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MONEY

How Germany’s EC card is set to go digital

German online payments provider Giropay is struggling to compete with US giants like PayPal and Google Pay. Could a new service for EC card-holders change all of that?

A woman pays for a newspaper with her EC card
A woman pays for a newspaper with her EC card. Photo: picture alliance/dpa | Rolf Vennenbernd

What’s Giropay?

Giropay is Germany’s primarily online payments service, which is run by a consortium of German banks that includes Deutsche Bank, Sparkasse, Commerzbank and DZ Bank. Its predecessors were the independently operating payment systems Paydirekt, Giropay and Kwitt, which merged into the Giropay brand last year.

Everyone living in Germany will have had some contact with the Girocard – normally termed an Electronic Cash (EC) card – at some point, either by getting one with their bank account or being told, in no uncertain terms, that card payments in a shop or restaurant are “EC card only”. 

Though Girocards have a lot of the same functions as debit cards, there’s one major downside to them: shopping online. Unlike a normal debit or credit card, you can’t generally use this type of card for online shopping, so the alternative is to use a service like Giropay or Paypal that lets you link your bank account to an online wallet and use that for shopping. 

READ ALSO: What to know about starting your personal banking in Germany

The problem for Giropay right now is that, despite being supported by around 1,500 banks and credit institutions in Germany, it’s struggling to compete with international payments providers like PayPal, Apple Pay and G Pay. When the companies merged last year, they only had a two-percent market share in Germany. A recent study also found that only 16 percent of people had used Giropay in the last twelve months, compared to 93 percent of people who had used PayPal. 

What’s changing? 

To try and claw back some customers from the bigger brands, Giropay is creating a digital version of the EC card that can be added to a Giropay wallet and used for shopping online.

This should benefit people who want to avoid the big US brands or for those who cannot or don’t want to pay by credit card, bank transfer or invoice. It also allows people with a Giropay account to shop online without revealing their bank details.

How else will customers benefit? 

The main aim of the move is to try and turn EC cards into a product that can compete with credit cards – which includes being able to use them internationally.

Currently, Girocards can only be used abroad if they have the Maestro function from Mastercard or the V Pay function from Visa. However, Mastercard and Visa say they want to discontinue these services in the future.

If the digital Girocard is integrated into the Giropay wallet, it could still be used for online shopping abroad as long as the international merchant supports Giropay.

READ ALSO: Why a German court decision means you could be entitled to compensation from your bank

Who will be able to get the digital EC card?

The first set of people to be offered this service will be customers of Volksbank and Raiffeisenbanken, followed by savings bank customers by the end of the year.

However, it’s likely that a number of other German banks will follow suit at a later date.

According to a study by Stiftung Warentest, customers of the major branch banks Commerzbank, Deutsche Bank, HypoVereinsbank, Postbank, Santander and direct banks such as Comdirect, DKB, N26 and Tomorrow are not yet able to digitally deposit their current cards in payment apps. Instead, they have to rely on using alternative Mastercards or Visa Cards for digital payments. 

Member comments

  1. I might be underestimating German technological hesitancy but surely this is far too late. Then again, “enter your online banking credentials on this random web form” is still a valid method of payment here.
    Please just let EC cards die, there’s no reason for their existence now interchange fees are capped for debit/credit cards at around 0.3% by the EU.

  2. “as long as the international merchant supports Giropay” – so basically it won’t be international but Germany-only.

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MONEY

When will Germany’s rising cost of living slow down?

German consumer prices are increasing at record rates, leading to worries about a repeat of the so-called 'stagflation' of the 1970s. Why are experts worried - and when will inflation become more stable?

When will Germany's rising cost of living slow down?

What’s happening?

It’s something most of us are noticing almost every day – whether it’s increasing prices at the supermarket or at the gas station. 

After years of German inflation barely moving, Russia’s invasion of Ukraine has quickly pushed up German consumer prices.

In April, inflation hit a 40-year high rate of 7.4 percent, driven largely by higher energy costs. At the same time though, the government has slashed its 2022 growth forecast from 3.6 percent in January to just over 2 percent now. German economists say neither problem is likely to go away soon.

READ ALSO: Five ways Germany’s soaring inflation could affect your life

Has inflation ever increased like this before?

Experts are worried about a phenomenon that happened in the 1970s occurring again in Germany.

