Andrea Ramoino, Chief Strategy Officer at Contis
It has long been accepted that if you wanted to find the most exciting developments in digital payments in the EU, you looked North: to the Nordics and Baltic regions. Germany might boast a handful of fintech unicorns, however until very recently, its strengths lay elsewhere.
Germany’s relationship with digital payments has been an odd paradox: the EU’s economic powerhouse, yet still so dependent on cash for everyday transactions. Even in Berlin, if you wanted to pay for your dritte Welle coffee with plastic, it’s likely you would remain un-caffeinated.
But things are changing. A milestone was reached in June last year, according to the Euro Card System Institution, when cards finally overtook cash as the most commonly used payment format in Germany. And in their survey of 350 retailers, approximately two thirds said they had seen an increase in contactless payments – both phenomena undoubtedly driven by responses to the Covid-19 pandemic.
Even more significant is the announcement from Mastercard – the most widely accepted card issuer in Germany – that any bank or merchant on its network will soon be able to integrate crypto services into their products.
While there are already businesses like Contis that enable customers to convert and spend digital assets as fiat currency – backing from an established payment network is a huge step towards Germany using digital assets as an alternative payment method.
And in doing so, they have resurrected the often-forgotten idea that crypto currencies were not intended to be solely an investment vehicle and will one day serve as a spendable alternative to fiat currencies.
For all the investor commentary about the highly volatile nature of crypto, and occasional predictions of an imminent bursting of the bubble, the crypto movement simply isn’t going away anytime soon. The number of cryptocurrency wallet users globally has increased by a factor of more than ten: from 6 million in 2016 to more than 64 million in 2021. Bitcoin itself has seen a compound annual growth rate of 313 percent since 2018.
It might feel cutting edge right now, but crypto is set to become one of many payment norms – and much faster than many businesses might think. By 2027, approximately USD 24 trillion worth of financial assets are expected to be tokenized. That means 10 percent of global GDP will be stored or transacted on distributed ledgers (blockchain and related technologies) – up from about 1.3 percent in 2021.
You can see why: digital assets hold the potential for businesses to reduce transfer fees, improve security, and speed up transaction times. In the long-term, they can build a more competitive offering, give their customers more choice, and open the doorway to new market opportunities.
In Germany, the pandemic has already challenged entrenched behaviours and attitudes – removing some of the cultural barriers to new payment types, including digital assets. That’s not to say the country will transform itself into a crypto utopia overnight. Cultural barriers are not the only hurdles – the country retains strict regulations on the use of crypto, and it will require a banking licence to run a crypto-exchange.
However, it is not unreasonable to expect that the Deutsche Bundesbank will introduce currency-backed stable coins in future, which will give the reassurance needed to prompt a big up-tick in usage, such that spending digital assets as fiat currency becomes mainstream within the next five years. Germany is a sought-after European market with plenty of potential for businesses wishing to expand their e-commerce offering to and within the EU – another accelerant to the adoption of digital assets for day-to-day payments.
Future leaders in the field can see where this market will be in half a decade’s time and are putting in the effort now to stay ahead. The opportunity is there for banks, fintechs, and businesses to capitalise on emerging consumer demand for digital-first payment methods – and to integrate digital assets within their payment networks.
It put up a hard fight – but cash is no longer king in Germany. The tide has turned over the last two years and Mastercard’s recent announcement is simply another step towards making spending digital assets day-to-day a reality. Failure from financial services firms to recognise the subtle (but undeniable) shift happening in this region could leave key players at best on the back foot, or at worst falling behind altogether.
