This is Part 2 in our article on e-commerce in Germany In order to familiarize yourself with the online shopping market and risk factors in Germany, we strongly recommend that you read E-commerce In Germany Part 1- The Market and Risk Factors to get the full picture.
Online Payment Options In Germany
Before discussing payment options, it’s important to understand the mindset of the average German shopper and the cultural aspects of online payments. In Germany and in a number of other EU countries, many people are opposed to going into debt to purchase things. This even applies to larger purchases such as cars, vacations, and even houses. While Germans do have and use credit cards frequently, they do not like to use them for online shopping. 75% of Germans prefer other online payment options.
Unlike in other countries, credit cards are not the only or primary way Germans like to pay for their online orders. As a merchant, you’ll need to keep this in mind and offer different integrated payment types. If you’re using a hosted e-commerce platform such as Shopify, they will dictate which payment types you can accept. If you have the option of integrating other payment types into your platform, select a payment gateway provider that offers support for additional country-specific payment types.
We suggest you only work with the top companies in each payment category to simplify your business. Keep in mind that technical integration through an API is only one aspect to consider. You’ll also want to simplify the back office operations for settlement transactions, deal terms, dispute processes, fund transfer timing, and customer support inquiries.
Top Payment Types in Germany
- SEPA Credit Transfers, which is a standardized direct debit payment option for the EU, similar to ACH in US, is used in approximately 35% of online transactions. SEPA is the acronym for Separate European Payments Area and there are additional resources to learn more about SEPA below.
- Interbank transfers are also very popular from companies such as Sofort and Giropay. These companies combined support 16% of German online transactions.
- Open Invoice – allows customers to pay after they receive their merchandise. Forsa Market Research says that the ‘invoice’ payment method is used in up to 58% of Germany online transactions. It does have a higher risk for online merchant payment collection and returned goods but it’s an important option in Germany.
- Credit cards and PayPal are still important options in Germany but not the most important ones. Germans use credit cards for online purchases with Visa 14%, Mastercard 9%, American Express 1%, and PayPal 10%, for a total of approximately only 1/3 of transaction.
Logistics For E-commerce In Germany
It’s not uncommon for e-commerce companies to prepare their site and then forget to determine how they will ship into and out of the market. Developing a distribution and logistics strategy for the EU and Germany is not simple and you’ll want some help setting things up. In the US, logistics are straightforward with a handful of preferred carriers and the delivery and logistics options are well-defined. In the EU, however, logistics are fragmented at the local level, regional level, national level, and pan-European level. It’s especially complex for return shipments. Before doing it yourself as a newcomer to the market, you will want a logistics partner who has great working relationships with delivery services at a local level and offers the support and services you need so you can stay focused on product, sales, and marketing.
For transcontinental shipping, Germany has several convenient major container shipping hubs to use including Hamburg in Germany, Rotterdam in Holland, and Antwerp in Belgium. The top 4 air-freight hubs are Frankfurt, Paris, Amsterdam, and London. Because of Germany’s central location in the EU, there are also many excellent supply chain management options for product warehousing, inventory management, fulfillment, and companies that manage back office and VAT calculations and payments for you.
Having your logistics support located in either the Benelux region, which includes Belgium, Luxembourg, and Holland (http://www.ndl.nl/), or Germany (http://www.logistics-alliance-germany.com/en/welcome.html) is strategic because you will then have easy access to a lot of consumers as well as being close to Amazon fulfillment centers.
According the World Bank’s 2014 Logistics Performance Index report of 160 countries, Germany ranks #1 with annual revenues of 230 billion Euros, more than France and UK combined. Germany is home to logistics leaders like Deutsche Post World Net which is #1 in the world? In Europe? #1 in sales? Shipments?, DHL, DB Schenker, Dachser, and many more.
The German government has a free service at Logistics Alliance Germany (LAG) (http://www.logistics-alliance-germany.com/en/welcome.html) to help you put together a logistics strategy that is best for your company. The Dutch government (http://www.ndl.nl/) also has a free service and since they are very closely located to Germany, you might wish to consult with both organizations.
Most e-commerce companies will start with testing selling in regional marketplaces such as Amazon. Amazon also has large fulfillment centers in the EU that can help you with your fulfillment. Amazon fulfillment centers will require you to have all of your customs, duties, and VAT logistics taken care of before they will work with you.
VAT In Germany
Duties rates are consistent across Europe but Value Added Tax (VAT) rates are not. VAT is a broad-based consumption tax levied on the sale of all supplies of goods and services in Germany. VAT is paid every time a customer buys a taxable good or service from a VAT-registered business. Suppliers essentially act as VAT collection agents for the government.
For e-commerce, the VAT is calculated on the rate for the person that purchased the item instead of where the e-commerce company is headquartered. The standard VAT rate in Germany is 19% and the reduced rate for certain product categories is 7%.
Unless you’re prepared to handle the bookkeeping and payments for VAT, we suggest you make sure your logistics partner offers this service as a part of their overall back office capabilities.
Conclusion
Germany is a large and highly attractive e-commerce market. Globig resources and step-by-step guides will help you to make sure your products and marketing appeal to the German consumer.
Resources
EU VAT Rates by Category
Logistics Alliance Germany
http://www.logistics-alliance-germany.com/en/welcome.html
German Trade Association
http://www.gtai.de/GTAI/Navigation/EN/Invest/Industries/logistics.html
About VAT and E-commerce in Germany
Logistics Holland International Distribution Council
SEPA information:
http://ec.europa.eu/finance/payments/sepa/faq/index_en.htm
Payment gateway advice:
http://ecommerce-platforms.com/ecommerce-selling-advice/choose-payment-gateway-ecommerce-store
Payment gateway integration options Germany:
https://www.chargebee.com/blog/payment-gateway-integration-options-startups-germany/
