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December 19th 2024

Payment Methods: An Overview of the Most Important Methods

By: Nexi | 12 min read

Payment Methods: An Overview of the Most Important Methods

For several years now, it has been clear that cash as the sole means of payment is a thing of the past. Card payments in retail and gastronomy are widespread, and there are numerous payment methods for online shopping. This guide provides an overview of the most important payment methods in Germany and internationally, highlighting their advantages and disadvantages. This way, you can find the right payment method for your business or purchase.

The Most Important Payment Methods Summarized:

  • In physical retail, four payment methods dominate: cash, debit cards, credit cards, and mobile payments. 
  • More than half of all transactions (51%) are still made in cash, although the use of cash is generally declining. Debit cards are now the most commonly used cashless payment method, followed by transfers and direct debits (20%) and credit cards (10%). 
  • Online, credit cards, purchase on account, and e-wallets like PayPal are particularly popular. 
  • Purchase on account is considered the safest payment method for customers.
  • Retailers should offer a wide range of payment methods depending on customer preferences, transaction costs, and the risk of payment defaults.
 
Anonymes Payments: What Options Are There?

How can I pay anonymously today? There are various methods that are more or less suitable depending on the application and personal preference. The most common options are:

  • Cash
  • Prepaid cards
  • Cryptocurrency
  • Gift cards
Payment Methods in Physical Retail

Payment methods have changed significantly in recent years. In addition to the most commonly used payment methods – cash, debit and credit cards, and mobile payments – there are many other payment methods suitable for physical retail. The most common payment options in stores in Germany include:

  • Cash
  • Debit cards (often known as Girocard)
  • Credit cards
  • Mobile payments
  • Prepaid and gift cards

 

Cash Payments

Despite the rise of digital payment options, cash remains a dominant payment method in Germany, especially in retail, although its share is steadily declining. According to the Deutsche Bundesbank, 58% of Germans regularly paid in cash in 2021. Cash is particularly preferred for smaller amounts up to 50 euros. A significant advantage of cash is its immediate availability and the absence of transaction fees for retailers. At the same time, the trend towards a cashless society means that more and more stores are accepting even small amounts via card payment.

Debit Card Payments

In Germany, the debit card, known as Girocard (formerly EC card), is the most commonly used cashless payment method. The most commonly used debit card is the Girocard, which is issued in connection with the German Giro account. With around 100 million cards issued, the Girocard is the most popular cashless payment method. It allows both contactless payments and transactions via magnetic stripe or chip. In 2023, around 42% of payments in German retail were made using Girocards. Companies need a card reader and must work with a payment service provider. 

The most popular debit cards in Germany are: 

  • Girocard
  • VPay
  • Visa Debit
  • Mastercard Debit

 

Credit Card Payments  

Internationally, credit cards like Visa, Mastercard, and American Express are particularly popular for online purchases and use abroad, but they are also regularly used in physical retail. A credit card works by the credit card company initially covering the amount, and the cardholder repaying the sum at a later date, usually monthly. This delay can be advantageous for consumers but poses a risk of chargebacks for retailers. In 2023, the share of credit card payments in physical retail was 8.6%.

Common credit cards include:

  • Mastercard
  • VISA
  • American Express
 
Mobile Payments
NFC technology (Near Field Communication) already enables contactless payments – thanks to it, mobile payment solutions are also on the rise. Solutions like Apple Pay, Google Pay, or Garmin Pay allow consumers to pay directly with their smartphone or smartwatch by storing their cards in so-called e-wallets. This method is mainly used by younger, tech-savvy consumers in Germany. Mobile payments are particularly practical in everyday life as they can be made contactlessly and quickly. Mobile payments are especially popular for smaller payments in retail or gastronomy. The share of contactless payments has increased significantly in recent years, driven by the pandemic, which made contactless payments more attractive.
Prepaid and Gift Cards
Prepaid and gift cards offer consumers a simple and flexible way to pay for purchases in physical retail. This payment method works by loading a predetermined amount onto the card or purchasing a set amount as credit. In physical retail, these cards are mainly used for smaller amounts or as gift options. For retailers, prepaid and gift cards offer the advantage of immediate revenue, as the amount is paid when the card is purchased. At the same time, companies benefit from the possibility of stronger customer retention through remaining balances or unused amounts.

