Kriya Patel, CEO, Transact Payments

Given the scale of the adoption of fintech solutions globally, few industries have undergone the level of vast changes that the payments sector has in such a short space of time. We’re less than five years removed from the introduction of the second version of the Payment Services Directive (PSD2) in the EU which has in turn fueled Open Banking within the region. Mixed into this rapidly evolving space has been the impacts of not only the Covd-19 pandemic but also Brexit.

This has meant businesses within the sector have needed to be extremely nimble, with some having to change established business models overnight. Meanwhile, more and more new innovative organisations have come from nowhere to capture market share based on ever-changing consumer behaviour.

In light of this landscape, one market that will likely start to play a critical role within the industry in the coming years is Germany.

The country is Europe’s economic powerhouse, while also being a global leader in banking. Despite this, its payments sector has lagged behind the adoption of digital payments compared to other countries, with it being an outlier as 44% of the German public still use cash and coins. With a population of 84 million people, there are 153 million cards held, just under two per person. This adoption is in stark contrast to the UK, especially as cards were used for 6 billion payments in Germany, compared to the UK’s mind boggling 21 billion transactions over the same period. Interestingly (and conversely), despite such high use of cash, the country is Europe’s second-largest market for e-commerce, accounting for 10% of all online business across the continent.

What this strongly suggests, despite this current state of play, is that the country has obvious potential for exponential growth within its digital payments sector.

This can be seen most clearly when it comes to PSD2 regulations as Germany has wholeheartedly embraced these rules, while also creating a common standard for open Application Programming Interfaces (APIs). Created by the Berlin Group, this can help open up how new organisations can dive into the sector, fostering innovation at the heart payments industry.

In addition, Germany is only behind the UK in the number of permissioned intermediaries that can provide payment services under PSD2. The effect of this is that small and medium-sized

(SMEs) firms now have a plethora of options when accepting payments, where previously they were forced to rely on more expensive third-party partners to accept payments.

Underpinning the entire German effort to develop a modern, competitive digital payments ecosystem is building trust with the German public. Research has consistently shown consumers in the country are deeply concerned about the use of their personal data and Germany also has some of the stricter requirements for data protection and privacy in the EU.

However, it can’t be overstated how having such an advanced status in PSD2 will benefit the entire German market by creating countless opportunities for partnerships between traditional financial organisations and fintechs, via service delivery through shared APIs. Organisations operating in the market will also keep the public’s data protection and privacy concerns top-of-mind when offering such products and services.

Meanwhile, it is clear that the country is already home to fintechs at the forefront of creating innovative products including  Moss, a platform that integrates all corporate spending on one card, and Pliant, a business-to-business payments platform, to enable new payment services.

A further area of growth, especially in the coming years, will be within instant payments and the country’s various instant peer-to-peer (P2P) and person-to-business payments schemes. Currently, this part of the payments sector is seeing rapid expansion, yet just one in five banks offer such services. A key plan to quicken this growth could be the creation of “Pay X”, a proposed merger between a number of different schemes (including Kwitt, Geldkart and Paydirekt) that could positively alter the landscape in the coming years.

One final area that is ripe for disruption within Germany is how SMEs gain access to credit. Up to now, smaller businesses have struggled to gain access to flexible credit and banking services, with an unfortunate lack of corporate credit products being available. Yet with the speedy implementation of Open Banking, the possibilities are now endless, as specialist lenders are using this framework to prove the creditworthiness of these smaller companies. Historically, SMEs have struggled to gain access to credit and flexible banking services in Germany, and new specialist lenders are using Open Banking to prove the creditworthiness of smaller companies are taking hold in the market.

While the German market has been somewhat slower than others to adopt digital payments to date, its speedy implementation of PSD2 shows a huge appetite to put the country at the forefront of fintech innovation. Organisations and end-users, not to mention Germany’s wider role within the payments ecosystem, will benefit greatly in the years to come from this.

