Cashless payments are seeing a steady rise in popularity, but the majority of German consumers still hold on to their cash.
Launching an e-commerce store can be daunting on its own, but launching one in Germany can be particularly challenging considering the tight relationship German consumers have with cash. The usage of cash money has been steadily declining since 2007, where cash payments represented 83 percent of transactions at point of sale.
This number fell below 70 percent a decade later, dropping to 68.5 percent and over the course of 2021, it fell to 56.7 percent. Nonetheless, cash remains immensely popular in Germany. What is behind this obsession with cash in the industrial powerhouse that is Germany?
German consumers love cash
In October 2018, Deutsche Welle (DW) made a special report about the dominant position of cash in German society. Retail outlets have been adapting to cashless payment, but many shops still accept cash only. One bicycle shop owner in the German capital of Berlin only accepts cash, his reasoning being that cash is warm and it works for him.
If customers don’t have cash on hand, they can go to their nearest ATM and return, he argued. This sentiment is felt across German society. DW cites figures from a November 2017 survey conducted by European Central Bank (ECB) which found that Germans carry €103 ($112.2) on average in their wallets, which is above the European average, DW noted.
The preference for cash runs deep, with Zhang Danhong arguing that for Germans, cash meant freedom, in the same way we consider cars to give freedom. Back in 2016, Danhong cited several reasons as to why Germans held on so firmly to cash after proposals from legislators to limit cash payments to 5,000 euros.
Danhong noted that Germans have experienced a severe devaluation of their currency twice during the past century. How that makes the argument stronger against cashless payments is left unanswered, but we might be able to trace it to the intangible nature of card payments. Additionally, she argues that development in digital payments through online shopping has been slow in the country.
There are subtle ways for governments to incentivize the usage of cashless options, Danhong commented, as mentioned earlier, pointing toward setting a limit to cash payments, which could serve as the first step in promoting cashless payments. Another option would be for banks to impose negative interest rates, cited as a recommendation made by American economist, Kenneth Rogoff. Despite these observations, several years down the line, not much had changed.
Cash remains popular among German consumers
In July 2022, the Deutsche Bundesbank published its Payment behavior report, analyzing payments preferences in Germany over 2021. The Bundesbank found that cash payments remained the preferred option in the country. Whilst cashless payments have seen accelerated adoption over the course of the pandemic, 58 percent of respondents in the survey set out by the Bundesbank, preferred paying for goods and services with cash.
Executive Board member at the Bundesbank, Johannes Beermann, commented on the findings that despite digitalization and the pandemic, cash remained deeply rooted among Germany consumers. The survey revealed a variety of reasons as to why cash remained so popular. Respondents commented that cash was a reliable payment method and allowed for an easy overview of expenditure.
Several years after the report from Deutsche Welle, Germans still carried an average of €100 in their wallets. Of the respondents, 69 percent indicated they would keep paying with cash for the time being. A minority (40 percent) preferred card payments or other cashless payments. These respondents used cashless payments at point of sale, rectrional activities or online purchases.
When card payments were made, the debit card was the second most frequently used payment method, representing 23 percent of all transactions and 30 percent of turnover. Their usage increased over the course of the pandemic as consumers completed smaller transactions with their debit cards. Credit cards still represented the minority, only represting 6 percent of all recorded transactions. Nonetheless, this card saw a higher adoption, the Bundesbank found.
Safeguarding privacy
Furthermore, through cash, Germans believe they can maintain a certain level of privacy. This isn’t surprising considering the current stance on online privacy and data protection on the internet among the German population. While faith in only safety has grown in recent years, Germans remain skeptical.
In 2014, only 13 percent of Germans believed their personal information was safe with organizations and companies who collected it.The overwhelming majority felt their data wasn’t safe, representing 86 percent respectively. The attitude towards data protection improved drastically after the introduction of the GDPR in 2018.
Six years later, in 2020, the amount of Germans who believed their data was safely stored increased to 29 percent. The group that believed their personal data wasn’t properly managed decreased to 68 percent. Whether the GDPR indeed safeguards data is a topic for another debate, but it shows that tighter data protection legislation can help shift attitudes for the better, instilling confidence with internet users.
However, the need for privacy remains deeply rooted among German citizens. In an August 2023 article, columnist at Foreign Policy, Anchal Vohra, traced back the strong attitudes toward privacy and distrust of corporations such as banks to a need for control among Germans, reinforcing the belief that cash is essential to maintain a semblance of privacy from eavesdroppers.
Vohra cites a friend group consisting of middle-aged men and women who said that “only cash is true”, a popular saying in Germany she adds. One of the group members, Arnold, explains that having cash allows him to remain in control of his expenses. A finding also highlighted by the survey conducted by the Bundesbank. Harald, from the same friend group, added that banks would know everything about him when using a card. This fueled a sense of permanent surveillance.
Cash means stability
Professor at Cologne University of Applied Sciences, Agnieszka Gehringer, explained to Foreign Policy that the faith in cash is deeply embedded in German culture, serving as a symbol for safety. Germans are familiar with the payment method, tangible in terms of data protection. These factors fuel reluctance toward switching to cashless payments, Gehringer adds.
