Germany, EU move toward cashless payment during pandemic

Fewer people are paying with cash in Germany and the European Union — a trend that the coronavirus pandemic has accelerated. But there are risks involved with "fast" and "hygienic" contactless payment.

Germany's top-selling bakery chain, Kamps, made headlines nationwide in June, when it offered a 3% "innovation discount" for customers willing to pay by card. Payment via card or smartphone is faster and more hygienic, according to Kamps.

Even before the coronavirus pandemic, companies were encouraging their customers to pay without using cash. In 2018, people in Germany spent more money using cards as payment than cash for the first time. In 2020, stores made about 56% of sales via contactless payments. In EU countries such as Luxembourg, France and Estonia, people go contactless even more frequently. Across Scandinavia, many hotels, bars and stores even refuse to accept coins and bills. In Sweden, 82% of people now make their purchases without cash.

European Commission President Ursula von der Leyen has declared digitization and cashless payment a top priority — up there with climate protection. Electronic payment is widely promoted as a safe and fast "hygiene measure" across the EuropeanUnion, though there is no evidence that coins and banknotes pose a significant risk of transmitting the coronavirus.

"Many people have become accustomed to the advantages," said Oliver Hommel, a payments and open banking expert at Accenture, one of the world's largest management consultancies. "Businesses' aversion to card payments had already declined significantly before the coronavirus crisis," he added.

What about data?

A 2015 EU regulation required credit card companies to lower the fees that they receive from businesses. As a result, businesses are less likely to require a minimum purchase for card transactions.

What has become an advantage for customers might still be a problem for small shops, however, as card terminal operators frequently charge businesses a 0.25% transaction fee on debit cards and up to 3% on credit cards. Larger discount stores often negotiate more favorable terms or get a flat rate from their payment service providers.

Concerns about data protectionhave arisen — especially when customers pay via smartphones or need to enter a personal identification number to complete the transaction. This applies in particular to nearfield communication, a technology that so far is used primarily for contactless payments of small amounts. Many devices for card or payments use NFC readers.

NFC payment is particularly popular in the Netherlands, where it has been used more frequently than cash and cards since 2019. It's a problematic development, however, because "mobile devices are not completely protected against hacker attacks," Hommel said, adding that such devices also allow companies to track where consumers shop. The payment apps collect location data for security purposes. In the United States, Hommel said, "Google already has access to a lot of credit card data and can use it to control and evaluate advertising for stationary retailers in a more targeted way and sell it more expensively."

Bank cards and pay apps have replaced cold hard cash across Germany and the EU