. This circumstance led to the development of a separate word and picture mark by GBIC for the girocard in 2007. However, it took many more years until money was spent on marketing, in order to finally break away from the brand dependency. However, it is difficult to get some firmly anchored names out of one’s head and so even today many people still call the girocard “ec-card”.

Since the beginning of the new century, cards have been successively issued with an EMV chip, which increased both security and the number of possible applications – such as the cash card or contactless payment. In the meantime, contactless payment transactions with the girocard are well over 70 percent in 2022 and it is also deposited in payment apps such as “Mobiles Bezahlen” of the savings banks, the “Pay” app of the Volks- und Raiffeisenbanken or the Apple Pay Wallet in order to be able to pay smartly and digitally at the POS. And the digital girocard has now also made it into e- and m-commerce (and much too late) thanks to the Apple Pay solution of the savings banks. The integration as a further “funding source” in the new giropay product of paydirekt is about to be launched. At this point, it should be mentioned that it was the discounter effect, i.e. the entry of Lidl (2003) and Aldi (2005), that marked the beginning of the triumphal march and thus the strong increase in girocard transactions.

The German’s favourite card…

Today, the market coverage of the girocard is comprehensive, both on the part of the cardholders and the points of acceptance. And this despite the fact that some private and new banks have degraded the product in recent years, taken it out of their portfolio or not even considered it at all, but more on that later. According to a representative Allensbach study on the use and acceptance of cashless payment methods, around 97 percent of the citizens surveyed aged 16 and over in Germany owned a girocard in 2021. In total, more than 100 million of these cards are in circulation and the Corona pandemic has ensured an unprecedented increase in acceptance points.

In the last 3 years, almost 250 thousand points of acceptance have been added. Now you can finally pay with your girocard at the bakery around the corner… And the growth in transactions and turnover is also impressive. According to EURO Kartensysteme, the 3 billion transaction mark was broken for the first time in 2022. Turnover in 2021 was 253 billion euros (134 billion euros in the first half of 2022).

Maestro is being discontinued – and what does that mean for the girocard?

So, is all that glitters gold with the girocard? Of course not, but the press articles and comments on the girocard and especially on the discontinuation of the Maestro co-badge by MasterCard in recent weeks and months border on ignorance. But perhaps the supposed end was deliberately spread on the net with the hope that many articles would simply be copied blindly from one another. Even so-called “payment experts” speak of a “near end of the girocard”. Other examples of headlines one can read lately are: “EC card on the brink of extinction”, “The classic EC card probably no longer has a future in Germany” or “Discontinued model girocard”. To get straight to the point, this is of course complete nonsense and one can ask oneself who could profit from this panic and opinion mongering?

But first, let’s deal with the facts. Mastercard has been dealing with the discontinuation of Maestro for some time. The girocard did not play a role in this, as it is a debit card system that is used worldwide and the announced end affects all countries in Europe. This step is likely to follow in other parts of the world as well. In fact, Maestro is not just a separate debit card brand, but an international payment network with a separate technical infrastructure from the Mastercard credit and debit card networks, which was launched back in 1985.

In the first place, therefore, the realisation of synergy effects and cost savings will have played the decisive role in Mastercard’s decision. Another important factor concerns the biggest disadvantage of the Maestro card, namely that it cannot be used in the growth market of e- and m-commerce. In other words, issuers were not obliged to approve them for e-commerce and that was the rule in Germany. Mastercard and Visa have been positioning their new debit card products (Debit Mastercard and Visa Debit, respectively) for the strong trend towards digitalisation and online commerce for several years. As EVP Product & Innovation Europe Mastercard, Valerie Nowak explains about the abolition of Maestro: “This is not exclusively about the ability to use a debit card more easily and smoothly in a digital environment. For example, a debit Mastercard can also be used – just like a Mastercard credit card – to guarantee travel bookings.”

Long transition period does not yet make Maestro disappear immediately

Maestro has been integrated as a co-badge and thus with its own payment function on a girocard since the 1990s. As long as the cards were used at ATMs or payment terminals in Germany, these transactions were processed via the electronic cash system (today girocard). It was only when the girocard was used abroad or at a SumUp / Zettle terminal (these are the small white payment terminals that do not accept girocard) that Maestro with its international payment network was used. In this case, the debit of the bank account behind it, corresponding to that of a girocard, basically took place on the next bank working day, so that the cardholder felt no difference to his or her dear bank card.

And what now follows directly from Mastercard’s decision regarding Maestro? Maestro cards may only be issued until the end of June 2023. The Maestro co-badge on girocard cards with a validity beyond the above-mentioned date will continue to exist. One of our employees was recently issued a new savings bank card by one of the largest savings banks in Germany because his old card had expired. The validity of this card is dated 12/2026, so in total this card will still be able to run on both the girocard and Maestro networks for over four years.

And how are the individual banking sectors preparing for the Maestro phase-out?

The validity periods of the girocard are in the range of four years for most banks and decisions regarding card portfolios are therefore always strategic in nature. For the savings banks alone, a complete replacement of the approximately 46 million savings bank cards (this is the name of the girocards in the savings bank sector) is likely to lead to costs in the small to mid three-digit million range. The savings banks therefore made a strategic decision in favour of the girocard a long time ago and expanded the savings bank card to include the option for a co-badge with Debit Mastercard (DMC) as early as 2020. Admittedly, only a few savings banks have made use of this so far, but that will change as the day for stopping the issuance of Maestro cards draws closer. And Mastercard surely hoped to put the German banks under pressure by discontinuing Maestro. They would be too happy to replace the large German market and the girocard with their own debit card brand. Payment service providers such as SumUp or Zettle, which do not accept girocard and currently rely on the co-badge Maestro, can also continue their business model, as they already accept the international debit and credit card brands of Mastercard and Visa. So what changes then in relation to the existence of the girocard? Exactly, nothing!

