Contactless and cashless payment? One scenario: It is Saturday, and I am driving to town in my car. I am parking at the small market near the church. I get out my car, insert my credit card into the slot of the parking machine and select the desired parking time in 50 cent steps. My next stop is the fruit stand at the weekly market. I am picking up the small bag of bananas and kiwis, type the 10-digit number printed on a paper label in the display, into a payment app on my mobile phone and transfer the amount with a short swipe. Just before I get back into the car, I want to stop by the supermarket. As I stand in line at the cash desk and dig out a few coins in view of the small amount, the grumpy cashier points at the sign on the door: “We don’t accept cash”. So, I pull out my mobile phone again, unlock it by looking at the display and then hold the device against the terminal. I wonder if I will ever get rid of the change in my pocket again.
Telling from the “war” against cash
This story seems strange to you? Perhaps it is because what has been said did not take place in Germany, but in Sweden. Here people already live predominantly cashless. And not just since yesterday. Here, the “war on cash”, as Harald Olschock, General Manager of the Federal Association of German Money and Value Services (BDGW) puts it completely unselfishly, is already in full swing. Not to say, in the meantime, to the point where only a few insurgents persistently defend their right to use cash.
Cashless payment transactions: figures about the use in Germany
In Germany, on the other hand, the advance of the fighters for cashless payment transactions in recent years resembled a grueling positioning battle to remain in the picture. Especially the use of contactless payment methods, are considered widely as bridging technologies to a complete digital payment infrastructure. Still in 2016, 54% of Germans stated that they had never made contactless payments and would not consider doing so in the future. Only 10% of the population had already paid contactless at that time and only the smallest part of them regularly. In 2019, 3 years later, the situation already looked different. 55% had already made contactless payments last year. Half of them used the contactless function of their girocard, credit card or smartphone at least once a week.
Another victim of Corona – cash?
Now this year is different from all previous years and in many ways. Not only does it now feel strange to leave the house without a mask, even though just a few months ago we shook our heads half amused, half uncomprehendingly when an Asian travel group ran into us again dressed in all kinds of colourful face masks, but Corona (or COVID-19) has also fundamentally changed our behaviour at the checkout. Even in 2018 you still belonged to a rare species if you only held your card briefly at the terminal in the supermarket. You could be sure of the amazed looks of your fellow-square-players if you only briefly pulled out your mobile phone after the question “cash or card” and with the “ba-bing”, which in the meantime has even received some media attention through Deutsche Bank, you grabbed your shopping bags and simply disappeared without even opening your wallet.
Corona as driver for contactless payment
The pandemic is now responsible for the fact that the number of cashless and, in particular, contactless payments has increased considerably since 2019. Both parties say so, the supporters of cash and those who would like to get rid of it at last. The former complains, however, that the warning about the risk of infection with cash is only scaremongering and will only fuel fears among customers and sales staff. The latter, on the other hand, are pleased that the last necessary impulse has now apparently been given to finally clear the way for a long-slept future of digital payments in Germany.
In contactless payment the focus is on practicality and speed
Now it seems that the greatest risk of infection is probably not really due to the exchange of cash, but to fruits that has been inspected for purchase and then put back. But this must be conclusively clarified by the relevant experts elsewhere. It is also the case, however, that it is by no means the fear of an infection risk that makes people increasingly use cards or smartphones.
Current Top 3 reasons for using cashless payments
At least this is what a survey by Statista in cooperation with gdata has shown. When asked why they prefer to pay without cash, only 20.3% of participants cited fear of infection as the reason. And that puts this statement only in third place. In the first two places, on the other hand, were the reasons that, for example, the smartphone is always at hand, cash is not always available (32.5%), or that the time saved at the checkout compared to cash plays a role (31.7%).
Cash – no longer the German’s favourite child
The fact is that the love of their cash has suffered particularly badly among Germans since the outbreak of the Corona crisis, and people are even becoming bolder about “new” technologies. In the meantime, 75% have already made contactless (i.e. also cashless) payments and about 64% even do so regularly, Forsa researchers have found out on behalf of Visa. Most of them, 56% of those questioned, prefer to pay by card, an increase of 3% on last year. Only 32% still say that cash is their preferred means of payment. However, the increase for smartphones is significant. Here, 12% of respondents said that this is now their favourite form of payment. This represents a doubling of the previous year.
What is even more interesting, however, is that the basic attitude towards cash also seems to be changing, almost equally across all age groups. For example, the digital association Bitkom has found out that the vast majority of people in Germany would like to see more points of acceptance for contactless payment. In the group of 16-to-29-year olds, this is less surprisingly as high as 76%. But even among the 65-year olds and older it is still 62%. And if we continue to listen to the participants, the majority of those questioned even try to avoid paying with cash as much as possible. In the younger group, among the 16-to-29-year olds, the figure is already 84%. But it is sensational that even 68% of the oldest citizens, 65 years and older, have the same opinion.
Doesn’t anyone think about data protection? For God’s sake, data protection!Thus, one of the most frequently mentioned arguments for the usage of cash seems to lose its importance. Namely that older people could be excluded from social life if cash were abolished. Other arguments regularly address the alleged lack of control over spending and the general security of the payment process. In addition, fear of the lack of data protection must not be missing in Germany, of course. Materialistic sounding statements, such as those about the “war on cash” of the BDGW mentioned above and the diffuse fear of the “transparent citizen “, cleverly combine the German very own guilt complex with fundamental skepticism about the technological future.
