Shopping online these days, about every fifth payment transaction in Germany is done via the U.S. electronic payment giant PayPal.
It’s a growing dominance that has frustrated Germany’s traditional banking world, which became determined not to stand on the sidelines anymore. Instead, the country’s banks pooled resources and began working together to develop a competitor to the e-payment giant.
But the highly-touted rival, which banks hope will grab a chunk of the online payments business in Europe’s largest economy, is getting off to a slow start.
The launch of the German online payment service PayDirekt was meant to take advantage of the Christmas shopping rush by rolling out in early November. But that is now in doubt, as Handelsblatt has learned a massive segment of German banking customers will be unable to use the service until several months later in spring 2016.
While most private banks are on schedule to introduce Paydirekt, retailers are concerned that the official launch of the service will be missing hundreds of savings and loans banks that are spread across the country.
The state-backed “Sparkassen,” a network of more than 400 community savings banks, together manage some 47 million bank accounts – more than any other banking group in Germany. But it turns out that only a handful of pilot Sparkassen branches are set to make the launch of PayDirekt in early November.
Retailers would have welcomed PayDirekt if it had started after Christmas. Horst Rueter, EHI Research Institute
Germany is already extremely late coming to the online retail payment party. PayPal has been active in Germany for more than 10 years, amassing more than 16 million registered customers.
In 2014 it managed a total of $46 billion, or €41.4 billion, in payment transactions around the world – nearly 70 percent more than in 2013.
The delay creates a quandary for Germany’s remaining banks, including commercial banks such as Deutsche Bank and Commerzbank, as well as the hundreds of smaller cooperative banks that are also participating in the project.
The commercial and cooperative banks still plan to move ahead with the launch of PayDirekt this year.
"There is no change of plan," said a PayDirekt spokesman.
On Monday, the Munich-based HypoVereinsbank, Germany’s third-largest bank, began a test phase for PayDirekt with the furniture dealer D-Living. More financial institutions are expected to come onboard in the next few weeks.
Horst Rüter of the German research institute EHI says it is a mistake, however, to move ahead without the Sparkassen being there at the outset.
"PayDirekt should be a joint project of the German banking industry,” Mr. Rüter said. “So, all the banking institutions should start at the same time.”
The delay from savings banks could also thwart the other banks’ plans to achieve a critical mass before Christmas, an ambitious plan that requires convincing the top 200 German retailers to join the program just before the biggest holiday shopping season of the year.
"The faulty start is an obstacle for some retailers," a spokesman for a large retail consortium said. "Why would anyone use a system that isn’t available to all German customers?"
Retail researcher Mr. Rüter added that the timing was ill-chosen in the first place.
"Retailers would have welcomed PayDirekt if it had started after Christmas," he said. "Christmas is the most important business season and retailers don’t want to suffer from the technical growing pains of an unproven infrastructure.”
The trouble also is that PayDirekt doesn’t necessarily offer much different from its U.S. rival – it differs primarily in its country of origin. Otherwise, the essentials are unchanged: Anyone with a checking account and online banking can set up an account and use it to pay retailers simply by entering their username and password.
The bank then checks whether the customer has enough money in the account, and sends the dealer an immediate payment guarantee. At the same time, PayDirekt provides customers "buyer protection" - money back if the goods don’t arrive.
There is one crucial difference: While PayPal uses an intermediary account, where money is transferred from a consumer’s account via a PayPal account to the retailer’s bank account, PayDirekt transfers funds immediately to the respective accounts.
It’s also hardly the first time that Germany’s banks have failed to challenge PayPal’s online dominance. Another rival called Giropay was launched in 2006, a time when it would have been better placed to challenge the U.S. payments giant as it was still in its infancy.
Giropay is an internet payment system that was developed by the savings banks, the cooperative banks and the retail bank Postbank, but it failed to win the support of the major commercial banks such as Deutsche Bank and Commerzbank.
"Giropay would have been a good market solution," said one major retailer. But instead, it was the commercial banks that initiated an entirely new process with Paydirekt. The cooperative banks and Sparkassen had no choice but to follow suit.
Ironically, the new PayDirekt will initially be available for far fewer customers than Giropay was when it launched in 2006.
The new delay is hardly surprising. While the commercial and cooperative banks have been working toward an online payment service for some time now, the Sparkassen network only decided to participate in April. And now they need to make up a lot of ground.
As a result, the majority of the state-backed public banks will be ready to come on-line only several months after the system’s launch, a spokesman for the savings bank association said. From their point of view, they could actually benefit from the delay.
"The lessons learned are important in order to ensure successful widespread use starting in spring 2016," the spokesperson said.
Still, the delay doesn’t fit into the plans of Georg Fahrenschon, the president of the association of German savings and loans banks. Mr. Fahrenschon had declared the online payment project a core concern for Sparkassen’s future business.
When Mr. Fahrenschon became the association’s president three years ago, he made it clear that his mission was to modernize the community savings bank network. Services needed to keep up with the demands of the Internet, Mr. Fahrenschon said in May 2012.
Some say the delay might be why Ludger Goossen, who was a director of the German Savings Bank Association and responsible for operations strategy, intends to step down in September.
The cynical take: Should PayDirekt perform poorly in the end-of-year retail crunch, Sparkassen’s late arrival might be overlooked.
Laura De La Motte is an editor at the Handelsblatt finance desk and a specialist banking correspondent. Elisabeth Atzler is Handelsblatt's banking correspondent. To contact the authors: [email protected]; [email protected]