A Tale Of Two Payments Regions: UK And Germany

The only way to predict what the emerging payments trends are for today is to seek out the one group of people who has the power to control the entire market: consumers.

But, of course, no two consumers are exactly alike - especially when comparing consumers across different regions of the world. To truly understand how consumers think and act on a global scale, talking to them about their payments preferences is the only way to help those who’d like to influence that behavior seems pretty important.

TSYS does this regularly – and most recently dug into two of its markets — the U.K. and Germany — to compare and contrast two very distinctly different subsets of populations.

The study looked at 500 consumers (18+) in each country who had at least a credit or debit card. The study examined their behaviors, attitudes and perception about the emerging payments environment and how receptive they might be to new payments methods.

TSYS Directors Davide Richetta and Morgan Beard recently caught up with Karen Webster to explain these findings and, in particular, how emerging technologies are displacing cash, even in a cash-centric country like Germany.

“Behind the study is the recognition of the supremacy of the consumer as well and that's why we focused the research on the end consumer," Beard said. "The overarching goal of the study is to start comparing consumer trends in order to start predicting consumer behaviors in terms of how technology is influencing payments adoption."

The Highlights

"The pie for card issuers in Europe is significant. Cash is increasingly being displaced by cards and the pie for cards is growing," commented Richetta during the conversation. "We believe that cash displacement will enable entrants on the one side, and new technologies on the other side to grow. We see the competition in e-payments is growing and this is all driven by the regulatory framework."

He added that in 2016, roughly a quarter of European banking revenue (€128B) will come from retail payments.

That demand is being driven by four key trends that may help to inform what drives consumer payments preferences:

  1. Consumers want to feel in control
  2. The emergence of contactless payments is shifting consumer behavior
  3. Consumers need reassurance that mobile is secure
  4. Consumers just aren’t that into P2P and bitcoin.

How Emerging Payments Stacked Up

Consumers are well aware of contactless payments – in both countries. Ninety-seven percent of consumers in the U.K. said they are familiar with the technology and a surprising 65 percent were in Germany.  That’s surprising since Germany is such a cash-based economy – and card usage is not as strong. That’s not so surprising in the U.K. since London, which is where much of the usage is concentrated, has a high merchant acceptance, and the transit authority now enables contactless payments across all of its endpoints.

In terms of overall awareness, here's how the figures broke down:

  • Have used a contactless card in the last six months: U.K., 52 percent; Germany, 15 percent
  • Have a contactless payments card but have not used it to pay: U.K., 28 percent; Germany, 19 percent
  • Heard of the technology but not sure card supports: U.K., 19 percent; Germany, 66 percent

Those numbers will only rise as 2020 approaches – the date that the card networks have given European retailers to install terminals that are capable of accepting contactless payments.

Contactless volume could also expand once spending limits increase, as well. Today, they are set at 30£ - up from 20£ - which limits the stores in which they can be used with a signature, and as German consumers become more used to using cards, Richetta said.

The scene with respect to mobile payments isn’t quite as bright, the study found.

Even in the U.K., a majority of consumers haven't used a mobile phone to pay for something in a store. When consumers were asked if they’d made a mobile payment in-store using a smartphone in the past month, 29 percent said yes, and 71 percent said no. In Germany that number was ever lower, with 16 percent reporting yes and 84 percent reporting no.

That can be explained by two things – one obvious and one perhaps not so.

The obvious factor is the general lack of availability – mobile payments are just emerging as a payments option. Apple and Android Pay are both in their infancy, having just been introduced in the U.K. market in July 2015 and March 2016, respectively.

The not-so-obvious factor is a concern over security.

"There's an increased likelihood to use mobile payments upon learning about security features," Beard said. “There’s a myriad of ways to pay with smartphone, but security concerns are really slowing mass adoption.”

Or as the study showed, once respondents were explained the added benefits of paying via mobile, 24 percent more consumers said they would be open to be using mobile payments, if available to them.

"That piece was the real eye-catcher for us," Beard commented.

Webster pushed back a bit on that finding, making the comparison to how much detail consumers wanted to know about how credit and debit cards worked when they were new (very little, she contends, in fact, only that they did and made paying for things easier).She questioned why now consumers actually wanted to know about the nuanced and technical details of tokenization with respect to mobile payments.

To that, Beard suggested: "They don't necessarily want to know all the details, but they do indeed want to make sure it's secure. There hasn't been enough awareness building in the industry as to how secure mobile payments are."

So what about virtual currencies?

Perhaps not surprising, a majority of consumers have not used them, and many had never even heard of them. In the U.K., 40 percent of respondents said they have heard of virtual currencies, but not used them; 35 percent said they have heard of them but didn't know what they were; 22 percent had never heard about them; and a surprising 3 percent said they had used virtual currencies.

But with a survey error of margin about 4 percent, Beard noted that means the number of consumers who actually use it may be closer to none.

In Germany, the results were even lower. Of those surveyed, 44 percent said they had heard of but not used, 29 percent had heard of but didn't know what they were, 29 percent had never heard and 1 percent had used.

But perhaps one of the most surprising findings was the usage of P2P payments and P2P lending.

In the U.K., 49 percent had never used P2P payments, and 30 percent reported not being aware of the option; 21 percent reported they used it between once a month to daily. In Germany, 48 percent said they had never used, 43 percent were not aware of the method and 9 percent used somewhere between once a month and daily.

What’s needed here to shift those numbers toward P2P payments, according to Beard is: “lower costs — and making transferring money easier and cheaper.”

On the P2P lending side, those numbers were even less favorable.  In the U.K., 91 percent said they have never tapped into that capability and in Germany, 97 percent said they had never used.

The lack of interest appears to be correlated to a lack of trust, reliability and concerns around the lack of regulation over the lending side of P2P.

“What’s shocking here is that we thought it would be a lack of awareness,” Beard said. Which, as the numbers show, is not the case. Instead, it’s all about the regulatory environment and lack of trust.

Putting Consumers In Control

What consumers really want – and what drives preference – is being in absolute and complete control of their money and how they pay for purchases, even down to what offers are presented to them. Not surprising, consumers seem to want tailored offers based on their spend habits.

"What we saw is that one-size-fits all offers are no longer the case as consumers really appreciated tailored offers — which bring true value and have a true benefit," Richetta said.

Somewhat surprising – but perhaps music to the issuers' ears — is at the intersection of putting consumers in control of their money and how they pay for things. The notion of installment payments as a payment option is something viewed as popular in both the U.K. and German market. When asked, a majority said it was very important to them in both the markets (45 percent U.K., 43 percent Germany).

Why that’s music to the issuers’ ears potentially is related to the cap on interchange fees for credit and debit products. That, as Beard suggested, has “turned traditional revenue models right on their head." He noted that the only way to solve for the big income gap that these caps create is to identify new revenue streams that aren't tied to interchange fees in the first place, such as installment loans.

"It's very encouraging that when we ask the consumers, they find that these are pretty interesting propositions too," Beard said.


To download the full reports, click below:

2016 UK Payment Study

2016 German Payment Study



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