Fotocredit: paydirekt
28. June 2017

A day late and a dollar short?

Paydirekt vs. PayPal: the somewhat unequal showdown of two digital payment services

Internet – the final frontier. Commercial galaxies like Ebay and Amazon are circling eager customers in endless orbits. PayPal space-shuttles whizz industriously to and fro, carrying payments. Suddenly, at the edge of the universe a foreign spacecraft appears: Paydirekt, ready to attack! What happens next, alas, is not a story about a mighty intergalactic power struggle but a cautionary tale about latecomers in the digital age.

Reaching the competitors annual result in one and a half hours

The plan may have looked sound on paper. In 2015 several German banks launched Paydirekt, their response to the US digital payment service Paypal. The goal: to gobble up a hefty slice of the online-payment business. By then Paypal had already been active in the market for 17 years. Active as in experienced, well-known and established in the minds of the customers.

All of which could have been overcome if Paydirekt had learned to fly quickly. It didn’t. Many savings banks had refused to join the group, and the launch was compromised from the get-go by a hesitant roll-out and petty infighting about sharing marketing costs. A space ship ready for attack, Paydirekt was not! By autumn of 2016 the new payment service counted 650,000 registered customers, Paypal had 17,200,000. The difference in shops accepting the payment services looked similar: Paydirekt’s amounted to 240, Paypal’s to 50,000. Paypal could be used in 201 countries and regions outside of Germany, Paydirekt in exactly zero. All of which was reflected in the number of transactions: Paydirekt managed 100,000 transactions, Paypal on the other hand 535,000,000. In other words Paypal reached the annual result of Paydirekt in one and a half hours!

It’s the chicken-egg-dilemma!

Statistics company Statista cites the chicken-egg-dilemma as the cause for Paydirekt’s woes. As long as there are scarcely any customers, few shops will accept the new payment service. And as long as just a handful of shops participate, users are not interested in signing up. Comparatively high fees for the shops and a cumbersome registration process for potential customers do not help matters.

Rules of the digital world

Actually, there are a few more factors explaining Paydirekt‘s miserable performance.

  • The internet is international: a payment service limiting itself to Germany is radically reducing its own markets.
  • Experience and trust are valuable internet commodities. A company like Paypal, which has been dominating its market for 17 years, knows its customers and their psychology inside out.
  • The internet is viral. If a service gets good reviews and is well-known it spreads rapidly, cementing its market share.
  • The payment service ‘Sofortüberweisung‘, a subsidiary company of the Swedish Klarna group, is already established in Germany as a direct competitor for Paypal.

Well-meant is not automatically well made, as the example Paydirekt once again amply demonstrates. And even as the banks involved are at each other’s throats, new intergalactic intruders are appearing: Alipay from China is taking a long look at the German market, resourceful FinTech startups are developing new methods of mobile payments, and the long-overdue Apple Pay is still waiting in the wings.

At least, Paydirekt serves as a lesson for banks entering the age of digitisation. Meaning there is no time to lose, otherwise someone else will take over the market and the profits! Also, this is no time for experiments. Instead of trying to devise and establish a new system – and rather late at that – it is more promising to adapt existing and efficient software solutions.

To successfully conquer the far reaches of the digital world of finance or crash down to earth like a burned-out rocket stage: you decide!

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