Alternative Payment Methods (APM): The Latest Buzzword in The Payments Industry
Alternative payment methods (APM) has been a buzzword for the payments industry for a long time now. For the past 10 years, the payments industry has been going through a renaissance. The digitalisation of payments, the birth of neo-banks and the rise of e-commerce have caused an increase in customer expectations regarding payment options.
According to Paysafe whitepaper Lost in Transaction: The future of payments for SMBs, 75% of online SMBs believe that increasing the number of payment methods they accept is essential for the success of their business.
Let’s dive right in.
What Are Alternative Payment Methods?
Alternative payment methods are any other payment method that is different to cash, or a credit card issued by a major bank (Visa, MasterCard, American Express). Examples of alternative payment methods include mobile payments, e-wallets, bank transfers, and ‘buy now, pay later’ schemes.
These methods were born in the midst of fierce online competition, posing as a unique selling point for many companies in an attempt to get ahead of competition. Let’s see some of the most popular alternative payment options available.
Alternative Payment Method #1: Buy Now, Pay Later
Swedish bank Klarna became the posterboy of ‘buy now, pay later’ payment methods. In simple terms, using Klarna as a payment method in popular online stores such ASOS, JD Sport and Topshop allows customers to purchase a product and pay in 4 interest-free installments within 30 days.
Does that sound like a successful recipe? You bet it does as Klarna raised $650 million in funding at a post money valuation of $10.65 billion. To contextualize those numbers, Klarna ranks as the number 1 valued private fintech in Europe and the 4th highest worldwide.
Alternative Payment Method #2: e-Wallets
We’re sure you’ve heard these names before: Cash App, Due, Google Pay, Apple Pay, Samsung Pay. All of these are digital wallets sharing similar characteristics that place them at the top of people’s favourite alternative payment methods.
E-wallets afford customers the comfort of having all their credit cards stored in one place, in a digital form. It saves them time and effort when making purchases and they do not have to worry about carrying physical cards on them or forgetting them in the pockets of their jackets.
Moreover, e-wallets offer an elevated level of security since they require a combination of face recognition, fingerprints and passwords in order to authorize a transaction. Convenience and security are not the only factors making e-wallets so popular.
People who use e-wallets can manage their cards by freezing, canceling, renewing cards or changing passwords in a matter of a few clicks. Additionally, they can track their spending, get detailed reports, automate payments and budget for their expenses in a transparent, user-friendly way.
E-wallets not only gave customers an extra way to buy things but a ‘one-stop-shop’ for all their personal finances.
Alternative Payment Method #3: Prepaid Cards
Prepaid cards give you the same main advantage of a credit/debit card which is to buy something at a physical or an online store without the hustle and commitment of having to set up an account with a financial institution.
Consumers show an affinity to prepaid cards because they offer them the chance to avoid the time-consuming and inconvenient process of a credit check to get a traditional credit/debit card. Furthermore, prepaid cards don’t charge foreign-exchange fees for purchases made abroad on the condition that the currency held on the card matches the purchase currency.
Last but not least, prepaid cards rank high amongst alternative payment methods because of their budget-friendly nature. Due to the fact that prepaid cards don’t have a direct credit line – the balance of the card is determined by the prepayment made to the card by the user. Prepaid card holders don’t need to worry about incurring debt or fees from a negative balance. It makes budgeting easier and removes all the traditional credit card worries.
Alternative Payment Method #4: Bank Transfers
Also known as a wire transfer, a bank transfer is essentially a direct transfer of money from a customer’s bank account to a business’s bank account. Yes, this is as simple as it sounds.
First and foremost transactions are safe and secure, with no possibility of payment reversals or chargebacks. Bank transfers are easy, customer-friendly and increasingly popular with customers worldwide.
According to Paysafe’s whitepaper, the number of SMBs that accept direct bank transfer was expected to increase by 37% before the end of 2020, to almost half of all online merchants (48%).
Alternative Payment Method #5: Cryptocurrency
The rise of crypto is undeniable. Bitcoin, Ethereum and Tether are no longer keywords but household names. According to Statista, at the end of the third quarter of 2020, there were 351,417 Bitcoin transactions recorded daily worldwide.
Considered to be virtually impossible to fake or double spend, cryptos are secured by cryptography, evading the need for an intermediary such as a bank. No fees, greater security and a payment method that is gaining more ground amongst customers across the globe.
When companies like Microsoft, Starbucks, Burger King and ExpressVPN accept cryptos as payments, it’s safe to say that cryptos are entering the mainstream payment circuit.
Why Should Companies Use Alternative Payment Methods?
After exploring the different versions of alternative payment methods and explaining why they are favoured by customers, it would be wise to look at the other side of the coin. Where should companies stand regarding APMs? Why should they embrace them and what do they have to gain from this?
Decrease in Checkout Failures
Imagine you are trying to sell your product or service online. You’ve done all you can to build your brand, advertise, drive traffic to your website and lead them to the checkout page. That’s quite an accomplishment and it would be such a shame to lose them a few clicks before converting, wouldn’t it?
What if a customer’s card is declined? What if a customer doesn’t have a credit card but still intends to buy? By not providing alternative payment methods you are essentially losing a large percentage of people that wanted to engage with your company.
By incorporating an alternative payment method like PayPal or Amazon to your online business, you essentially open the door to cross-border payments across the globe. To give you some perspective, PayPal alone has around 148 million global users.
Do you realise the potential? By adding an alternative payment method to your site you are reaching people that would be otherwise out of reach.
What’s better than a paying customer? A returning customer. When people navigate a website and make the decision to buy, the payment page is one of the most important pages influencing that decision.
When customers see a wide array of traditional, alternative and modern payment options they immediately know they are dealing with a company that is looking out for them. A company that gives them power, options and leverage to choose what they believe is best for them.
This is a company they can trust, refer and certainly return to. Alternative payment options are a sign that your company is doing its due diligence and goes to great lengths to keep up with the evolving needs of the modern customer.
The Future of Alternative Payment Methods
The business world is moving online and if 2020 was anything to go by, the future of alternative payments is looking bright. As Statista reported, 2019 saw retail e-commerce sales worldwide reach 3.53 trillion US dollars with a projection to grow to 6.54 trillion US dollars in 2022.
People are getting more and more comfortable with online transactions and stats are showing a growing trend towards alternative payment methods.
- According to a Canadian Prepaid Providers Organization (CPPO) study, an impressive 73% of Canadians have already used an APM in their transactions.
- The Global Payments Report by Worldpay indicates that by 2021, bank transfers will own 23% and of the German market with e-wallets holding an impressive 23.9% of the pie.
- According to predictions from Worldpay’s 2018 Global Payment Report, the use of mobile payments is set to increase to 28% in 2022.
- According to the TSYS 2018 US Consumer Payment Study, 27% of Millennials and Generation Z (ages 17-24), have uploaded a debit card to a mobile wallet to make a purchase.
Taking all of that into consideration and combining it with the fact that earlier this year the World Economic Forum “opened” the digital payment borders, it comes as no surprise that APMs will be a buzzword we will keep on hearing for years to come.