Online payments Paydirekt, Germany’s answer to Paypal, is treading water

The online payment service has failed to meet expectations but key owners such as Deutsche Bank think it can differentiate itself from US rivals by stressing its commitment to protecting client data.
Quelle: picture alliance / ZB
Cracked but not broken.
(Source: picture alliance / ZB)

German online payments service Paydirekt was launched in 2015 by German banks to rival US giant Paypal but has won just 2.3 million customers with disappointing transaction volumes.

By comparison, Paypal, which is based in San Jose, Calif. and has done business in Germany for 15 years, has 20.5 million active clients in Europe’s biggest economy alone.

A collection of German lenders holding 11 percent of Paydirekt are looking for an exit, unimpressed with its development. Major owners Deutsche Bank and Commerzbank are already considering buying out their partners. A network of municipal savings banks as well as cooperative DZ Bank, which each own a third of the service, remain committed.

Keeping up with the Joneses

“It would be a strategic mistake to withdraw now,” Commerzbank executive Torsten Daenert, head of Paydirekt’s management board, told Handelsblatt. The market for online retailing and hence online payments is enjoying strong growth, he said. “The German banking system needs its own online payments system to stay relevant.”

Paydirekt’s backers want to set the system apart from US firms like Paypal, Amazon, Mastercard and Visa by stressing its commitment to protecting customer data.

Tech giants Google and Apple are also pushing their way into Germany along with China’s Ant Financial and Tencent. Paypal and Amazon have even started providing small loans to retailers.

Bundesbank board member Burkhard Balz called that a “warning sign for the established banking sector.” He called on banks in Germany and across Europe to set up a unified payments system to fend off international tech companies.

 Train tickets, rock concerts

It’s unclear if that will happen. Paydirekt is confined to Germany, meaning it has far fewer potential customers than Paypal. Many of the 10,000 online shops that use it have complained that it’s too costly.

Daenert insisted that progress was being made and that Paydirekt had just won two important new partners: the German railway and ticket company Eventim. But he admitted that a lot of work still needed to be done. “For example, we must get better at explaining Paydirekt’s benefits to retailers.”

He said Paydirekt was being criticized because expectations had been too high when it was launched. “Deutsche Bank got into the market relatively late with such a service. And it was clear that it would take several years until Paydirekt would get established. We fundamentally have a long-term outlook there.”

Elizabeth Atzler and Andreas Kröner cover financial services in Frankfurt. To contact the authors: [email protected] and [email protected]