October 22, 2005

Credit-card companies woo few Germans (and Japanese)

Throughout Europe, credit cards have changed people's habits over the past decade. England, dubbed the "plastic nation," has the most developed credit-card market in the world after the United States, which has more credit cards than inhabitants.There and in France, people are used to dipping into the red to pay their bills. Credit cards have also been making great strides in Hungary since their introduction in 1999.

Not so in Germany. The German Retail Association estimates that credit cards are responsible for only 5 percent of goods purchased here annually, compared with 13 percent around the globe. It's not that Germans don't like plastic cards. But Germans use them mainly to substitute cash, not for long-term borrowing.

"When I want something I pay for it myself," says David Hausen, a senior in high school. "It's a question of honor."

At heart, the unpopularity of credit cards is rooted in pragmatism. Unlike debit cards, which are free, credit cards are viewed as expensive - both for shopkeepers and customers.

"The German are sort of spoiled: They're used to relatively low cost for money transactions," explains Kerstin Aldendorf of the German Association of Banks in Hamburg. "They don't want to pay for services they don't need."

The only retail stores to make a profit in Germany - Aldi and Lidl - accept only cash or debit cards. The discount stores have kept ahead thanks to a strategy based on speed and low costs, say experts.

"At Aldi, everything has to go fast," says Ms. Aldendorf. Credit cards would postpone the arrival of money into Aldi's coffers, thereby lessening its competitive advantages.

This reluctance to borrow is also rooted in history. The great inflation of the 1920s, when prices doubled in a day and the middle class saw their savings wiped out, instilled in many Germans deep caution toward borrowing money.

Decades later, the deutsche mark stood as a concrete proof of a reunited Germany after the turmoil created by the Berlin Wall, making paper money especially dear to many. "For a long time, the Germans held the deutsche mark as a proof of normality, something that held them together," says Mr. Pellengahr of the German Retail Association.

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