 

Payment Methods in Online Retail

Online, there are numerous payment options. For online shop operators, it is crucial to offer various methods to avoid purchase cancellations. If an online retailer offers only limited payment methods, customers who do not find their preferred payment method may abandon the purchase process.

The most popular online payment methods in Germany (2023) are:

  • PayPal (27,7%)
  • Purchase on account (26,7 %)
  • Direct debit or bank transfer (16,7 %)
  • Credit card (11,4 %)
  • Transfer or prepayment (4,8 %)
  • Installment purchase (3,9 %)
  • Instant transfer (1,3%)
  • Others (6,2 %)

 

Paypal und E-Wallets

An e-wallet, also known as a digital wallet, allows users to store their balance on a digital platform and conduct online transactions. Compared to credit or debit cards, the advantage is that bank details only need to be provided once during the e-wallet registration, not for each transaction or online shop. Additionally, the payment process is particularly convenient as only authentication via password, fingerprint, or facial recognition is required, without having to enter bank details each time.

There are many e-wallets, including:

  • PayPal: The most widely used e-wallet in Germany and widely used in online shops worldwide.
  • Google Pay: Allows the storage of credit or debit cards and offers the possibility to make payments both online and contactlessly on-site via smartphone. It can also be linked to PayPal.
  • Apple Pay: Similar to Google Pay, it allows the storage of a card and easy payment online or on-site via iPhone or Apple Watch.
  • Alipay: The most widely used payment service from China, with over a billion users.
  • WeChat Pay: Another Chinese payment service considered the main competitor of Alipay.

 

Prepaid and Gift Cards

Prepaid cards are a popular payment method in Germany as they allow users to load credit in advance and then spend it flexibly without having to provide bank or credit card details. This type of payment is often used for specific purposes, such as with mobile operators offering prepaid cards for call minutes and data volume, or with streaming services and online platforms. Prepaid cards offer more control over spending as only the loaded credit can be used, minimizing the risk of debt. They are also popular with security-conscious consumers due to their anonymous use.

Gift cards are another form of prepaid payment method, particularly widespread in the retail and e-commerce sectors. They offer a simple way to give a set amount of credit that the recipient can redeem at a specific store or online provider. Many large retailers and platforms like Amazon, MediaMarkt, or iTunes offer gift cards. These cards are flexible and provide a practical alternative to cash gifts while ensuring that the credit is used only for the intended purpose. Gift cards are particularly popular during the Christmas season and for special occasions.

Cryptocurrencies

Cryptocurrencies are digital or virtual currencies that use cryptographic techniques to secure transactions and control the creation of new units. Unlike traditional currencies, they are not issued or controlled by a central bank but are based on decentralized technologies like blockchain. This technology allows transactions to be processed transparently, immutably, and without intermediaries.

In Germany, cryptocurrencies, especially Bitcoin, have gained increasing importance. Ethereum, Ripple, and other altcoins (alternative coins) are also widely used. Cryptocurrencies are mainly used in the context of investments and speculation, but they are also slowly gaining acceptance as a payment method. Some companies already offer the possibility to pay for products and services with cryptocurrencies, especially in e-commerce. However, the acceptance of cryptocurrencies as a payment method in Germany is still low. According to a 2022 Statista study, only about 2% of Germans regularly paid with cryptocurrencies. The main reason for this is the high volatility of exchange rates, which makes cryptocurrencies more of a speculative investment product than a stable means of payment.

 
Selling Securely: The Best Payment Methods for Retailers

For sellers, security and payment guarantees are crucial. The biggest risk is payment default – that is, customers not paying for a delivered product or service. But the refund or chargeback of payments on the customer side can also have unpleasant consequences for online shops. Here are the three safest payment methods:

  • Prepayment: With prepayment, the seller receives the money before the goods are shipped, eliminating any risk of payment defaults. It is the safest method for sellers but requires a lot of trust on the customer side.
  • Instant transfer: With instant transfer, the seller receives immediate payment confirmation, and the money is immediately debited from the buyer's account. This method offers high security as no chargebacks are possible.
 
