The state of open banking in: Germany

Summary

Germany’s payments landscape is dynamic, with many methods (old and new) co-existing.  While the landscape is shifting rapidly in favour of digital payment methods, paper-based methods still make-up around 30% of its payments ecosystem (Prime Time for Real Time report, 2024). Despite this, instant payments are predicted to be the breakout trend in the German payments market over the next five years.

• 1.5 billion real-time transactions were made in 2023 (Prime Time for Real Time report, 2024)
• Instant payments are expected to achieve an annual growth rate (CAGR) of 17.1% from 2023 to 2028 (Statista, 2024)
• Real-time payments volume in Germany is predicted to hit 3.4 billion transactions per day in 2026 (PYMNTS, 2023)

How does Germany like to pay?

Traditionally, Germany has been a cash-dominant country. Even in 2017, cash payments accounted for most shopping transactions (J.P. Morgan Global Payment Trends report, 2024). However, this trend is changing rapidly. A recent study by the Deutsche Bundesbank shows that the share of cash payments has been steadily declining (Deutsche Bundesbank, 2023). In 2023, cash accounted for only 51% of payments, compared to 58% in 2021. 

The rise of digital payments can be attributed to several factors, including the growing popularity of eCommerce, the increasing penetration of smartphones, and the convenience of contactless payments. Debit cards, particularly Girocards, are becoming increasingly popular for in-store transactions. Girocards, a brand of German debit cards with contactless functionality, had a 75% share of the German card market in 2022, compared to 13% and 11% for Mastercard and Visa, respectively (Statista, 2024). Mobile wallets like Payback Pay, Google Pay and PayPal, as well as Buy Now Pay Later (BNPL) options, like Klarna, are also gaining traction, especially for online payments. 

Online payment method, SOFORT (rebranded by Klarna to ‘Pay now’ in 2017), which translates as “instant” in English, is among the leading payment methods in Germany. Acting as an intermediary, it securely allows consumers to connect their bank directly to online checkouts using 2 Factor Authentication (2FA), and as the name suggests, funds settle immediately. This has proved particularly useful to German eCommerce retailers who use the method to release goods as soon as payment has cleared, without delay. 

Payment trends

The German payments market is expected to continue growing steadily in the coming years. The move away from cash is likely to accelerate, driven by factors such as:

• eCommerce growth: The eCommerce sector in Germany is booming, and this is driving the adoption of digital payment methods. As more and more shopping happens online, consumers need convenient and secure ways to pay.‍
• Account-to-account payments adoption: As Germany shifts towards a more digital banking system, account-to-account (A2A) payment methods are becoming increasingly available to consumers. In July 2024, the European Payments Initiative (EPI) launched a mobile wallet solution called Wero in Germany (specifically with German banks Sparkassen and Volksbanken Raiffeisenbanken). Wero allows instant A2A transfers between individuals in Germany and France, demonstrating its potential as a pan-European solution for instant money transfers, aiming to eliminate the need for IBANs and simplify sending and receiving money across borders.

Open banking in Germany

Open banking in Germany has undergone a remarkable transformation in recent years. Once a hesitant participant, Germany has emerged as a European leader in open banking adoption. 

In 2017, when Germany adopted instant payments scheme SCT Inst, banks were apprehensive about the potential disruption to the status quo, and API connectivity was patchy at best. 

However, there has been a significant shift in recent years. The implementation of the EU payment services directive, PSD2, in 2018 provided a regulatory framework for open banking in the country. Additionally, the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG) incorporates these regulations, mandating them by law to ensure a level playing field for all participants, such as Third Party Providers (TPPs) like Yaspa, in the open banking ecosystem. 

Likewise, the pan-European industry initiative, The Berlin Group, exists to mobilise the ZAG act, developing standards and best practices for the implementation of open banking through their NextGenPSD2 API standard (the programming interface used by developers in open banking to securely access account holder information and to initiate transactions).

This newfound optimism spurred a wave of investment in open banking infrastructure. Banks began to actively collaborate with TPPs and the quality and reach of APIs improved significantly. In 2023, instant payments accounted for a 3.5% share of total payments volume in Germany, a trend that estimates an annual growth rate (CAGR) of 17.1% over the next 5 years (Prime Time for Real Time report, 2024). New legislation announced by the European Parliament in February 2024 - which mandates that all transactions within the Eurozone take less than 10 seconds - will undoubtedly also fuel adoption.

‍Total number of real-time (instant) payments in Germany in 2023, with a forecast for 2028

Challenges to open banking in Germany

Despite the progress made, there are still some challenges that need to be addressed to foster a truly thriving open banking environment in Germany. For example: 

Vast network of banks and branches

Over 1,200 banks and financial institutions exist in Germany, underpinned by an extensive network of branches throughout the country’s towns and cities (estimated to be over 22,000 by Deutsche Bundesbank in 2022). Because open banking payments connect all banks to a single payment flow, giving the user more choice, many of these bank branches need to be represented during a transaction, resulting in thousands to pick from. 

To tackle this, Yaspa has tailored its user experience (UX) design for a smooth experience. By adapting our German payment flow to include search functionality and a list-style layout, we’ve made it easy for users to pinpoint their branch quickly during the payment process, reducing friction and saving time. Second-time Yaspa users skip this stage with our handy ‘remember bank’ feature. 

The picture below is an example of this modified journey.  

Manual IBAN entry 

In Germany, International Bank Account Numbers (IBANs) are the preferred method for identifying bank accounts for both domestic and international payments; many banks prefer users to enter this number manually when completing a transaction. This presents a challenge to third parties providing payments through open banking as it stops people from using the technology to easily connect their account and populate their IBAN details, adding friction to a payment. 

Additionally, in Germany manual IBAN entry is the norm, so even when it isn’t required, users who are unfamiliar with open banking and wary of using it to connect their account, may still prefer a manual method.

Yaspa has tackled this challenge by introducing a manual IBAN feature to our payout journey alongside the option to connect through open banking to give users flexibility and a say in how their data is used. Manual IBAN entry can also be used by customers who want to receive a payment into a different account to that which they may have already connected. You can read about our IBAN feature in more detail here.   

Data sharing and trust concerns

Germany leads in the registration of instant payments scheme SCT Inst , and boasts an infrastructure ideal for open banking services, yet consumer adoption lags. Concerns around data privacy are high among German consumers, with one study by Mastercard suggesting 82% were worried about sharing financial information with non-banks (Open Banking in Germany whitepaper, 2021). 

Similar to the challenges covered in our blog on open banking in the UK, educating consumers on the security of open banking is key to its success. This includes the fact that access to bank account data is always consent-driven and may be withdrawn at any time by the consumer via their bank. And while the mandate announced by the European Parliament in February 2024 prioritises instant payments, it also mandates stricter fraud detection and prevention measures from payment service providers (PSPs). Non-compliance will be met with penalties, fostering a culture of security and transparency in open banking. 

Integrating open banking into your business

The future of open banking in Germany shows great potential. Homegrown initiatives like The Berlin Group's standardisation efforts are propelling the country to the forefront of the European open banking revolution. This position is poised for further solidification with the arrival of PSD3 and the instant payments mandate. These regulations prioritise consumer protection and incentivise TPPs to develop innovative solutions that cater directly to these requirements.

Yaspa is at the cutting edge of open banking solutions. Thanks to our laser focus on UX and deep understanding of open banking infrastructure in Germany, we’ve seen local conversion rates skyrocket. We offer a wide range of services including:

• Account verification 
• Account-to-account payments in the UK and Europe
• vIBANs
• And more

If you’re interested in learning more about what Yaspa can do for your business, do get in touch. We would love to hear from you.