Deutsche Bank reenters Germany's payments market after long hiatus

Deutsche Bank is jumping back into the payments business after sidelining itself for nine years.

Through a joint venture with the bank technology vendor Fiserv, Deutsche Bank will offer payment acceptance in Germany, combining Fiserv's Clover with Deutsche Bank's integrated banking services. Deutsche Bank sold its original payments business to EVO International in 2012, and returns to the industry after years of fast-paced innovation.

"Consumer demands are shifting away from pure payment means towards user friendly, digitized and vertically integrated banking solutions for merchants," Kilian Thalhammer, head of merchant solutions for Deutsche Bank, said in an email. The pandemic accelerated this shift, opening new opportunities to reenter the market, Thalhammer said.

The partnership enables Deutsche to bring a fuller range of services to Europe's payments market, which Thalhammer described as "saturated."

"Historically, the role of banks within the acceptance business was primarily focused exclusively on the stand-alone payment processing rather than being positioned as a central element," Thalhammer said. "As a result, many banks — including ourselves— withdrew from the market. Now we are closing this gap."

Deutsche Bank has hinted at making acquisitions and forming partnerships to offer payment services in multiple countries. Fiserv said the joint venture announced this week is focused on Germany; Deutsche Bank is additionally a Fiserv client for bank technology.

The joint venture will be based in Frankfurt, focusing on small to medium-sized businesses at the start, and will employ more than 100 people. Deutsche Bank, combined with units Postbank and Fyrst, has about 800,000 small-business clients, and the venture will also sell to nonbank clients.

The venture faces pressure from other firms. Since Deutsche Bank last offered payments, the influence of technology-focused companies that use open development tools like application programming interfaces and PSD2-compliant open banking to build merchant share has soared.

Stripe, which is active in Germany, has drawn a series of large investments that have boosted its valuation to $95 billion. PayPal spent more than $2 billion in 2018 to acquire iZettle, the "Square of Europe," to gain a merchant services foothold in Europe. SumUp's network includes Germany, and the payment firm has added a prepaid card and technology to help merchants build online storefronts.

Fiserv's Clover point-of-sale business may be the key to whether Deutsche Bank can successfully build a merchant acquiring business in Germany. Fiserv added Clover when it acquired payment processor First Data for $22 billion in 2019. Fiserv courts independent software vendors to connect to Clover to power order ahead, digital payments and other electronic activities at merchants.

The challenge for Fiserv and Deutsche Bank is the large payment technology companies already offer this product mix, specializing in a small-business market that banks have overlooked until recently.

"The fintech competition for Clover is tough," said Ron van Wezel, a senior analyst for Aite Group's retail banking and payments practice. "The new Fiserv/Deutsche Bank combo may have an advantage as they can offer a bundled banking and POS payments solution, but I'm not sure how relevant that factor will be."

Deutsche Bank's Thalhammer said the German payment market does have "established names," but there is still an open playing field.

Thalhammer is referring to Germany's preference for cash as compared with other developed economies. Even as the pandemic hit, cash's popularity in Germany stayed relatively high, with 46% of German consumers saying they prefer to use cash, according to YouGov. In the U.S., Italy and Spain that number was less than 30% and in India it was about 38%.

India is considered a greenfield for digital payments because of its high level of cash usage and high penetration of smartphones, causing numerous U.S., Asian and European technology companies, retailers and financial institutions to pursue the Indian market, believing the opportunity for growth is enough to absorb the competition.

"Germany has been very cash centric for years, but the growth of demand for e-commerce in the last few years makes it a large and growing market to enable those merchants," said Gareth Lodge, a senior analyst at Celent.

Clover has been beneficial for Fiserv since the merger, with Clover transactions increasing during the pandemic despite store closures, partly due to the rush toward digital payments.

"In addition to enabling businesses to accept payments at the point of sale, Clover serves as a business management platform," said John Gibbons, head of EMEA for Fiserv, adding that it allows businesses to support scheduling, inventory management and accounting.

This will be combined with banking products from Deutsche Bank to provide a broad mix of payment and financial services to compete with other large processors and fintechs, Gibbons said.

The bank and Fiserv plans to tap GiroCard, a local debit product in Germany that specializes in brick-and-mortar payments. "Any payment provider in Germany must be able to process Girocard in store and Giropay online," Gibbons said. "The German consumer is also a relatively heavy user of cash for small transactions."

Other card support includes Visa, Mastercard, Union Pay, digital wallets and buy now/pay later services such as Klarna.

While Germany has a large cash contingent, there are signals that the pandemic is moving more people to cards, buoyed in part by merchant incentives to dump cash.

"With Clover, Deutsche can service small to medium businesses with card acceptance at the point of sale. Clover is a modern solution that can replace existing traditional terminal solutions," van Wezel said. "It’s true that Germany is still cash rich, but card acceptance is high too."