With regard to the Sparkassen-Finanzgruppe, it could well be that Mastercard has scored an own goal. Perhaps, in view of a Maestro co-badge share of well over 90 percent, they felt too confident to migrate it to the Debit Mastercard. There are currently rumours that Visa was able to win over 40 percent of the savings banks for Visa Debit, even though the solution is still being implemented and Mastercard enjoyed a time advantage of more than two years.

The other large banking sector, the Volks- und Raiffeisenbanken, are also preparing for the conversion of the co-badge to Debit Mastercard or Visa Debit. The cooperative sector has also decided in favour of the girocard for the long term, and it seems that the last word has not yet been said among the cooperatives with regard to their possible participation in EPI 2.0. Together, the two banking sectors account for well over two-thirds of girocard cards and even without the private banks, the girocard is not at its much-vaunted end in the medium to long term.

But the private banks are also preparing for the change of the co-badge with some delay. For these banks, too, DMC and Visa Debit are considered the primary solutions, which also ensures the continued use of the girocard abroad beyond 1 July 2023. As mentioned at the beginning, there are direct and neo-banks that have either dispensed with the girocard altogether or have downgraded it compared to the international debit card brands. At this point, a DKB, N26, Targobank, Comdirect or Santander can be mentioned. However, we always ask ourselves whether this is really about product strategy aspects (which we cannot really understand) or whether it is rather the incentives by the international credit card organisations (ICS) that are decisive. But there are also other examples of the expansion of the girocard, as shown by the plans of the major US bank J.P. Morgan Chase, which is apparently working on a licence to issue girocards in Germany.

What do customers and traders think?

It doesn’t really matter to the customer and cardholder, and as long as the card is accepted and works and the account is debited the very next bank working day, he will not complain, regardless of whether he holds a Debit Mastercard, Visa Debit or girocard in his hand or has deposited it in the digital wallet. At most, he could cite nostalgic reasons for refusing, because he has grown so fond of the girocard or because he is fundamentally critical of American companies. On the acceptance side, retail stores with POS in Germany are still firmly in favour of the girocard, not least because of the high market coverage, but especially because it is significantly cheaper than international debit cards. Some retailers still use the girocard to process guaranteed direct debits, although the loss of market share and importance of direct debits compared to the girocard has been quite significant in recent years.

We can therefore state that the girocard will continue to run after the end of Maestro card issuance and is not a discontinued model or even doomed to death. Either because the girocard initially continues to have a functioning Maestro co-badge or this co-badge has been replaced by the DMC or Visa Debit.

And where does the girocard journey go …?

So is everything OK with the girocard and we can sit down again?

Not at all! As briefly mentioned at the beginning, the girocard and thus GBIC completely missed the trend for online retail. The strong positioning of the girocard in stationary retail could not be achieved in e- and m-commerce. On the contrary, it is non-existent there. It is very difficult to understand why the girocard was not introduced as a separate payment method in the checkout many years ago. Instead of making up for this step with a long delay, a strategic decision was made to integrate the digital girocard into payment platforms or payment methods. So you will still not be able to select the girocard directly as a payment method in online shops or apps. Instead, it will now be integrated into the “new” giropay together with paydirekt, for example. Whether this further development of paydirekt with the integration of the girocard will be a success story can be doubted based on the history, especially since EPI 2.0 is probably not yet off the table and it is difficult to imagine two parallel online solutions.

In this respect, one can only welcome the efforts of EURO Kartensysteme (EKS) as a joint venture of the German banking industry and responsible for the marketing and business development of the girocard. In exchange with market participants and merchants (especially online merchants), requirements for a digital girocard as well as corresponding use cases for e-commerce are being defined. In this context, the EKS should probably play a stronger role in the operational development of the girocard at the POS, but especially in e- and m-commerce. Any improvement in the time-to-market and the strengthening of the online capability of the girocard that can be achieved in this way can only be endorsed and supported. If you then reunite the product strategy and pricing, you are not far away from a “real” scheme. However, it should not go unmentioned that the future girocard co-badge cards with the DMC or Visa are already online-capable and can be used directly in e- and m-commerce. It will be exciting to see how this competition on the card between the two payment methods develops – but that would be real competition for once.

Perhaps the double regulation will then be dealt with once again. The girocard is the only regulated payment system in Europe that is affected by two regulations. In addition to the interchange fee regulation (MIF regulation), authorisation fees must also be freely negotiated between merchants and card issuers since 1 November 2014. The separation of product and price has led to a high degree of complexity and can have a huge impact on acceptance and competitiveness in online retail compared to other alternative payment methods.

In the growth market of e- and m-commerce, the girocard is still in its infancy and we will see whether the strong positioning at the POS can be transferred to online commerce. In this market segment, far too much time has been lost and it will now depend on the right decisions. For the stationary retail, we are very sure that the future of the girocard is secured in the long term for the end customer but also for merchants. When asked in an interview with the IT-Finanzmagazin whether the girocard will still exist in 10 years, the managing director of EURO Kartensysteme Oliver Hommel answered: “Yes, the girocard will still exist in 10 years! And we can only agree with that…