EXCLUSIVE: “The Language of Partnership” – Martin Pitcock, Nexi Group and Charlotte Paauwe, Ratepay in ‘The Fintech Magazine’

The German-speaking DACH region is a key focus for the Nexi Group. But it can’t realise its ambitions alone, as Nexi’s Martin Pitcock and Ratepay’s Charlotte Paauwe explain

Having become one of, if not the largest European digital payments operator, Italy’s Nexi Group is advancing at pace towards a very specific target: the DACH region.

It follows the merger and integration of Nexi, Nets and Sia, three of the biggest regional players in digital payments, which created a paytech with the scale, capabilities and proximity to provide simple, fast, and safe payment solutions to consumers, SMEs, large international corporations, banks, institutions and public administrations across Europe.

So what makes the three countries that together make up the DACH region such a golden egg, worthy of strategic focus? Well, the cash-centricity of Austria, Switzerland, and Germany for one thing.

“History shows that these countries have held cash transactions for much longer and in larger quantities than the adjacent countries. They did not follow the norm when it comes to payment,” says Nexi partner marketing lead for e-commerce in DACH, Jennie Johansson Carnhamre, “And although this development has not prevented the introduction of digital payment methods, it has inhibited speed. So although all payment methods have now arrived and spread in these three countries, payment habits today still differ from other European countries.”

According to Charlotte Paauwe, partnership manager at white label buy now, pay later (BNPL) provider Ratepay, an independent brand within the Nexi network, it’s important that customers can quickly see what payments are accepted online – and that those payment methods are relevant to them.

“That is very region-specific,“ she says. “For example, Ratepay is very successful with buy now, pay later in the DACH region because open invoice arrangements are so important here. Focussing on what needs to be available at checkout from a regional perspective – especially if you’re an international merchant – will ultimately improve the customer lifetime value.”

Part of Nexi’s strategy therefore involves working with others locally to reveal the region’s unique traits, challenges, and attitude towards payments to ensure that the right choices are presented at the checkout, in line with the local payments culture.

So how do those cultures differ in the DACH region?

GERMANY

With a population of 83.8 million and a GDP of €4.121billion [2023], Germany is not only the largest of the DACH countries, it is the largest economy in Europe and the third-largest economy in the world after the United States and China.

It is a nation known for loving cash, being adverse to debt-based options,and spending too much time online. A cost-conscious population, German people contribute to a robust domestic e-commerce market, each making several online purchases a week or month on average. The options for payment methods are plentiful – and consumers expect to be given the choice.

The long-standing favourite has been Paypal. In fact, no other country in the world uses Paypal as much as the Germans. But the latest studies of German retail habits show the first decrease in PayPal’s popularity in 10 years; from 29.6 per cent of online consumer purchases in Germany in 2022 to 27.7 per cent in 2023.

“These countries have held cash transactions for much longer and in larger quantities than the adjacent countries… So, although all payment methods have now arrived, payment habits today still differ”

Jennie Johansson Carnhamre, Nexi

Though the slide is slight, experts identify this as a turn in the tide where the popularity of other mobile options have begun to rise. And, among those surging in popularity is BNPL, which, although still small, has doubled its market share to 3.9 per cent. Ratepay expects to capitalise on this significant shift towards cashless and instalment-based purchasing.

“BNPL has always been very dominant in the DACH region, with traditional sectors wanting it in their checkout as a white-label service to give credit to their customers because they trust their brand,” says Paauwe.” But newer business sectors have gone into it as well, like travel, drug stores, and groceries, for example. In essence, we are seeing a wider range of retail with smaller basket sizes being used for BNPL, which means that customers are getting used to it. This has also to do with the macroeconomics of the last two years and the decrease in purchasing power.”

When it comes to paying at point of sale, Germans still retain their strong love for cash, paying for nearly 60 per cent of all goods and services in it, according to their central bank. However, the pandemic helped increase the acceptance of cashless payments, particularly via low-cost debit cards, e-payments, and even credit cards. The central bank has also noted the increase of mobile apps to pay and exchange currencies, and is expecting to see an increase in the number of people in Germany trading their physical wallets for e-wallets.

AUSTRIA

In contrast to Germany, Austria is a tiny nation of roughly nine million people,but one with a highly developed social market economy and a GDP that makes it the fourteenth richest country. On the whole, payment behaviours between Germany and Austria are similar, but not identical.