Kids photos on Facebook? No problem. Pay digitally? Never!
The fact that the majority of people now publish every private detail on social networks without thinking about it, seems to be deliberately overlooked. Just the way it suits you. Quite a few parties are currently discussing the lowering of the voting age to 16 years. Under the cloak of maturity, the tendency of some people, which is very practical for them, to prescribe ideologies without checking them, is just right to open up new groups of voters. But when it comes to buying a new pair of Air Max, we don’t trust young people to be able to understand the impact of this transaction on their account balance and to make a sustainable assessment of it as long as they don’t use cash.
Every reasonable banking app now offers a corresponding overview. Even up to analysis tools that let us monitor and plan our spending behaviour in detail and even help us to avoid excessive spending, for example with certain earmarked sub-accounts or spending limits. And of course, technological solutions are always subject to a certain risk of misuse. But we dare to doubt that the inclined citizen will consciously recall the various possibilities of manipulating an ATM every time he or she withdraws cash with a PIN and then make the possibly quite long way to the next bank branch, especially in times of extensive branch deaths.
The reasons against contactless card payments are the reasons for paying with your smartphone
Quite the opposite. On the contrary, the transition to the digital payment infrastructure should be accelerated if security and privacy are to be ensured. In fact, cards can be read. Even though with Near Field Technology (NFC), which is the basis of contactless payment, a maximum of 4 cm can be bridged. So, you would have to get very close to the card to be able to read it. But even if this were to succeed, the stolen data can be used to make a one-off purchase for a maximum of €50 (€25 before the Corona crisis) or up to a total of €150 for no more than 5 consecutive transactions before a PIN is required again. However, if one really wanted to be consistent, one would warn citizens less about the risks of contactless card payment but rather try to get them interested in paying by smartphone as soon as possible.
Through tokenisation, as is usual with Apple Pay or Google Pay, no personal information or payment data is transferred here. Furthermore, the hurdle of misusing the smartphone is much higher than with girocards or international debit/credit cards. Not only would one have to overcome the protection of the smartphone, but the payment app itself would have to be tricked. And with the latest devices this would mean that you would need the victim’s face or at least a thumb. In our unshakable belief in the good in people, we hope that this will be a sufficient obstacle to the potentially small profit, at least for most of us.
No bank account is not a solution either
One point that cannot be dismissed however, is the loss of anonymity through contactless spending. In purely digital transactions, banks and service providers constantly receive information about who, when, where and for how much has been purchased. In my experience, however, in the best case this has the effect of offering more services that are personally optimised for me and in the worst case it has the effect of spamming me with additional advertising, which, in view of the supposedly very efficient evaluation of my data and the associated potential power of persuasion, may tempt me to spend more money.
Anyone who now wants to point out that this form of data protection is not so much about the economic aspect of the service providers and banks involved, but rather about the criminal law interest of the authorities, has certainly not yet experienced the effects that late payment of motor vehicle taxation or sufficiently long delays in the transfer of the so-called tv and radio broadcasting contribution in Germany can have even without digital payment methods. If one would want to avoid this, one would not even be allowed to open an account. And we are certainly not being too far off the mark when we say that the part of the population that consistently follows through on this does not really belong to our circle of readers.
Developing country Germany – also for the digital payment infrastructure
Nevertheless, the admonishers will undoubtedly not get tired of stressing the risks of cashless payment transactions and will continue to believe that cash is still the most important means of payment in Germany and will remain so (quote from the BDGW – who would have guessed it?). Meanwhile, Sweden has set itself the target of having completely switched to cashless payments by 2030. And even for Germany, our colleagues from the management consulting firm Oliver Wyman predict that by 2025 at the latest, the use of volume based cash will be just 32%. And according to Statista, the number of users who will pay at the POS with their smartphone – and thus contactless – will more than triple in the same period (from today’s 6 million users to about 19.7 million).
The increase in the amount that can be paid contactless with the girocard without a PIN (from €25 to €50) as a result of the crisis will certainly contribute to this in future. However, we estimate that in particular the further spread of payment terminals with contactless function and the changing awareness of customers to pay small and micro amounts in food retailing, together with the capping of merchant fees by the MIF regulation, will have an increasingly positive effect on the use of non-cash payment methods.
The bakery trade as a guide to the digital future
Even today, the smaller the amount to be paid, the more likely it is that cash will be used. According to Finanztest, which is a magazine published by the German Consumer Protection Agency, 70% of cash transactions take place in food retailing. In comparison, the figure is 3.1% for furniture stores, 3.2% for garden centres and DIY stores and only 4.6% for clothing or shoe shops. So, Germans are not yet prepared to pay for their buns at the baker’s on Sunday mornings using their card or smartphone. Accordingly, the willingness of retailers to offer contactless payment options in the first place is correspondingly high.
In this respect, it is good news, at least for the supporters of cashless payment transactions, that at least the Central Association of the Bakery Trade has now published a brochure aimed at explaining the advantages of “this new” technology to its members and their customers.