The tight grip on cash, paradoxically, stems from the massive cash devaluation that Germans experienced during the Weimar Republic in 1923 and after the second world war, where the German Mark lost about 90 percent of its value, wiping out many households’ savings practically overnight. Gehringer adds this devaluation of the Mark resulted in a stark divide between the wealthier western part of Germany and its impoverished Soviet neighbor in the east.
By holding on to cash, Germans get a sense of control and stability and fear of losing it as many have experienced in the previous century. This translates into maintaining control over expenses. Head of the money and credit department at University of Rostock, Germany, Doris Neuberger commented that Germans are also highly risk averse, afraid of accumulating debts. The word debt itself is derived from guilt, hence infusing credit with moral judgment. This also explains why credit cards are such a rarity in the country.
Vohra notes that the elderly find themselves at a crossroads. As every interaction becomes more digital, they hold on to cash for familiarity, being uncomfortable with using smartphones. Later in this piece, this will be exemplified by findings from the European Union, which revealed that Germans have poor digital proficiency and a greater digital divide.
German consumers distrust banks
The preference for cash rides along a distrust towards banks, a running theme among Germans since the financial meltdown of 2008, running well into 2010. In July 2008, a poll released by France24 in cooperation with Harris Interactive found high levels of distrust toward banking and financial systems in Europe’s five largest countries. While Germany wasn’t leading the pack, having a large subsection of citizens distrust their financial institutions only exacerbated the position of cash.
The poll found that 49 percent of Germans were against money being invested into banks, ahead of France where 48 percent displayed distrust. The Germans and the French also displayed a high level of foresight as they were most convinced the financial systems would collapse, with the majority of respondents predicting a meltdown in the next five years.
Their predictions weren’t far off as only a few months later the fall of Lehman Brothers would mark the financial crash that would cripple economies around the world. Several years later, in May 2013, the number of Germans having faith in their financial institutions fell further, a Gallup poll showed. Only 38 percent of Germans had confidence in their financial institutions. This put Germany well below its neighbors, the Netherlands, Austria and Poland, where 43 percent, 47 percent and 50 percent of respondents displayed confidence in their financial systems respectively.
Digital divide in Germany
The reluctance to switch from cash to cashless payments is framed from a position of trust and control, but the real reasons might be coming less from a position of distrust, but rather from insecurity. This became especially apparent during the COVID-pandemic, which allowed certain cohorts to thrive, whilst others fell behind. The occurrence of a digital divide isn’t unique to Germany and can also be observed in countries like Australia, where communities struggle to become part of an ever more digitally integrated society.
In November 2021, the independent foundation The Bertelsmann Stiftung explored how the COVID-pandemic accelerated the digital divide in Germany. In its “Digital Sovereignty 2021: Starting Off into a Digital Post-Covid World?-report”, researchers found that Germans in general became more accepting of digital technologies and their ability to use them compared to 2019. However, this didn’t mean all cohorts in Germany embraced digital technologies alike.
The report showed that those aged between 14 and 29, said that the usage of the internet had become more important compared to before the pandemic. This feeling was reinforced as this cohort became more dependent on internet connectivity to access their educational materials, with lessons moving online more frequently. Unfortunately, those without the necessary skills to gain access to educational materials, were pushed further away.
Older cohorts, aged between 30 and into their 50s saw similar dependency on digital connectivity. Those 60 years and older saw less need for internet connectivity. The revelations are obvious, however The Bertelsmann Stiftung comments that it’s across these older cohorts that improving digital literacy could provide the most overall life improvement, helping them to maintain social contacts and boost self-esteem.
This lack of willingness to embrace, or explore, digital solutions, leads to elderly becoming more disconnected during a stage of life where having a strong support network is crucial. Director at Bertelsmann Stiftung Dr. Kirsten Witte, said that the pandemic showed how difficult it is to participate in society without the appropriate digital skills. Hence, programs are necessary to promote digital literacy across different age groups, which unfortunately are lacking in the country.
Poor digital skills in Germany
Compared to other EU member-states, citizens of Germany, together with Bulgaria, Italy, Romania, among others, fall below the EU average in terms of individuals with basic or above basic overall digital skills. A 2021 EU Digital Literary report, showed that only 40.08 percent of German individuals had basic overall digital skills.
Only 18.84 percent of German individuals had above basic overall digital skills, with 48.92 percent of individuals having basic or above basic digital skills. In order to understand how far behind Germany’s population is in terms of digital literacy, we can look at its much smaller neighbor the Netherlands, which is one Europe’s outliers in terms of digital connectivity and front-runners of digital payments.
In the Netherlands 27.18 percent of individuals had basic overall digital skills. This might look low on the surface, but Dutch individuals outperformed their German counterparts in terms of digital proficiency. Individuals with above basic digital skills represented 51.77 percent of individuals. An impressive 78.94 percent of Dutch individuals were found to have basic or above basic overall digital skills.
