Alternative Payment Methods: Why Do Online Businesses Need Them?

Updated 01/07/2024

As ecommerce evolves, so do payment options. Credit cards and cash are no longer the only choices. Now, alternative payment methods offer flexibility, security, and convenience. Ever wondered if offering various payment options could boost your sales and build customer loyalty? Think about it. From digital wallets to cryptocurrencies, these modern payment solutions meet diverse consumer needs. They also help businesses enter new markets and keep ahead of the competition. Simple changes, big impact.

In this blog post, we're exploring the world of alternative payment methods. We'll break down the different types out there and see how regional preferences shape their use. We'll also highlight the benefits they offer. We'll guide you in choosing the right options that fit your unique needs. By the end of this article, you'll understand why alternative payment methods are crucial for modern ecommerce and how they can enhance your business strategy. So, let's dive in and discover the future of payments!

What are alternative online payment methods?

In essence, the term Alternative payment methods (APMs) refers to any alternative payment option that does not involve cash and traditional debit/credit cards. Now, we have digital wallets, mobile wallets, cryptocurrencies, bank transfers, prepaid cards, and even "Buy Now, Pay Later" services. With technology evolving and consumer habits shifting, APMs are becoming more popular worldwide.

Digital wallets and mobile payments add convenience.

Cryptocurrencies offer a new frontier for finance.

"Buy Now, Pay Later" services give flexibility.

Why are these methods catching on so quickly? Simple: convenience. Today’s consumers want payment options that are quick, seamless, and secure - fitting perfectly into their digital lives. Whether it's paying with a phone on the go or using a digital wallet for online shopping, Alternative Payment Methods (APMs) offer a flexibility that traditional methods just don't.

Main types of alternative online payment methods

Alternative payment methods (APMs) are designed to meet diverse needs. They offer varying levels of convenience, security, and accessibility. Let's take a closer look at some of the popular APMs out there. 

• Digital Wallets: Digital wallets are like the modern version of your pocket, securely holding your payment info. No need to re-enter details every time you make a transaction. Think of tools like PayPal, Apple Pay, and Google Wallet. They're popular for a reason: ease of use and robust security. Just add your payment info to the app, and you're set. When you check out, select your digital wallet. A quick fingerprint or facial scan, and you’re done. It's that simple. No more fumbling for cards or worrying about safety—encryption and tokenization have got you covered.
• Real-Time Bank Transfers: Real-time bank transfers, also known as Account to Account (A2A) payments, like iDeal in the Netherlands, are becoming increasingly popular. These transfers offer the same security as traditional bank transfers but with instantaneous processing times, making them ideal for quick and efficient transactions. They reduce the risk of fraud, offer lower fees compared to credit card payments, and are supported by major banks globally.
• Cryptocurrency: Cryptocurrencies, a digital currency secured by cryptography and operating on decentralized networks like blockchain, have come a long way since Bitcoin started it all in 2009. After Bitcoin, we saw Ethereum and Litecoin entering the scene. The benefits? Low transaction fees, especially for international transfers, and decentralization, which boosts transparency and minimizes centralized failures. However, challenges such as market volatility and differing regulations across countries make its pricing and acceptance tricky.
• Buy Now, Pay Later: Buy Now, Pay Later (BNPL) services are truly changing the way we shop. They allow consumers to purchase items now and spread payments over time, often without interest if the plan is followed. Companies like Klarna, Afterpay, and Affirm lead this trend in ecommerce. When opting for BNPL at checkout, costs are divided into smaller, manageable payments. This offers customers delayed payment and flexibility, especially appealing to younger shoppers. And for merchants - BNPL can boost sales, reduce cart abandonment, and attract a wider customer base.
• Prepaid Cards: Prepaid cards offer a flexible way to handle payments without needing a bank account. You load money onto the card ahead of time and use it for shopping until the balance runs out. They’re perfect for budgeting because you can only spend what you’ve loaded, which helps avoid overspending. Some well-known options are Visa Prepaid, Mastercard Prepaid, and American Express Serve. These cards are versatile, making it easier to handle expenses, offering secure transactions, and being accepted pretty much everywhere.