Austrians draw on average €47billion from ATMs every year and use cash for 67 per cent of payments under €20. But they, too, are also increasingly turning to their smartphones for cashless transactions.

This was evidenced by the results of the 2023 Austrian Visa Payment Monitor, which showed that today 61 per cent of Austrians now prefer to use digital payment methods over cash, and that, on average, 25 per cent of Austrians pull out their mobile phone or wearable to pay at the checkout – a real uptick from two years ago, when only 17 per cent did.

Twenty-six per cent are even beginning to actively avoid shops that do not offer digital payments, according to Visa Europe. The intention to help create a cashless euro payments arena is also a high priority for the Austrian Central Bank, which means that opportunities abound for companies like Nexi to support traditional banks who are inadvertently losing their slice of the payer fee pool to challengers, the Austrian e-commerce sector as a whole whose growth rate at present is less than half that of Europe, and the 15-20 per cent of shops and other businesses in Austria who are still not offering cashless solutions.

There is such a regional need for solutions and services, and we really want to be the payment player that is hyper-focussed in the DACH region”

Martin Pitcock, Nexi Group

However, it is worth noting that the adoption rate of cashless payments is a cause for concern for those in the country who prefer cash, and certain areas of government, including the Chancellor Karl Nehammer, are fighting to ensure that the ability to withdraw and use cash, rather than cards or digital currencies to pay, becomes enshrined in the Austrian constitution as a ‘right to cash’.

Nexi also sees a real opportunity to use the expertise it’s gained from other projects to help promote country-specific innovations, like Austria’s latest national digital ID technology, ID Austria, which was launched in December 2023.

“As the Austrian government seeks to digitalise its identity services to enable citizens to access a wider range of public services, we believe, based on our experience in Denmark (BankID) and Norway (MitID), that there is a real opportunity to connect ID Austria with new use cases in both the public and private sectors, such as payments and banking, mobile services, internet-based services delivered by PC, and healthcare and emergency services,” says Roland Eichenauer, VP of BD, Sales & Marketing, Digital Identity & eID Solutions at Nexi. Eichenauer adds: “Looking ahead, we also believe there is work to be done to integrate ID Austria with the eIDAS wallet technologies of other markets to deliver the EU’s vision of a single digital wallet solution for all.”

SWITZERLAND

Switzerland stands as a sort of distant cousin to Austria and Germany in that its payments landscape comprises the Swiss Franc as cash, card, invoice, and mobile payments.

According to the Swiss Payment Monitor, cards are frequently used in Switzerland with the average Swiss holding at least three (compared to Austria, where consumers hold on average 1.8 per person), and credit cards are used for settlements more often than in the other DACH countries.

In terms of payment behaviour, debit cards are the most-used payment method in Switzerland both in terms of frequency of use and turnover, followed by cash in second place, and then mobile payments –in particular Twint, Switzerland’s ownpayment app, which accounts for 64 per cent of transactions with mobile devices and outstrips international options like Apple Pay (16 per cent) Samsung (three per cent) and Google Pay(2.1 per cent).

In distance selling, every second payment is now processed via a mobile device, which also benefits the credit card as a billing product. The frequency of mobile payment is also increasing in the face-to-face business, however, it still lags significantly behind debit, cash and credit cards.

At 53 per cent, or €5.3billion, of all sales, the most popular method by far for online payments, though is the very regional bank transfer – or Überweisung. This enduring popularity for paying from domestic bank accounts means companies with long-standing local knowledge will be instrumental for international e-commerce merchants who will need to integrate these online bank transfer payment methods in their checkout.

On this front, Nexi is also ready. In 2021 two leading payment terminal providers (CCV and Concardis) were acquired by the group, allowing it to become a one-stop-shop for merchants and service providers in Switzerland.

The move meant it combined many years of local experience of the Swiss payments scene with a European network working along the entire payment value chain. That allows it to support Swiss merchants and service providers across national borders, thus helping them to achieve their business goals faster.

PARTNERS ARE KEY

You can’t hope to cover all areas of card acceptance, card terminals and related services, cash register integration, shopping card systems, and strategising customer loyalty programmes alone.

