Payment transactions

Bumpy Year for Paydirekt

  • Why it matters

    Why it matters

    Paydirekt faces a tough battle against industry heavyweights like PayPal but the service has the support of German banks and a growing number of retailers in the country.

  • Facts

    Facts

    • Paydirekt has about 800,000 registered users, compared to 16 million for PayPal.
    • The service has signed up about 400 retailers.
    • Some 20 percent of online sales are made through PayPal.
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    Audio

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Verkaufsoffener Sonntag in Berlin
Germans are expected to splurge on Christmas gifts this year and Paydirekt hopes to win a part of their transactions. Robert Schlesinger/DPA

Payment procedures depend on a broad user base. Paydirekt, the online payment service of a group of prominent German savings, private and cooperative banks, is no exception. And that’s why the service provider is urging employees of all member banks to sign up.

If employees don’t use the service, “why should our customers?” said Frank Schwab, the head of the GIZS savings bank subsidiary that provides innovative payment methods to savings banks and is also directly responsible for Paydirekt.

Paydirekt urgently needs more users. With about 800,000 registered private customers, the joint venture lags far behind the market leader, PayPal. The U.S. payment service, which has been active in Germany for several years, has more than 16 million active users.

“Many retailers will not modify their systems this year and integrate Paydirekt, because they are already in the middle of the Christmas business.”

Ernst Stahl, e-commerce analyst with Ibi Research

To compete with PayPal, private banks and credit unions launched Paydirekt more than a year ago. The savings banks, only entered the joint venture this spring.

Paydirekt missed the 2015 Christmas season. And this year’s Christmas business also threatens to largely bypass the joint venture. So far, Paydirekt has signed up only 400 retailers, and it appears unlikely that many large online retailers will sign up in the coming weeks.

Retailers are focused on only one thing now: the Christmas shopping season, according to Jochen Siegert, a board member at payment services provider Traxpay. “They certainly won’t be making any changes to the system at this point, and certainly not to introduce new payment methods,” he said.

Other experts agree. “Many retailers will not modify their systems this year and integrate Paydirekt, because they are already in the middle of the Christmas business,” said Ernst Stahl, an e-commerce expert at Ibi Research, which is part of the University of Regensburg.

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Horst Rüter, an expert on payment transactions at EHI retail institute, doubts Paydirect will be able to reach a relevant market share during the holiday shopping season.

The Christmas business is huge in Germany, as it is in many western countries. Almost 30 percent of online and mail-order sales are made in the last three months of the year, with many happening shortly before Christmas. According to EHI, 29 percent of online sales are paid for with invoices and 20 percent through PayPal, followed by direct debit and credit card sales.

To date, Paydirekt has signed up only one of the 10 top-selling online retailers, electronics retailer Alternate, and seven of the top 50 retailers, including Media Markt und Saturn. But those numbers are poised to grow in the months ahead: 25 larger online shops, among them mail-order pharmacy DocMorris, have announced their intentions to use the service, according to a company spokesperson.

Catching up to the market leaders will be difficult, admits Mr. Stahl. “The market is already saturated, with plenty of payment options everywhere, and PayPal, in particular, has done a good job,” he said.

Add to that rival online payment method Giropay, which is also provided by nearly the same group of retail banks offering Payback. Since its launch in 2006, the service has racked up more than 55 million transactions. A payment is made through Giropay every three seconds, according to the company, which estimates  a user base of more than 10,000 online shops.

“Online retailers want competition, which is why they welcome the launch of Paydirekt.”

Jana Franke, analyst with bevh e-commerce association

Still there are good reasons for Paydirekt to prove successful in the long run, according to Mr. Stahl. “A service offered by German banks makes a lot of sense,” he said. “Acquiring a broad range of retailers is more of a marathon than a sprint.”

Online retailers are also a source of hope. “They want competition, which is why they welcome the launch of Paydirekt,” said Jana Franke of industry association bevh. More competition, she said, can ultimately ensure that online retailers end up paying few fees per sales.

 

Elisabeth Atzler is a banking reporter for Handelsblatt in Frankfurt. To contact the author: atzler@handelsblatt.com

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