Kriya Patel, CEO, Transact Payments

Given the scale of the adoption of fintech solutions globally, few industries have undergone the level of vast changes that the payments sector has in such a short space of time. We’re less than five years removed from the introduction of the second version of the Payment Services Directive (PSD2) in the EU which has in turn fueled Open Banking within the region. Mixed into this rapidly evolving space has been the impacts of not only the Covd-19 pandemic but also Brexit.

This has meant businesses within the sector have needed to be extremely nimble, with some having to change established business models overnight. Meanwhile, more and more new innovative organisations have come from nowhere to capture market share based on ever-changing consumer behaviour.

In light of this landscape, one market that will likely start to play a critical role within the industry in the coming years is Germany.

The country is Europe’s economic powerhouse, while also being a global leader in banking. Despite this, its payments sector has lagged behind the adoption of digital payments compared to other countries, with it being an outlier as 44% of the German public still use cash and coins. With a population of 84 million people, there are 153 million cards held, just under two per person. This adoption is in stark contrast to the UK, especially as cards were used for 6 billion payments in Germany, compared to the UK’s mind boggling 21 billion transactions over the same period. Interestingly (and conversely), despite such high use of cash, the country is Europe’s second-largest market for e-commerce, accounting for 10% of all online business across the continent.

What this strongly suggests, despite this current state of play, is that the country has obvious potential for exponential growth within its digital payments sector.

This can be seen most clearly when it comes to PSD2 regulations as Germany has wholeheartedly embraced these rules, while also creating a common standard for open Application Programming Interfaces (APIs). Created by the Berlin Group, this can help open up how new organisations can dive into the sector, fostering innovation at the heart payments industry.

In addition, Germany is only behind the UK in the number of permissioned intermediaries that can provide payment services under PSD2. The effect of this is that small and medium-sized

(SMEs) firms now have a plethora of options when accepting payments, where previously they were forced to rely on more expensive third-party partners to accept payments.

Underpinning the entire German effort to develop a modern, competitive digital payments ecosystem is building trust with the German public. Research has consistently shown consumers in the country are deeply concerned about the use of their personal data and Germany also has some of the stricter requirements for data protection and privacy in the EU.

However, it can’t be overstated how having such an advanced status in PSD2 will benefit the entire German market by creating countless opportunities for partnerships between traditional financial organisations and fintechs, via service delivery through shared APIs. Organisations operating in the market will also keep the public’s data protection and privacy concerns top-of-mind when offering such products and services.

Meanwhile, it is clear that the country is already home to fintechs at the forefront of creating innovative products including  Moss, a platform that integrates all corporate spending on one card, and Pliant, a business-to-business payments platform, to enable new payment services.

A further area of growth, especially in the coming years, will be within instant payments and the country’s various instant peer-to-peer (P2P) and person-to-business payments schemes. Currently, this part of the payments sector is seeing rapid expansion, yet just one in five banks offer such services. A key plan to quicken this growth could be the creation of “Pay X”, a proposed merger between a number of different schemes (including Kwitt, Geldkart and Paydirekt) that could positively alter the landscape in the coming years.

One final area that is ripe for disruption within Germany is how SMEs gain access to credit. Up to now, smaller businesses have struggled to gain access to flexible credit and banking services, with an unfortunate lack of corporate credit products being available. Yet with the speedy implementation of Open Banking, the possibilities are now endless, as specialist lenders are using this framework to prove the creditworthiness of these smaller companies. Historically, SMEs have struggled to gain access to credit and flexible banking services in Germany, and new specialist lenders are using Open Banking to prove the creditworthiness of smaller companies are taking hold in the market.

While the German market has been somewhat slower than others to adopt digital payments to date, its speedy implementation of PSD2 shows a huge appetite to put the country at the forefront of fintech innovation. Organisations and end-users, not to mention Germany’s wider role within the payments ecosystem, will benefit greatly in the years to come from this.