Germany’s switch from cash to contactless – are biometric payment cards the logical next step?
By Aida Hosseini, Global Marketing Manager at Fingerprints
Despite its reputation for technical innovation, Germany has traditionally been heavily dependent on cash. Think back to 2016 when, in an effort to combat money laundering and terrorist financing, Germany’s finance minister announced plans to ban the use of cash for purchases over €5,000. German tabloid Bild responded with an open letter “Hands Off Our Cash”, denouncing the decision.
Fast forward to 2022 and the country has seen a dramatic transformation. 47% of respondents by the German Payments Systems Initiative have drastically reduced their use of cash to such an extent that debit and credit cards now overtake cash as the preferred method for in-store payments. But how did we get here and what’s next?
The rise of contactless
Consumer recognition of the benefits of contactless payments has been a key factor in moving away from cash. Six in ten Germans (60%) now make contactless payments with their smartphone or a contactless card – an increase from 56% in 2021 and 47% in 2020.
The COVID-19 pandemic has been a major catalyst for this mass contactless adoption, with regulators actively discouraging the use of unsanitary cash. A survey by Fingerprints also revealed that more than a fifth (21%) of German consumers fear using cash for hygiene reasons. Combined with the fact that 24% feared touching pin pads, the switch to contactless payments was a no-brainer.
Increase limits without contact
Of course, contactless payments bring many benefits beyond hygiene, including faster checkouts and shorter wait times, making it an attractive proposition for consumers. These benefits and increased consumer reliance on contactless payments led the German government to double the transaction limit from €25 to €50 in mid-2021.
Since raising the contactless cap, Germany has seen contactless growth from 35% of card transactions to 50%, underscoring the popularity of this change.
Inspire consumer confidence
Despite previous privacy issues that have historically delayed the country’s move away from cash, many German consumers have come to trust the cards, leaning on the convenience they offer.
As Euromonitor International’s report on how German consumers shop and pay notes: “There is greater appreciation for the improved convenience of payments without PIN entry or signature and growing confidence in security measures and issuer and merchant insurance. Therefore, by 2040, consumers are poised to become heavy users of payment cards, with relatively frequent use of mobile devices for payments as well.
How biometrics improve contactless payments
Growing consumer confidence will only be amplified by adding fingerprint sensors for biometric authentication to the contactless card. Biometric payment cards provide multi-factor authentication, adding an extra layer of security at the point of sale (POS) and ensuring compliance with the European regulatory requirement, Strong Customer Authentication (SCA).
Convenience will also be enhanced as with biometric payment cards there is no need to enter a PIN at the point of sale and no caps on transaction values. This is a particularly useful feature given that 20% of German consumers currently believe the contactless payment cap is too low, and 25% are confused about the value of ‘allowed’ payments at the point of sale and when PIN entry is required. By removing any cap with biometrics, spending will increase and the benefits of contactless to consumers will be maximized.
And while the daily use of contactless cards is growing, 44% fear a lack of security in the event of loss or theft of their card. The integration of a biometric sensor in the cards completely eliminates this problem since only the owner of the card will be authorized to use it. The consumer’s biometric data is also kept secure as the card does not store an image of a fingerprint – only a pattern is recorded and stored securely as encrypted data on the card and never leaves it.
Growing demand for contactless 2.0
The demand for biometric payment cards already exists in Germany. Fingerprinting revealed that more than half (51%) of German consumers surveyed would rather have a biometric payment card than a standard card. In addition, 46% are willing to pay an average of $8.70 per year to buy one, and 31% of consumers would change banks to get one. These results indicate that the German market is ready and willing to continue its payments evolution towards the next generation of contactless.
Germany’s shift from cash to contactless reflects a global trend in which payments are shifting from cash and PIN pads to alternative digital innovations. As this trend continues in Germany and around the world, biometric payment cards present significant opportunities for consumers, banks and merchants.
The stage is set for the introduction of contactless 2.0 in Germany. It’s only a matter of time before it follows neighbor France with more commercial launches, adding to the growing global tally.
Learn more about the global potential of biometric payment cards by downloading his eBook at ‘Make hassle-free contactless payments’.