Significant event, with Paypal now integrating with “traditional”  payment carriers, in this case Giropay, which is supported by German Banks.  At first its only for ebay payments, but indications are for more merchants, and FI’s to join.

They are using the PIN/ TAN (personal identification number / valid transaction number) method which is not common in North America.  It allows the customer to access their bank and pay separately from the merchant site, but is also fraught with phishing issues too.

Cornelia Wels-Maug

Giropay launches today in Germany

German savings banks, credit unions and Postbank have joined forces to offer Giropay, an Internet-based payment system. Customers are directed from a retailer’s website to their own bank’s Internet banking domain, where, after keying in their account number and a personal identification number (PIN) number, a remittance slip is completed automatically with all relevant transaction information, so that the customer only needs to confirm the deal with a valid transaction number (TAN). The retailer, who bears the costs for this service, immediately receives a guarantee of payment and can ship the goods instantly. The customer, on the other hand, doesn’t need to register nor install any software or buy additional hardware in order to participate, they only need an online account.

Giropay will initially only be used for purchases via Ebay’s online payment system, PayPal, but Giropay is in negotiations with other major online retailers, as well as other financial institutions. Participating retailers are free to choose any of the three IT services providers behind Giropay – Starfinanz Software, Fiducia AG and GAD – to look after the necessary technicalities.

Each of the approximately 1,800 savings banks and credit unions has to individually agree to participate, and Giropay is confident that two-thirds will have joined by the summer.

Comment: This is yet another online payment system based on the PIN-TAN method, which has been increasingly misused by phishing attacks. German consumers do not use online payment that much – according to a manager at PayPal, 85% of online clients pay via automatic debit transfer, a system hardly known outside Germany. So why launch another system and what are the odds of it succeeding?

First of all, there is the sheer size of the e-commerce market. According to Bitkom, the German IT and telecommunications trade association, Germany accounted for 30% of all goods and services purchased online in Western Europe, worth €321bn in 2005. €32bn alone was spent by private customers last year, up 43% from 2004, and this is estimated to reach €90bn by 2008.

Choosing PayPal as a strategic partner was a smart move by Giropay – Ebay is a leading worldwide online retailer. PayPal’s research into the payment preferences of its customers gave Giropay a better understanding of what people want: credit-card payment is not popular amongst German online customers, while PIN-TAN systems have the highest level of familiarity and customer acceptance. Directly taking the customer from the retailers’ website to that of their bank, hopefully makes them feel more secure and thus more inclined to use this payment method.

The financial institutions behind Giropay have approximately 20m online accounts (of which around 30% pay for goods online). According to Giropay, this represents about 85% of total online accounts in Germany – a good segment of the market. However, it all depends how many savings banks and credit unions join, though all Postbank’s 2.2m online accounts are included as of today.

The high number of Ebay users, as well as the fact that 30% of Internet retailers use PayPal, should ensure a wide audience for Giropay. Following the official announcement of this service some weeks ago, Giropay has had many serious inquiries from big online retailers, since the payment guarantee enables them to ship products very quickly after the order is placed.

So far, banks have mainly used their own proprietary online settlement systems, such as “Ecash” from Deutsche Bank or “Cybercash” from Dresdner Bank. Maybe Giropay will change this – it is in talks with the leading financial institutions at least.