Everything You Need to Know about Selling in Germany

Selling in Germany

In the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over a hundred markets worldwide.

Online commerce varies significantly around the world in a wide number of ways, such as a country’s level of economic development, shopping habits, preferred payment methods, access to technologies, legality, logistics, etc. Because of this, there are a great many factors to consider when choosing which international markets to expand to. This series is designed to provide you with all the information you need in order to choose which countries are a good fit for your business and then to start selling across borders.

Figures in this article are sourced from:

The German e-commerce market is one of the largest in the world. Germany accounts for 25% of total European e-commerce volume and ranks 5th in the world in online sales and 3rd in cross-border e-commerce (both import and export), behind only the US and the UK. The market is also growing rapidly, with experts predicting that e-commerce will account for more than half of Germany’s GDP in 2017.

With over 70 million people online and 90% of internet users buying goods and services online, the sales potential of expanding into Germany is huge. More than half of online merchants in the country are involved in cross-border commerce, so the infrastructure is in place to support new market entrants. Let’s take a closer look at the market trends and the realities of selling online in Germany.

Quick Figures

  • Total population: 82.6 million
  • Internet penetration: 86.8% (71.1 million)
  • Mobile penetration: 139.9%
  • Online shoppers: 63.9 million (77.3% of population)
  • E-commerce sales: EUR 49.7 billion
  • M-commerce sales: EUR 4.97 billion (10% of total online sales)
  • E-commerce annual growth rate: 39.2%

Currently Germany has the highest e-commerce volume in continental Europe and a continued high growth rate is expected. Germans on average spend just under EUR 1,000 annually, with an average size per transaction of EUR 66.8. For online sales, clothing is the most popular product category, accounting for EUR 6.8 billion in annual sales, followed by consumer electronics and books.

In terms of cross-border e-commerce sales, Germans mostly buy from the UK, the US and China, though since those are the three biggest e-commerce markets in the world, that may suggest that German shoppers are not especially concerned with the physical location of online merchants. However, language is a key driver; with 95% of the population having German as their native language and over 100 million native speakers around the world, implementing a German website would be a major boost to sales.

What You Need to Know

Preferred payment methods

While the most popular credit cards in Germany are Visa and MasterCard with an almost even split of the market, credit card payments are relatively unpopular among German consumers, who tend to avoid incurring debt. The most popular payment method for online sales is direct money transfers, either using e-wallets or using Sofort, a local payment technology which allows shoppers to make online purchases directly from their bank account. Support for Sofort is included in DalPay’s payment platform for all account holders.

We recommend offering a minimum of the three following payment methods if selling online in Germany:

  • Debit and credit cards
  • SEPA Direct Debits
  • Sofort

German consumers are also accustomed to a pay-by-invoice option. Due to the historical popularity of catalogue sales, the practice of shipping products to customers along with an invoice to be paid via bank transfer has carried over into e-commerce. Because of this, Sofort offers a “pay later” option which is popular among online shoppers. However, return rates on “pay later” sales are higher than real-time purchases, which could result in losses due to the costs associated with processing returns.

M-commerce adoption

With mobile penetration at 139.9% (Android being the preferred OS with a marketshare of 77.8%), m-commerce is growing strongly in Germany and in 2013 overtook invoice and credit card payments as the most common online payment method. Currently accounting for 10% of all online sales, a recent survey from TNS Infratest has found over 30% of respondents saying that they would use mobile payments if it meant they wouldn’t need to carry a purse or wallet.

The same survey shows that half of respondents under the age of 30 believe they should be able to pay in all sales channels using their mobile payment system. This is consistent with the growing adoption of mobile card readers in brick-and-mortar retail and represents the rise of the omni-channel consumer – m-commerce is attractive to German shoppers because it offers the possibility of a single payment method for all sales channels, online and in-store.

               Cybercrime report

While online fraud has historically been low in Germany (debit card and e-wallet payments, more popular than credit cards for online sales, are less susceptible for fraud), part of the reason for its current growth is the relatively low level of past investment in preventative measures, which makes it an attractive target for cross-border fraud.

The rise of e- and m-commerce brings with it a rise in cybercrime. In 2012, card-not-present transactions accounted for 70% of fraud losses and counterfeit fraud accounted for 20%. Phishing attacks in 2012 cost a total of USD 386 million in losses, the third highest level globally. Since mobile fraud rates are higher than in other sales channels, the increased adoption of m-payments is likely to increase overall cybercrime levels.

All these payment methods have different risk profiles and require different fraud detection and prevention tools. Online merchants selling in Germany will need to have flexible anti-fraud solutions in place to ensure the safety of their business and their customers, such as those included for all merchants processing payments through DalPay.

Logistics

Thanks to Germany’s long history with mail-order commerce, buying products online is deeply embedded in the consumer culture. As a result, the shipping and delivery market is a competitive, highly efficient and one of the most affordable in Europe. For businesses selling physical products across borders, this makes Germany an attractive market.

However, it also has one of the highest return rates, ranging from under 10% for electronics to as high as 70% in fashion. This is associated with local laws which favour consumer protection as well as the common practice of including warranties in purchases at no extra cost. We recommend offering at least two of the following return options:

  • Drop-off
  • Pick-up
  • Send-in

Legality

International merchants planning to expand their e-commerce operations into Germany will have to familiarise themselves with local legislation as well as, if they are based outside of Europe, the legislation of the European Union.

For example, under the European WEEE regulation, for physical products it is mandatory to register the number of items being put to market, as well as the items taken back from the market (as in the case of returns), or risk thousands of Euro’s in fines. Products imported from outside of the EU are subject to duties, while inter-EU deliveries are subject to the EU Directive on the VAT-system.

All online merchants selling in Germany are also required to make clear on all checkout buttons that payment is involved in placing an order, so businesses expanding to Germany may need to update their checkout buttons (DalPay’s checkout buttons already comply with this law).

German E-Commerce In Brief

Pros:

  • 67 million potential customers
  • Low shipping costs
  • Widespread e-commerce adoption

Cons:

  • Highly competitive
  • Fraud rates increasing
  • Heavily legislated market

Germany offers online sellers the largest potential audience in Europe. Especially for businesses based in the European Union, expanding into Germany means to expand your consumer base by the tens of millions with relatively low logistical costs. Offering services in German also facilitates selling to German-speaking majorities in Austria, Switzerland and Luxembourg as well as millions of native speakers in the US and Brazil.

Such a lucrative market is also highly competitive. Expanding into a new international market comes with a lot of risks and shouldn’t be undertaken lightly. As successful as your business model is at home, before you take it across borders you need to make sure that it is compatible with local legislation and buying habits.

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