The questionable figures to the German payment market of the German Council of Economic Experts

The new annual report on the assessment of macroeconomic developments 2024/2025 by the German Council of Economic Experts (GCEE), which was presented to the German Chancellor on November 13, 2024, contains an extensive chapter entitled “Enabling digital innovation in the financial sector, ensuring financial stability”.[1] The section is well worth reading and loosens the neck muscles with regular nodding and shaking of the head. Among other things, you will find a plea for the use of financial data between BigTechs, FinTechs and old-school players such as banks, as well as for the establishment of “regulatory sandboxes” to facilitate the implementation of financial innovations.

Fighting oligopolies with the Digital Euro

The plans of the ECB and the European Commission to introduce the Digital Euro (CBDC) are supported sympathetically. According to the GCEE, the D€ could create a little more competition in the payment market, which is “highly concentrated”. The GCEE even describes the payment market as having an “oligopolistic structure” (paragraph 277; p. 189): “This is indicated by above-average returns on capital by payment service providers.” This would be a welcome development for payment service providers (PSPs), their lawyers and consultants, but are the supposedly well-filled coffers the result of an oligopoly – in other words, insufficient competition? Let’s take a look at the EBA’s Euclid register, which contains the number of payment and e-money institutions authorized in the EU: 923 payment institutions and 368 e-money institutions. In addition, there are thousands of credit institutions offering payment services. The European payments market is presumably closer to “ruinous competition” than to an “oligopoly”. And: Why should the D€ lead to even more competition here? The SVR probably refers to the market of “payments schemes” and not to the market of payment service providers. A misunderstanding as a result of conceptual fuzziness.

Extrapolation of the three days diaries

Ultimately, however, I stumbled across a numerical “fuzziness”. The GCEE estimates that the “payment volume in Germany” in 2023 at the physical point of sale will be almost 1.1 trillion euros. See graphic. With regard to the presumed source and the footnote, this is more precisely about the payment volume in Germany and abroad of private households located in Germany. The source is clearly the regular survey by the German Bundesbank on the payment behavior of German households[2], which was last conducted in 2023. The relative proportions of the means of payment used at the POS and online correspond fairly closely to the results of the diary records kept by around 4,000 panel members, who recorded their payment behavior over three days for the Bundesbank, with a total volume of almost 700,000 euros. The SVR has apparently taken the relative proportions of the various means of payment at the POS and multiplied them by a factor X (approx. 3.2 million) to extrapolate the figures. This is how approximately €92,300 in cash payments at the POS (by the panel) becomes approximately €300 billion for the total market. The applied factor X for the extrapolation is not explained (“own calculations”), but it is quite crucial for the result to be close to reality.

Does the multiplier lead to realistic results?

According to the GCEE extrapolation, the payment volume of German debit cardholders (including the domestic scheme “Girocard”) in 2023 is said to have amounted to around €530 billion (light green area). This result is at least €100 billion too high. According to the Bundesbank’s payment transaction statistics, the debit card volume in 2023 was “only” €430 billion (including the direct debiting usage of the Girocard by ELV), and that was the total, not just at the physical point of sale. The card-based payment volume at the point of sale is said by the GCEE to be around €700 billion in total (debit cards + credit cards + mobile payment methods (predominantly card-based)). According to the Bundesbank’s annual statistics, however, only just under €470 billion was spent using cards (including ELV) at physical points of sale. The incorrect multiplier used by the GCEE leads to an overestimation of €230 billion, even when taking into account that the two data collections are not 100% congruent.[3]

It is not only the multiplier used for the extrapolation that is problematic, but also the methodology used by the GCEE to extrapolate the three-day panel results. The panel results of the Bundesbank survey are informative, but not necessarily representative. The fact that the Bundesbank also conducts a total survey in the payment transaction statistics for several means of payment allows the representativeness to be checked. The share of remote payments in total card sales in the panel, for example, is 5.6%, whereas in the total survey it is 18.9%. In the panel, payments “occasionally also take place abroad” (p. 12). According to the total statistics, at least in the card business, 19.8% of card payments are made abroad. If the panel member had kept a three-day payment diary during the vacation month of August, the result would probably have been different.

However, these figures from the SVR are used only to illustrate the shift from cash to digital payments and the increase in internet payments compared to 2017. Both theses are correct. So we can turn a blind eye to the incorrect figures.

[3] The two surveys are largely, but not 100%, congruent. The panel survey covers payments made by private households resident in Germany. The Bundesbank’s payment transactions statistics refer to payment instruments issued by payment service providers based in Germany. The overall statistics therefore also include, for example, transactions made using commercial cards. By contrast, the survey also includes payments made with cards issued by banks based outside Germany. However, cross-border issuing is still very low, at least in the debit card segment.