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Online cash is key for digital banks in the DACH region

Online banks must consider how consumers in Germany, Austria, and Switzerland feel about using cash if they want to capture significant market share

The rise of digital-only banks is perhaps the most significant impact on the banking sector in a generation, or even longer. New competitors such as N26, Monese, Starling Bank, Monzo, and First Direct have revolutionised how consumers interact with banks and their products, providing genuine competition to high street banks that have monopolised the industry to date.  

This revolution in how consumers store, invest, and spend their money isn’t going to slow down any time soon. In fact, in many countries and regions the rate at which consumers are turning to digitally native banking solutions is accelerating; commentators believe that we have only scratched the surface of digital banks’ potential for acquiring market share.

For example, last month Accenture announced that the number of customers of digital-only banks operating in the UK might triple to 35 million accounts within the next 12 months.

A slow road to growth in the DACH region

However, the rate of growth of digital banks is not uniform from country-to-country, even in tight-knit regions such as Western Europe. This is most evident when comparing the UK with the DACH region – Germany, Austria, and Switzerland.

Despite there being some take-up of digital only banking in the DACH region, challenger banks’ market share in these countries is lower than other regions such as the UK and North America.

According to the Austrian Central Bank, only 2% of consumers with a current account have their main account with a digital only bank.

It is not true to state that there isn’t presence or awareness of digital banks in the DACH region – N26 and fellow digital bank Fidor Bank have their headquarters in Germany – but to date consumer appetite to switch to fully digital banking has been significantly less than countries such as the UK.

According to a report from ratings agency S&P Global, the German banking industry is primed for disruption from fintechs, but that currently consumers remain conservative when it comes to switching their financial affairs away from incumbent banks.

The same report reveals that Germany, Austria, and Switzerland are not in the top fourteen countries in Europe for regular use of internet banking. And according to EU data the percentage of the population using mobile banking is significantly lower in Austria (67.3%) and Germany (66.6%) than the UK (82.1%) and Scandinavia (Norway 96.4%; Denmark 94.1%; Sweden 90.5%).

Understanding the DACH region’s preference for cash

There are several contributing factors to the slow growth of digital banks in the DACH region, including security concerns, but one overriding prohibitor appears to be a continued reliance on cash.

According to S&P Global, in 2017 almost half (47.5%) of all transactions in Germany including online payments were still conducted in cash. According to Deutsche Bank 74% of retail transactions are still made using cash in Germany.

And consumers in Germany and Austria carry more cash on them than consumers in virtually every other country in Europe. According to Deutsche Bank the average German carries €107 in cash; separate reports have stated that the average German carries €103 and the average Austrian carries €89.

This dependence on cash is also borne out in the statistics on contactless card adoption. Whereas 54% of UK consumers told us that they habitually make payments using a contactless card, the same is done by only 32% in Austria, and only 29% in Germany.

Having an account with a digital only bank does not prohibit a consumer from making a cash payment because cash can be obtained from an ATM using a digital-only bank card (some restrictions and costs apply in a minority of cases). However, in order to fully accommodate consumers that prefer to make payments in cash, digital banks must also enable these customers to use cash to deposit into their account.

Online cash solutions: bridging the gap between digital banking and cash payments

Digital banks appear to have a competitive advantage over traditional banks in many aspects, but in countries where the appetite for traditional banking services remain strong they will need to replicate every aspect of an incumbent bank efficiently to gain traction.

In the DACH region specifically this means understanding and facilitating every aspect of a consumer’s relationship with cash. Online cash solutions such as Paysafecash bridge the gap between these consumers and digital banking; maintaining customers’ ability to deposit into their account as easily and as they would at their local branch with no cost, whilst allowing the digital bank to retain the agility and efficiency benefits that have enabled them to be competitive and even thrive in other markets.

Consumers can select to deposit cash via the digital bank’s app or online site, which generates a payment barcode. This is then taken to the nearest payment point (discoverable via the online cash solution app), where the cash is paid and the transfer is complete.

Using this method the bank can make use of the infrastructure of the online banking solution network without incurring the overheads of running bank branches. But this doesn’t affect the accessibility of making cash deposits for consumers; a true best-of-both-worlds solution.