Most popular alternative online payment methods around the world

When it comes to making purchases, different countries have varying preferences for payment methods. 

North America

North America's payment methods are diverse yet stable, with a strong preference for cards.

Source: Worldpay

• Digital wallets lead the market, rising from 37% of transactions in 2023 to a projected 51% by 2027. Major players include Apple Pay, Google Pay, and PayPal.
• Credit cards remain significant but are declining from 33% in 2023 to 22% by 2027.
• Debit cards also show a decrease, from 18% to 12% over the same period.
• Account-to-account (A2A) payments and Buy Now Pay Later (BNPL) methods are growing, with A2A expected to increase from 5% to 7% and BNPL from 5% to 6%.

Despite these shifts, using direct cards  still accounts for a major portion of regional spend. However, the trend is moving towards digital wallets, which offer convenience and integration with mobile technologies.

Europe

Europe’s local payment methods are as diverse as its cultures. For example:

Source: Worldpay

• Digital wallets dominate in Denmark, Germany, Italy, Spain, and the UK. In 2023, they made up 30% of transactions, projected to reach 40% by 2027.
• A2A payments lead in Finland, The Netherlands, Norway, Poland, and Sweden, making up 18% of transactions in 2023, expected to grow to 19% by 2027.
• Credit and debit cards are declining, from 22% and 17% in 2023 to 17% and 13% by 2027, respectively.
• Buy Now Pay Later (BNPL) is gaining popularity, growing from 9% to 8%.

Leading countries are embracing a noticeable shift. Digital and account-based payments are taking the spotlight, moving away from traditional card methods. 

Asia-Pacific

The Asia-Pacific (APAC) region is leading the way in using digital wallets, showing a big move towards digital payments.

Source: Worldpay

• Digital wallets dominate, accounting for 70% of transactions in 2023, projected to rise to 77% by 2027. They represent over $2 trillion in transaction value, making APAC a global leader.
• Credit cards are popular in seven markets, including Australia, Japan, and Singapore, but usage is expected to decline from 12% to 9%.
• Debit cards show a slight decrease, from 6% to 4%.
• Account-to-account (A2A) payments and Buy Now Pay Later (BNPL) methods maintain a steady presence, each holding at 4%.
• Cash on delivery and prepaid cards are minimal, each less than 2%.

Digital wallets are the most popular payment method in big markets like China, India, and Indonesia. They are also becoming more common in places like Hong Kong and Singapore. APAC's strong preference for digital wallets shows clearly they like the ease and tech-friendly nature of digital wallets for online shopping.

Latin America

Latin America's e-commerce payment scene is varied, with a notable shift towards digital solutions.

Source: Worldpay

• Credit cards are the top choice, making up 35% of transactions in 2023, but expected to drop to 26% by 2027.
• Digital wallets are on the rise, growing from 21% in 2023 to a projected 28% by 2027. Brazil's Pix system is a major driver of this trend.
• Account-to-account (A2A) payments are rapidly gaining ground, especially in Brazil (30% in 2023), expected to increase from 20% to 29%.
• Debit cards usage is decreasing from 15% to 11%.
• Post-pay methods, popular for their convenience, account for 4% of transactions but are expected to decline slightly.

Latin America prefers post-pay systems, especially in places like Mexico and Peru. This mix of old and new payment methods showcases a blend of traditional and emerging payment methods, driven by local innovations and consumer preferences.

Middle East and Africa

The Middle East and Africa (MEA) e-commerce payment landscape shows a blend of traditional and modern methods.

Source: Worldpay

• Credit cards are currently dominant, making up 24% of transactions in 2023, but expected to decline to 18% by 2027.
• Digital wallets are rapidly gaining traction, increasing from 23% in 2023 to a projected 34% by 2027. UAE leads in digital wallet adoption.
• Debit cards usage is significant, though declining from 18% to 16%.
• Account-to-account (A2A) payments are growing, expected to rise from 18% to 21%.
• Cash on delivery remains popular, accounting for 9% of transactions in 2023, projected to decrease to 5%.