Indeed, Ratepay’s Charlotte Paauwe says its white label BNPL service could not exist without partners, be they providers of risk engines or customer support or, of course, payment service providers.

“Nexi is a fully integrated partner for us, offering our buy now, pay later, with SEPA direct debit and open invoice already integrated on their end. So it’s a plug and play connection,” says Paauwe. “It makes it very easy for the merchant to quickly get payment methods online in what is a very complicated payments world with a lot of companies responsible for different parts of that value chain. There’s no way that you can do it without partnerships. A payment partner like Nexi is necessary to our success.”

Martin Pitcock, the chief marketing officer for e-commerce at Nexi Group, is particularly focussed now on building partnerships that will foster closer integration with the growing worlds of mobile payments, e-commerce, and embedded platforms in the DACH region.

“We see partnerships as critical for us to get our foot in the door so we can servic the entire value chain of the e-commerce payment flow, from the initial conversion to shipping, fraud management or whatever else might be needed,” he says. “There is such a regional need for solutions and services, and we want to be the payment player that is hyper-focussed on the DACH region. Therefore we are putting an emphasis on partnerships – both with customers and between great technology. As an example, we have just signed an exciting agreement with Mastercard on open banking services, and another with the largest online commerce platform WooCommerce to supercharge the DACH e-commerce market.

“Account to account (A2A) is a really exciting place in the market right now,” adds Pitcock. “With the Mastercard partnership, we are looking to bring its open banking services that were formerly called Aiia into the European markets.

“There’s been a lot of talk about A2A for many years, we’re certainly starting to see an inflexion point now in the take-up across Europe as the network gets better and the user experience improves. People are starting to identify the use cases and to implement open banking services into their products.

“There’s no way that you can do it without partnerships. A payment partner like Nexi is necessary to our success “

Charlotte Paauwe, Ratepay

“WooCommerce is another incredibly exciting partner for us. It’s one of the biggest platform partners, servicing e-commerce customers across the globe and it has a unique approach to partnership with its merchants, but also with its providers. It opens up a community that you interact with to help stimulate opportunities for growth in the e-commerce segment.”

Growth is predicated on finding solutions to some of the key concerns that many merchants have in DACH.

“For a merchant, there are a few big ticket items that really need to be addressed,” says Pitcock. “One is reducing fraud and we’re looking closely at that. Strong customer authentications has already been a big improvement and A2A payments also offer significant benefit for the customer in terms of risk and security.

“The second thing is getting merchants their money faster. The faster they can get the money into their bank account, the better cash flow they have. So we’ve sped that up dramatically by introducing day one settlement, and we’re looking now at how we can introduce day zero.

“We also have merchant cash advance, which gives a small advance on future cash flow and allows the merchant to pay it back as part of their daily turnover. It really helps customers and we’ve seen really good take-up in many countries.”

THE BIRTH OF ‘THE EUROPEAN PAYTECH’

As part of its unapologetic ambition to become the leading digital payment company in Europe, Nexi Group successfully merged with payment facilitator Nets in 2021. The deal was valued at €7.8billion. Nexi Group had itself had recently merged with the Società Interbancaria per l’Automazione (SIA) in a €15billion deal to become one of the 10 most valuable companies listed on the Milan stock exchange.

So what did the deal with Nets add into the mix?

Established in 2010, Nets had enjoyed a sustained period of growth, expanding its footprint into the fast-growing payments areas of Germany, Austria, Switzerland, and Poland.

Nets acquired and partnered with a number of local brands including Concardis, Poplatek and Popla Pay, Dot Card, Przlewey 24, and CCV. By merging with Nets, Nexi’s addressable market expanded fourfold and it gained greater exposure to the attractively fast-growing but under-penetrated regions of Europe, including the one with German-speaking majorities (DACH).

At the time, Nexi CEO Paolo Beretoluzzo said of the merger: “We are creating a stronger Nexi… a more resilient Nexi.“

The combined entity offers Nexi’s payments services for merchants, cardholders and banks, with the merchant-acquiring, point of sale terminals and card processing of Nets.

Today, Nexi Group is a mammoth operation generating upwards of $500million annually to its shareholders as it accelerates the growth of a cashless society both organically and through strategic mergers and acquisitions.

This article was published in The Fintech Magazine Issue 32, Page 24-27