Lacking digital education
The lack of digital literacy among Germans can be traced back to the poor education it provides in this field in its school curriculum. A representative survey conducted by market and opinion research institute Civey on behalf of the eco Association, among 2,513 Germans, found that 88.1 percent of Germans would like to see better digital education in schools. However, the August 2023 survey revealed that many remained skeptical that meaningful programs would be introduced to curb this trend.
The lack of digital literacy could be found across all sections of the school system. A worrying 58.1 percent of respondents noted that the teachers themselves lacked the adequate digital skills. 50 percent pointed toward outdated hardware and 37.8 percent even went as far as to make computer science a compulsory subject.
Managing Director at eco, Alexander Rabe, commented on the findings that Germany couldn’t afford to rely on luck and chance, hoping that individual teachers and schools assessed whether digital programs are required within their schools. Adding that many schools across the country lack the necessary infrastructure, such as WiFi and broadband internet access to deliver proper digital education.
Economic intervention
The high prevalence of cash poses a less obvious risk, namely the inability for policymakers to intervene and course correct the economy. In a 2022 report from the Office of Technology Assessment at the German Bundestag (TAB), also referenced by Foreign Policy, found that high cash holdings reduce the ability for central banks to introduce monetary policies. The TAB acknowledges the positive effect of cash itself, as it allows for economic inclusion and safeguards consumers from negative interest rates.
The TAB also addresses safety concerns related to data protection, a sentiment found to be of grave importance to German consumers. The TAB notes that the level of security and data protection and non-cash payment solution providers isn’t distributed equally, with credit card providers scoring particularly bad in these areas.
Internet payment providers fare even worse than card providers, especially with more data being collected than the payment itself. One might argue that purchase behavior itself can already reveal a lot when pooled across cohorts that display the same partners, but that topic isn’t further touched upon in the key findings within the TAB report.
Data protection ambivalence is reinforced by Big Tech companies who are trying to introduce their own payment solutions. Google and Apple, large US technology companies have been pushing for a wide adoption of their payment methods, seeing high interest among consumers.
Cash is expensive
The usage of cash brings costs along with it, which trickles down to German consumers. Back in 2013, a study led by professor Jens Kleine at the Research Center for Financial Services at Steinbeis, found that the usage of cash costs each German about €150 ($113) a year. It must be said that the research was sponsored by Mastercard, who has a strong incentive to promote card usage. Nonetheless, the report revealed the lesser known factors that make the usage of cash an expensive ordeal in and of itself.
The report revealed that maintaining the circulation of cash cost an upward of $12.5 billion ($13.51 billion) per year. These costs were divided across many different areas that are necessary to move the flow of cash, ranging from manufacturing, transportation, insurance to handling fees. Kleine found that merchants carried the largest financial burden, taking on €6.7 billion ($7.24) in costs.
This was followed by banks who spent €4.5 billion ($4.86 billion) to process cash and consumers themselves, accounting for €1.3 billion ($1.4 billion). In the grand scheme of the German economy, these costs are minor. However, they show that reducing the amount of cash within the system could contribute to not only better regulation of the economy, but also reduce costs for everyday Germans.
Cultural significance
Germans aren’t alone in their preference for cash payments. On the other side of the globe, their Japanese counterparts are as reluctant to move to cashless payments, albeit for a host of other reasons. The love of cash among German consumers knows many reasons and origins. Citizens experienced multiple devaluations of their currency and the financial meltdown during the 2010s fueled further reluctance toward cashless payments. Cash is stable and tangible. A sentiment mostly witnessed among the elderly population.
While younger generations might be tech-savvier than their older counterparts, the German school system is falling severely behind when it comes down to digital education, with some schools even lacking broadband internet. This will translate into hampered adoption of digital payments for years to come. For the average consumer, the remaining prevalence of cash won’t come with many downsides. But for ecommerce companies who are trying to carve out a business in this European country, might find themselves confused and unmotivated.
Digital players who want to enter or expand their presence in the German market will have to overcome these odds, with some of them even opting to skip or leave the market altogether, as the funds required to get consumers onboard will be astronomical. Only the largest of corporations might be able to nudge a large enough audience to turn a profit, whilst many will struggle in this conservative cash based market.
However, even those lined with deep pockets will run against a wall when trying to capture market share. Online banking penetration in Germany is one of the lowest among European member states. In February 2023, penetration of online banking in Germany only reached 57.22 percent, just above Greece and Italy with an internet banking adoption of 52.01 percent and 51.55 percent respectively. This doesn’t exclude that the German market will not mature.
The amount of internet users in Germany has been increasing. In the year 2000, 18.3 million Germans accessed the internet. A decade later this number had increased to 49 million. Mobile internet is also reaching a majority of Germans. In 2015, 54 percent of Germans accessed the internet through their mobile devices. This number increased to 80 percent in 2020 and soared to 85 percent in 2023. The route to meaningful mobile banking is still years away when placed against internet banking adoption, but the early signs of a shifting digital landscape are there.
