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Every month, FinTrack will showcase the latest innovations from financial providers around the world. Each innovation is assessed and rated on key criteria, to assist with identifying, tracking & understanding key innovation globally.
Deutsche Bank gets ahead in the online payments game
Deutsche Bank’s new online bank transfer-based payment service comes at a good time when online bank transfers are becoming more popular among German consumers. This will allow Deutsche Bank to remain relevant in the changing online payments landscape.
Deutsche Bank has announced plans to introduce an alternative payment solution for the International Air Transport Association. The new system is designed to be implemented in Germany in the first instance and if it proves successful, will most likely extend to European level. The solution will allow consumers to make transactions from their bank account straight into the company’s bank account instead of needing to use cards. This process will be facilitated through the help of Deutsche Bank.
Although Deutsche Bank is a well-established financial company and has been in the market for many years, this news represents a confirmation that not only fintech companies can be disruptive but so can traditional banks.
Consumers want payments to become seamless – particularly online – and this is what Deutsche Bank is looking to achieve. According to GlobalData’s 2017 Consumer Payments Insight Survey, 51% of respondents using cards to pay online have to enter their card details manually each time. Through online bank transfers, payment processes would take less time to complete.
Deutsche Bank proposes this innovation at a good time, as evidence from GlobalData’s Online Consumer Payments Analytics indicates that bank transfers have been increasing in popularity among German users, from 11.3% in 2014 to 17.6% in 2017 as a proportion of the total online payment tools presented.
Furthermore, because the new payments solution is an alternative to credit cards, it has the potential to remove the transaction fees from credit card transactions. Airline companies are paying huge amounts of money in transaction fees and compliance services and this new solution is expected to ease the burden of fees paid by airline companies. Therefore, there is a strong interest among airline companies to adopt the new method of payment.
Although the system is very attractive to merchants, whether it will be long-lasting will depend on whether consumers will actually use the service. Looking at already existing solutions, Sofort, an alternative payment solution based on online banking transactions, has become very popular in Germany and other neighbouring countries, with over 20 million users and performing 150 million transactions as of August 2017.
Deutsche Bank is a traditional bank and implementing this new service will most likely create a new revenue stream for it, although it does compete with the bank’s card-based business. At the same time, being a well-established bank will give consumers the confidence necessary to achieve widespread adoption.
If the new system goes mainstream, card schemes are going to be affected as it threatens to eliminate their role from payments services. Consumers in Germany are already familiar with online banking transfer payments and this launch expands the reach of bank transfer-based payments to a new vertical.
This pilot scheme presented by Deutsche Bank comes at a good time when bank transfers are becoming increasingly popular among German consumers. This represents an opportunity for the traditional bank to be part of the change that is coming to the online payments landscape, despite the threat to its card-issuing revenue stream.