> Meanwhile, a consumer organization has sued American
> Express over its Membership Miles program, which gives
> customers frequent-flier miles with each card purchase.
> German law prohibits companies from offering bonus
> programs. The case is pending. For now, American Express
> offers the program on a limited basis but is prohibited
> from advertising it.
Germany's Credit Card Market
Becomes Charged With Lawsuits
By GREGORY STEINMETZ
Staff Reporter of The Wall Street Journal
BERLIN -- To get ahead in Germany's credit-card market, you need more than
good service and clever marketing. You need a lawyer.
American Express is suing Visa. The German postal service is suing Citibank.
Trade groups have sued Citibank and American Express.
The litigation is a sign of both the rewards and frustrations of issuing
credit cards in Germany, where cash has long been king. Germany's credit-card
market is growing, and competition is heating up, but whether the market lives
up to its enormous potential remains to be seen.
Europe's largest country, Germany has only three million Visa cardholders,
compared with 30 million in Britain. Germans make only 1% of their purchases
with cards, compared with 18% in the U.S. ''Germany has a lot of catching up
to do,'' says Folkert Mindermann, a spokesman for _Citicorp_'s Citibank unit,
a major card issuer.
Now the market is showing signs of changing. Propelled by aggressive
promotions, membership is rising at a double-digit rate at _Visa
International_ and at Eurocard, Germany's most popular card. But growth isn't
coming as fast as planned for some issuers, particularly Citibank. And
_American Express_ Co. has gone three years without a membership increase for
Stephen Lewis, banking analyst at Swiss Bank Corp. in London, suspects
Germans might be so satisfied with their current payment systems that they
have little interest in new ones. Germans prefer to pay their bills with debit
cards, bank transfers, and most of all, cash. ''The card market will grow,
but you have to wonder if penetration will be as great as predicted,'' Mr.
Card companies know that growth won't come easily. ''The potential must be
fought for,'' says a spokesman for GZS, the company that puts out the
Eurocard. Eurocard, which has a tie-in with _MasterCard International_ Inc.,
has 6.7 million members in Germany. It believes it can have 30 million in the
At American Express, the number of card members in Germany has been stuck at
1.2 million for three years. Juergen Aumueller, president of American Express
Europe, says the average amount charged on every card continues to rise,
though he declines to cite figures. ''We're concentrating on the amount
spent,'' he says. He adds that the American Express corporate card, which
targets business customers, is catching on. Siemens AG recently joined.
Rivals suspect the market for high-end customers, the kind targeted by
American Express, is saturated. So they are going mass market. Citibank has
struck a deal with the German railway to offer a Visa card in combination with
the Bahncard, the railroad's low-cost card. Citibank has built a processing
facility in central Germany just to handle Bahncard customers.
The Visa Bahncard costs no more than the regular rail card, but demand for it
has been weaker than expected. One reason, Citibank suspects, is that other
banks have discouraged their own customers from signing up with Citibank.
Then there are Citibank's court battles. Before it even offered the Bahncard,
a trade association supported by German banks sued Citibank, claiming the
Bahncard was unfair competition. Citibank defeated the effort. But when
Citibank began shipping cards from the Netherlands to avoid Germany's high
mailing rates, the German postal service filed a suit, accusing Citibank of
violating German postal rules. The case is pending.
American Express also is in court, both as plaintiff and defendant. Hoping to
bust up Visa's dominance across Europe, American Express recently filed an
unfair-competition complaint with the European Union. American Express charged
Visa had proposed rules to prevent banks from offering other cards, such as
In response, Visa said it hasn't proposed such rules, though it has discussed
the matter internally. American Express's complaint, Visa says, relates to
''internal and yet unresolved matters within Visa,'' and is thus
''premature.'' American Express has begun to market cards through banks in
Portugal, Greece and Israel, but not in Germany and other large European
Meanwhile, a consumer organization has sued American Express over its
Membership Miles program, which gives customers frequent-flier miles with each
card purchase. German law prohibits companies from offering bonus programs.
The case is pending. For now, American Express offers the program on a limited
basis but is prohibited from advertising it.
Even if the German card market takes off, the business might never be as
profitable as in the U.S. For one thing, German customers tend to pay their
credit-card bills immediately rather than using the borrowing privileges. That
means banks have to make their money almost exclusively on fees charged to
merchants, instead of on interest.
And bruising competition is keeping down the fees, which range in Germany
from 2.4% to 4.5% of the purchase amount, according to the German Hotel and
Restaurant Association. ''You can dramatically reduce your fees by negotiating
with the issuers,'' says a spokesman for the association.