One of the most popular payment methods used by Germans seems to begin to totter. While many find this good, others shed tears. Here a short summary and the opinions from the team.
The European Court of Justice has spoken and ruled and many fear the end of the decades-long popular debit, especially retailers see great problems, because if an online shop offers debit as a payment, it applies to all customers – whether inland or abroad. But the credit check becomes extremely expensive. And this makes the procedure unattractive for merchants.
It´s a judgment that makes waves: The European Court of Justice (ECJ) has decided that Deutsche Bahn is not allowed to prohibit customers, which resident outside of Germany, from paying online tickets by debit. Reason for this is a complaint by Austrian consumer protectors.
What may sound unspectacular at first, is a very tough thing to do: in the future, online shops will have to consider carefully whether they will still use this process or not. If the debit payment method is permitted, according to the Luxembourg judges, it is irrelevant from which country the customer orders – and where he keeps his account, “this is a disservice for online trading,” commented the Federal Association for E-Commerce and Mail Order (bevh) on the ruling. The digital magazine t3n even writes in a column: “Goodbye debit, it has been nice with you“. But where does this pessimism come from?
Germans love their debit
For Internet shops, the court ruling leaves only two options: Either they make the debit procedure available to all EU customers – or they do without it altogether. The procedure is particularly popular in Germany: with a turnover share of almost 20 percent, it is the third most popular payment method for online purchases, according to market researchers at the EHI Retail Institute.
The debit procedure involves a certain amount of risk for the merchant. If there are insufficient funds in the account, the money is booked back. And the customer can object to the booking at his bank without giving reasons. The result: the merchant remains with the bill. In order to prevent payment defaults, most providers therefore check the creditworthiness of their customers in advance – for example via Schufa. Abroad, however, it is expensive and sometimes difficult to obtain relevant customer information. Schufa, for example, only offers such information in ten out of 28 EU countries.
Even if the trade is critical – consumer protectors welcomed the ECJ ruling and the decision is probably not particularly surprising. European law is clear and prohibits discrimination based on the place of residence. Especially for consumers living close to borders, the court may have made an important decision and the ECJ has thus confirmed that one no longer has to maintain two accounts just because he works in one country and lives in another.
What does the team say about the verdict? Are you crying after the proceedings or do you think that important steps for the future are being taken?
From a German point of view this is of course funny if debit suddenly would disappear from shops. But I’m not sure how big the problem really is, because the payment industry always finds solutions very quickly. From a European perspective, I think it’s good and consistent. These examples exactly show how we continue to think nationally. We should, however, stop this, which also means harmonizing ourselves in infrastructure areas. Payment is an infrastructure and should be thought of and then made uniformly in Europe. Only then will we really have the chance of a single internal market.
Online debit will continue to exist in the future
The ruling of the European Court of Justice (ECJ) last week that the use of SEPA debits may not be made dependent on the customer’s place of residence has attracted a lot of attention in some circles. Many questions remain unanswered. I can only speak from the point of view of our own business as a payment service provider. The debit is available for everyone. It was before and will continue to do so in the future.
” The debit is available for everyone. It was before and will continue to do so in the future.”
I also found it notable how for example the ECJ is detaining goods until the debit has been received. How should this work in practice? Orders in e-commerce can thus be delayed for several days or weeks. I imagine this to be particularly difficult in ticketing. Online tickets are usually available immediately. Waiting for the incoming payment is certainly not in the consumer’s interest here. I don’t think the process was thought through till the end, and also what this actually means for e-commerce.
I would like to add a third point on the subject risk assessment: Yes, there are differences in the individual countries. But this applies to all types of payment, not just debits. The difference can be found in risk management. In the case of so-called “unsafe payment methods”, such as purchase on account and payment by instalments, the merchant pays in advance. This also applies to debits, where the buyer can return the debit within 8 weeks without giving any reasons. So, the core of the business of a payment service provider is therefore intelligent risk management.
How does the risk assessment work for a payment service provider? Of course, the address is also checked. Just like dozens of other data points. All this data is used in combination for risk assessment in order to combat fraud, i.e. to discover fraud patterns and to avoid payment default.
An example: A buyer resident in Germany orders something with a computer from the UK and has it delivered to Italy. Fraud or is everything legal? They have to estimate intelligent rules and algorithms. So that an address never leads to rejection on its own.
Now, of course, comes the big lamentation. We have a successful German model, later a successful European one thanks to SEPA, and then it is being destroyed. But is that really the case? Thanks to the EU, we no longer have any customs duties, border controls or roaming charges within Europe. But why still have an IBAN discrimination or national discrimination with debit? From a European point of view, the ruling makes a lot of sense.
As a German who lived in Luxembourg and didn’t move his bank accounts to Luxembourg, I can tell many stories about how financial services are still primarily national and not European in the 2010s. Will the online shops now stop debiting? I bet not! Debit will get a boost. Payment service providers will adapt their risk models and will integrate other European countries. I think the ruling will strengthen debits instead of being the end for them!
Storm in a glass of water – the debit remains as long as the cash will. I believe there is a problem generated here that doesn´t even exist and even if it dies, there are already solutions for it. It’s better to keep a little more “out of the market” than to regulate. The debit offers some advantages that the market needs, especially now that some of these have been “taken away” from the other payment methods. Keyword: Recurring Payments. And there are enough customers and use cases that need this. I rather ask myself – why not use debit and its properties as the basis for a European scheme?
Germany is a bit like Gaul in payment transactions. Only this time the Romans, thus the EuGH, monkey wrench in the works and gave the debit the death blow. Since there are not few alternatives, the pain might be limited. What this story nevertheless beautifully shows is that the debit is a relic from a pre-ecommerce era and has fallen out of time. It simply doesn’t fit into e-commerce anymore, especially for the retailer. Withdrawing a debit for 8 weeks almost calls for abuse. Bye debit. It was a pleasure, but now you have to go.