MEA's payment trends are moving strongly towards digital solutions, thanks to local innovations and consumer preferences. While many people still use cash on delivery, which shows the region's unique market, digital wallets and account-to-account (A2A) payments are set to grow a lot.

Benefits of accepting alternative online payment methods

Accepting alternative payment methods brings a host of benefits. It’s about more than just transactions; it’s about creating a smoother experience for both businesses and customers. Here are some key benefits:

1. Increased Customer Satisfaction: Offering multiple payment options really respects your customers' preferences. It makes their shopping experience smoother and more enjoyable. This little bit of flexibility often translates to more frequent purchases and long-term loyalty. It's the small things that build trust and keep customers coming back.
2. Broader Market Reach: Accepting various payment methods opens up new opportunities. It allows businesses to connect with different markets and demographics, including those without traditional banking or regions where specific payment methods are favored.
3. Higher Conversion Rates: Offering multiple payment options can really reduce cart abandonment rates. When customers find a convenient way to pay, they're more likely to finish their purchase. This naturally boosts sales and revenue. It’s a simple change that makes a big difference. 
4. Improved Customer Data Security: Many alternative payment methods come with advanced security features, such as tokenization and encryption. These measures help protect customer data, reducing the risk of fraud and building trust with consumers.
5. More Payment Flexibility: Digital wallets, buy-now-pay-later services, and mobile payments give customers the flexibility to choose what fits their financial situation best. By offering these options, we can connect with budget-conscious shoppers and those who prioritize convenience. It's a simple, smart way to meet people where they are.

Which alternative online payment methods should your business accept?

Wondering how to pick the right alternative payment method for your business? With so many options out there, it can feel overwhelming. But don’t worry, it’s all about understanding your unique needs and what resonates with your customers. Let’s break it down together.

Aligning your payment methods with your target market is key. Here’s how to think about it:

1. China: If you're not planning to enter this market, you don’t need to include Chinese payment options.
2. United States: Make sure you use credit cards (Visa, Mastercard, American Express) as they are the most common, followed by PayPal.
3. Netherlands: Integrate iDEAL, as it’s the preferred payment method.
4. Germany: Offer SOFORT or Giropay, which are popular choices.
5. Brazil: Boleto Bancário is the go-to payment method.
6. Japan: Konbini payments are essential.

It’s all about knowing your audience and meeting them where they are. This way, you make the buying process smooth and familiar, which can make a big difference.

At the very least, your business should accept popular alternative payment methods like:

• Digital wallets
• Bank transfers
• Direct debit

These options are widely accepted and used around the world. Sure, new payment methods are popping up and gaining popularity, but they aren't universally in demand just yet. By staying up-to-date with trends and customer preferences, you can make smart decisions about which payment methods to integrate and when.

Summing up

Today's market is competitive. Offering a variety of payment options meets diverse customer needs. It enhances their shopping experience. Key takeaways? It's all about customer alignment, market expansion, and the right payment methods. Tailor your payment options to fit your audience's preferences—it's that simple. When you accept various payments, you open doors to new markets, both locally and globally.

Digital wallets, bank transfers, and direct debit are essentials for today's businesses. And don't overlook emerging methods like BNPL and cryptocurrencies; they could give you a competitive edge. Take a good look at your customer base and figure out their preferred payment methods. Check out different payment processors and ensure they integrate smoothly with your existing systems. Prioritize security to safeguard your customers' data and build trust.  Finally, stay up-to-date with trends and always be ready to adapt. Your customers will thank you for it!

Curious how to get the most out of APMs? We at CatalystPay can help you boost your revenue potential and start accepting alternative payment methods to accommodate the changing preferences of your users. Tap into new opportunities and get started now!