  • PayPal: PayPal offers sellers protection against payment defaults through their seller protection. The money is quickly transferred, and the customers' payment data is secure, increasing trust and security for both sides.

 

Credit and debit cards are also generally safe payment methods for sellers. However, customers can charge back the payment via chargeback. Some payment services, such as PayPal and "Buy Now, Pay Later" providers like Ratepay or Klarna, offer sellers a payment guarantee, which also ensures security.

 
Safe and Suitable: The Best Payment Methods for Buyers

When shopping online and in physical retail, it is important for customers to choose a secure payment method to avoid fraud and misuse. The biggest risk for consumers is not receiving what they paid for. Another risk is the misuse of bank data. Therefore, the safest payment methods are:

  • Purchase on account: Purchase on account is considered particularly safe as the buyer pays only after receiving and inspecting the goods. No sensitive bank data is shared in advance, minimizing the risk of misuse.
  • PayPal: PayPal offers a high level of security through its encryption technologies and integrated buyer protection. If a problem occurs, such as non-delivery or incorrect goods, PayPal refunds the purchase amount.

 

The safest payment method for buyers is purchase on account. They pay only after receiving the product and do not have to give their bank data to third parties. Similarly, payment on delivery is also safe.

 
Which Payment Method(s) Should I Choose for My Business?

Choosing the right payment methods for your business depends on various factors. It is important to consider the needs of your customers and the requirements of your business. Here are some considerations to help you decide: 

Know Your Customers´Needs

Different customer and age groups prefer different payment methods. Older customers, for example, often prefer to pay with cash or on account, while younger generations prefer mobile payment services or PayPal. The better you know your customers and target group, the more targeted you can align your payment options.

Online or Physical Retail

If you run an online shop, it is particularly important to offer common online payment methods such as credit card, PayPal, instant transfer, and purchase on account. In physical retail, debit cards (Girocard), mobile payments, and cash are of great importance. It is also worth supporting contactless payment methods as they are becoming increasingly popular.

Security and Trust

Secure payment methods strengthen customer trust. Purchase on account offers the greatest security for consumers as they pay only after receiving the goods. PayPal, instant transfer, and direct debit also offer high security standards and guarantee quick and easy transactions.

Transaction Costs

Another important factor is the transaction costs associated with the respective payment methods. Credit cards and PayPal often have higher fees than, for example, Girocard or direct debit. Consider which payment methods fit your pricing structure and how much you are willing to invest in the convenience and security of your customers.

Integration of Payment Service Providers

Payment service providers like Klarna or PayPal offer easy integration of various payment methods for online shops and ensure smooth processing. They also offer additional security features, such as buyer protection or chargeback management, reducing the risk for your business.

International Customers

If your business operates internationally, you should offer payment methods that are also accepted by international customers. Credit cards like Visa and Mastercard are widely used worldwide, while e-wallets like PayPal or AliPay are particularly popular with customers from China.

Ultimately, the best strategy is to offer a wide range of payment methods to appeal to as many customers as possible and avoid purchase cancellations. A mix of traditional methods like debit and credit cards and modern options like mobile payments or "Buy Now, Pay Later" can increase the success of your business.

 
Conclusion: Variety Increases Sales

Whether in physical retail or online shops, the selection of payment methods is a crucial factor for sales. The more options you offer, the more customers you will attract, and the lower the likelihood that they will abandon the purchase because their preferred payment method is missing. It is important to consider the preferences of your target group and integrate both traditional and modern payment methods.

Secure and convenient payment methods like purchase on account, PayPal, and instant transfer strengthen customer trust and lead to a higher conversion rate. Additionally, the transaction process should be smooth and secure for both you as a retailer and the customers. A well-thought-out mix of different payment methods not only ensures more satisfied customers but also long-term customer loyalty and ultimately increases your sales.

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