When high inflation and low growth go together, economists call it stagflation. A mix of the words “stagnation” and “inflation,” it describes the toxic mix of a slowing economy, possibly with more people losing their jobs – at the same time as the cost of living goes up.

Managing director of the Munich Ifo Institute, Clemens Fuest, told Bavarian broadcaster BR24: “With stagflation, goods become scarce. In this case, it is mainly energy that is in short supply, and this drives up prices. And the only way politicians can react to this is by giving targeted aid to those who are hardest hit, which is then borne by everyone together.”

A German receipt. Prices have been rising intensely in recent months.

A German supermarket receipt. Prices have been rising intensely in recent months. Photo: picture alliance/dpa | Karl-Josef Hildenbrand

In the early 1970s, tensions over the Yom Kippur War led to Middle East embargoes that pushed oil prices up abruptly, leading to stagflation.

At first, oil prices rose by 70 percent and then by 300 percent at its peak. Inflation rose to seven percent in Germany, which was heavily dependent on oil from the Middle East. Car-free Sundays and speed limits on German roads followed.

However, the economy stopped growing and within two years unemployment figures rose significantly. Companies passed on their increased costs to consumers, who in turn demanded higher wages, which the trade unions then implemented. This led to the a wage-price spiral.

In Germany, the Bundesbank reacted relatively quickly with a restrictive monetary policy – it raised interest rates. Inflation fell to 2.7 percent by 1978 before shooting up again in the early 1980s. Unemployment also peaked at 9.1 percent during this period. During the 1980s, the economy recovered and had growth rates of 2 to 3 percent.

In the USA, on the other hand, inflation rose to 20 percent and could only be brought down by a radically restrictive monetary policy of the central bank, with an increase in the base rate (the central bank’s interest rate) to 20 percent. The result, however, was a deep recession and high unemployment.

READ ALSO: How the cost of living crisis is changing German spending habits

It’s clear that stagflation is difficult to combat in terms of economic policy. In the US, this issue has been discussed recently. 

According to Harvard economics professor and former chief economist of the International Monetary Fund, Kenneth Rogoff, there’s a high risk of this happening due to a perfect storm of struggling economies, the war in Ukraine and worldwide supply issues.

German Finance Minister Christian Lindner has also been warning of stagflation. And the fear is real, according to Ifo head Clemens Fuest.

“In other economic crises, it’s usually the case that demand declines,” Fuest said. “So consumers are worried about the future, they buy less or people become unemployed.

“Then the state can intervene, monetary policy can increase demand. But that doesn’t work here. It is not a lack of demand, but a lack of supply. And that’s why the usual instruments of economic policy don’t work here, the state can’t do very much.”

How long will we see rocketing prices in Germany?

European governments are moving to wean themselves off Russian coal, gas, and oil as quickly as possible – in order to both sanction Russia for invading Ukraine and to stop financing Putin’s regime with European money. But there aren’t enough alternatives to Russia energy in Europe yet, and that’s pushing up energy prices.

At the same time, Ukraine is one of the world’s major producers of key agricultural products like grain and soybean oil. Russia’s blockade of the Port of Odessa has caused grain and soybean oil prices to spike, simply because Ukrainian ships carrying produce to world markets can’t leave safely.

READ ALSO: What to know about the latest price hikes in German supermarkets

Port of Odessa

A freight ship leaves the Port of Odessa. Photo: picture alliance/dpa/Ukrinform | –

Experts say consumer prices will become stable in Germany, but it depends on the world situation. 

Alexander Kriwoluzky, Head of Macroeconomics at the German Institute for Economic Research, told The Local that spiralling inflation is not the “new normal.”

“But I think we will see high prices this year and next,” he said.

Kriwoluzky says determining what effect these events will have on prices is less a matter of when these events end, but how. 

“It could well be that we find different ways of exporting grain out of Ukraine. If the European Union is successful at securing a safe energy supply that doesn’t rely on Russia, we could see prices come down a little then too,” he said.

Aside from the war, Kriwoluzky says China’s zero-Covid policy is also having a knock-on effect on German prices, as strict lockdowns have stalled deliveries and left European companies short of supplies.

Unless China eases its lockdown, possibly through greater vaccination, prices in Germany are likely to keep climbing for a while.

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