Alternative Payment Methods: Why Do Online Businesses Need Them?
From biometric authentication to digital wallets and NFC technology online payments are no longer limited to cash and credit cards. In fact, alternative payment methods (APMs), considered a game-changer in the sector, have already superseded credit cards in both online and in-person payments.
With enhanced security and 100% convenience, alternative payment methods (APMs) have surged in popularity, further pushed by the pandemic and the need for cashless payments. So let’s explore what the most popular alternative payment methods are, what benefits they can bring to your businesses, and how to start accepting them.
Alternative payment methods in a nutshell
In essence, the term APM refers to any alternative payment option that does not involve cash and traditional debit/credit cards. Put simply, such payments are described as tech-driven and cashless.
While the financial space is highly regulated and usually regional specifics apply to ensure compliance (for example, the payment network Zelle is available only for US residents), the APMs are also referred to as Local Payment Methods (LPMs). For instance, IDEAL is a popular APM in the Netherlands, SOFORT - in Germany, Przelewy24 - in Poland, Multibanco - in Portugal, and so on. However, there is a wide range of global APM leaders that can facilitate cashless payments and help merchants connect with customers beyond borders. Think of Apple Pay, Google Pay, PayPal and Klarna, for example!
Types of APMs for your business
To bridge geographical boundaries and boost user satisfaction, hence business potential, businesses should understand what different APMs offer and how to implement them. So here are some common APMs:
- Bank transfers: Bank transfers are similar to card transactions as money is moved from a user’s bank account to a business. Here we should note that due to the time and effort required to initiate such payments, bank transfers are losing popularity in their traditional format. However, there are still quite a few APMs based on account-to-account / bank-to-bank technology like SOFORT, IDEAL, etc. that are still quite popular in certain regions. Furthermore, with the wider adoption of open-banking there’re more and more new APMs emerging that are based on the Payment Initiation Services (PIS) functionality.
- Digital wallets: Digital wallets are perhaps the most popular APM. In fact, according to data, digital wallet users are expected to reach 5.2 billion in the next few years. Put simply, users can store digital cash or their card details and then pay at the tap of a button. Some well-known options are Google Pay, Apple Pay, and PayPal.
- Mobile payments: Given the popularity of smartphones, another variation of APMs is mobile payments - with mobile payment apps, tap-to-pay options, and NFC technology being quite popular among younger shoppers.
- Cryptocurrency: Talking about digital cash, we should mention that cryptocurrencies are also gaining popularity, despite their volatility and notorious periods of ups and downs. Their decentralized nature and borderless applications make them an appealing option for alternative payment users.
- Buy Now, Pay Later: Next on our list is BNPL. BNPL is an installment payment solution that allows users to make purchases and pay over time. Given that it’s an interest-free payment means, it’s no surprise BNPL is highly popular (with Klarna being a leader in the field). For e-commerce merchants, offering BNPL can lead to higher conversion rates and an increased average basket value of approximately 45%. Such payments can also benefit those without access to traditional credits, and in fact, they are expected to double their market share by the end of next year.
- Prepaid cards: Another popular way to purchase goods or services online is via prepaid cards. These include vouchers and gift cards, which as a payment option can also provide financial inclusivity to customers without access to traditional finance.
How APMs boost business potential
As alternative payment methods like the ones listed above offer high user convenience and rigorous security, naturally, businesses can only benefit from accepting APMs. For example, physical businesses can reduce costs for physical cash registers and also stay relevant by meeting customer needs. Online e-commerce businesses and SaaS companies, on the other hand, can also boost their potential by prioritizing APMs over traditional methods.
To start with, APMs can help reduce fees associated with card processing. APMs can lead to higher conversion rates and lower cart abandonment since customers are more likely to complete a purchase when they see their preferred method of payment. One of the APMs that can boost conversion rates, as stated earlier, is BNPL, which is particularly popular among Millenials and Gen Z.
Offering APMs also helps companies expand their reach and facilitate transactions across different markets and borders. For example, digital wallets are ideal to help reach shoppers across the globe - with over 56% of buyers using this payment method several times a month. No wonder digital wallet transactions are expected to grow from $7.5 trillion in 2022 to $12 trillion in 2026 (per Juniper Research).
Prepaid cards like gift cards, on the other hand, also come with benefits. They can boost customer engagement, especially around holidays and sales, and can capture invaluable data insights to help you target your customers again at a later stage.
Last but not least, let’s not forget that APMs are associated with robust security measures, which additionally builds trust among customers and leads to higher sales. When it comes to security, for instance, we should note that cryptos can offer an extra layer of security thanks to the blockchain technology they are built on, offering transparency and data privacy at the same time.
That said, while each method has its advantages, offering all APMs at once is not a good idea. Businesses should always do their research and understand what APM would suit their market. To provide an example, if you are selling luxury items, then BNPL should definitely be part of your APM strategy to help customers afford the items of their choice and also cross- and upsell them.
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 at the click of a button!