One number – 15 million – has many German bankers worried.
Because that figure, the amount of customers using the international e-commerce service PayPal, is larger than the retail operations of many of Germany’s leading banks, including Commerzbank, Postbank and HypoVereinsbank.
Only the country’s savings and co-operative banks still have more customers when added together. Until now, the front in the e-commerce battle was clear. “Currently our main competitors in online and mobile banking are the PayPals of this world,” said Thomas Gross, a member of the board of managing directors at Helaba, a state savings bank based in Frankfurt.
But the front is crumbling. Deutsche Kreditbank (DKB) has just started a partnership with PayPal, the first of its kind in Germany.
As a start, DKB customers will be able to check PayPal transactions in their online banking. Before, they had to log on to PayPal to do it. But more far-reaching plans exist. DKB and PayPal want to push forward with mobile payment, the Handelsblatt learned from industry sources.
A lot of experimentation is happening in the business, and no standards yet exist. One side is betting on credit and EC debit cards. Apple apparently is equipping its phones to handle these kinds of mobile payments. But PayPal is pushing for cardless solution. For this reason, the American company is worth considering as a partner for small banks, however, large financial institutions are caught in a bind.
PayPal is the pioneer in the e-commerce business. It now even has a banking license. The company is already offering installment credit in the United States, and Germany is said to be following soon.
“The banking industry is looking at PayPal with a critical eye,” said Tilo Hacke, a DKB board member. He had to work hard to convince people in his own bank before a deal with the payment service was in the bag. “When customers decide for such financial service providers, we banks shouldn’t keep them from it,” Mr. Hacke said.
Meanwhile, PayPal is trying to ease fears about competition. “We may have a full banking license, but we see our strength in electronic and mobile payment commerce,” said Arnulf Keese, managing director of PayPal Germany. That’s exactly where the DKB wants to profit. “We want to be inspired by PayPal and together, for example, further develop mobile payment,” Mr. Hacke said.
PayPal is already experimenting with mobile payment solutions – most recently, for example, with face recognition. Bringing a bank onboard enhances the reputation of the eBay subsidiary. It sends a message to the industry “that PayPal should be taken seriously as representing a sustainable instrument of payment commerce,” said Bernd Richter of the consulting firm Capco.
“DKB's partnership with PayPal is providing for the time when the card business is possibly no longer profitable, because it has been replaced by mobile payment commerce”
A mobile solution with PayPal, which requires just a smart phone, could stir up the market. Visa and MasterCard have already joined together with telecommunications companies to put their cards on chips in smart phones. But nowhere near all smart phones have the necessary radio technology – not even iPhones.
Moreover, only a third of Germans have a credit card. For this reason, German banks are developing a solution that would require their ATM and debit cards to be held in front of the cash register terminal.
The finance industry wants to introduce mobile payment by way of debit and credit cards for a simple reason. They profit through fees each time a card is used. This is exactly what PayPal is targeting, since its system needs no cards but rather uses the considerably cheaper direct account method. PayPal is working on “making the card business superfluous,” said Mr. Richter. The service replaces credit cards with account data. “DKB’s partnership with PayPal is providing for the time when the card business is possibly no longer profitable, because it has been replaced by mobile payment commerce,” said Mr. Richter.
He is expecting additional partnerships with PayPal to most likely be with smaller financial institutions, since, for one thing, they don’t have the money to invest in a mobile infrastructure and, secondly, they are not directly involved in the business with debit and credit cards.
All the same, the cooperation with a successful player also comes with risks. “It could make the partner even more powerful,” said Oliver Hommel from Accenture in warning, “the division of added value then becomes extremely difficult.” The stronger then usually profits at the expense of the weaker.
PayPal, at any rate, appears to be fundamentally open to deals with other banks.
This article was translated by David Andersen. Vinny Kuntz contributed to the story. To contact the author: delaMotte@handelsblatt.com