Accepting alternative payment methods is no longer something a business should be thinking about.
“You have to, to serve these markets, re-imagine how money can be managed and moved because there’s going to be more change in the next five years in financial services than happened in the past 30.” – Dan Schulma, President of PayPal.
As Dan puts it, the financial services space is moving at a space where offerings such as alternative payments methods are not really a new thing. They are very much here and now!
In this article, we look at the most popular alternative payment methods and why they are so important to accelerate the growth of your business.
What is an alternative payment method?
An alternative payment method (APM) is any way to pay for goods or services that doesn't involve traditional payment methods such as cash, cheques or major cards like Visa, Mastercard, or American Express.
They include Direct Debits, digital wallets (apps such as Google Pay, Apple Pay, PayPal), mobile payments, P2P platforms, cryptocurrency, bank transfers, and 'buy now, pay later' (BNPL) options like Klarna.
A brief history of alternative payment methods
Payment methods have developed significantly over millennia. From bartering in 3000 BC to the introduction of coins in 1100 BC, followed by paper money in the 11th-17th centuries, and credit cards in the 19th century.
Now, in the 2000s to the present, alternative payment methods have emerged with the rise of online payments and e-commerce.
Alternative payment methods were popularised by services like PayPal, which enabled low-cost international transfers.
The surge is due to evolving customer preferences and expectations. This led to many of the alternative payment options we have today. Customers seek convenient and hassle-free payment experiences, shifting away from traditional methods.
Additionally, progress in checkout technology has simplified the integration of alternative payment methods for merchants.
Popular alternative payment methods
Buy Now Pay Later (BNPL)
BNPL lets customers pay later or in instalments. Payments come from a bank account, debit, or credit card.
Big players in the BNPL space include Klarna and Afterpay. An example is Klarna's "Pay in 3" option, charging interest-free payments every 30 days.
Bank transfers
Bank-transfer apps move funds from the customer's bank account to the merchant's. These are typically push payments. The customer reviews and authorises the amount in their online or mobile banking app.
While transfers can take a couple of business days, now real-time interbank payment systems often allow funds to transfer in seconds.
Digital wallets
Digital wallets store payment cards and generate tokenized card numbers for each transaction.
Consumers find them secure and convenient for online, in-app, or in-store shopping without typing card details every time.
It is often an umbrella term used for electronic and digital wallets.
(h4) Digital wallet example - Amazon Pay
Amazon Pay lets customers use payment methods saved in their Amazon accounts, eliminating the need to enter card information every time. This gateway is known for its high security.
By integrating Amazon Pay, businesses can align with official brands, which adds an extra layer of trust.
Electronic wallets (eWallets)
An e-wallet stores money loaded from bank transfers, credit cards, or in-store payments. It enables online or in-store transactions, requiring internet access via a device. Some of these popular alternative payment methods include Alipay, PayPal and WeChat Pay.
E wallet example - PayPal
PayPal is one of the most popular payment methods for its convenience. Customers can maintain a cash balance or add funds from a different source for purchases.
PayPal also has a financing option known as PayPal Credit.
PayPal is quick, convenient, and secure, eliminating the need to enter credit card numbers for transactions with unfamiliar merchants.
Mobile wallets
Mobile wallets store funds electronically on a mobile device, funded through bank transfers, card cash, or mobile carriers.
They enable purchases, money transfers, and bill payments online, in-app, or in-person using contactless interfaces like QR codes or SMS.
Mobile wallet example - Google Pay
Google Pay is also a top alternative payment method for its convenience and popularity among online transactions.
It allows secure checkout on third-party sites using saved information.
Direct debit payments
Direct debits allow for recurring automated payments, processed almost instantly for user convenience.
Customers benefit from the ease of not having to remember payment dates, as the money is automatically deducted once the direct debit is established.
Cash based payments
When making online purchases, customers select a cash-based payment option and receive a barcode or unique reference number.
This is then presented at a retail location to pay in cash. Once payment is made, the merchant fulfils the order or provides the service. Popular e-cash methods include Boleto, and Fawry.
Benefits of alternative payment methods
Reducing cart abandonment
Cart abandonment poses a significant risk for merchants with limited payment options. Potential customers may abandon their purchase if they perceive the available options as untrustworthy or if they require instalment payments to afford the items.
Merchants consider accepting alternative payment methods as a major part of their online payment strategy.
Customer choice and convenience
Customers prefer a range of payment methods. If they're accustomed to a certain way of paying, they're unlikely to adopt a new method just to transact with a merchant.
Given that convenience is paramount in closing sales, it's key to minimize payment friction and annoyance. Being aware and flexible to customer preferences will always be essential in the payments space.
Why alternative payments methods are important
Only reacting to the adoption of APMs once they become mainstream is insufficient. By then, competitors who proactively addressed customer needs will have gained a significant advantage.
It's essential to be proactive by gaining a comprehensive understanding of trends and surpassing customer expectations. This involves providing seamless, top-tier payment experiences that anticipate their preferences.
Choosing the best alternative payments methods for businesses
Before finalizing the top alternative payment methods for your business, thoroughly understand the payment preferences of your customers. Consider location and their readiness to adopt new payment technologies. Different countries will have different payment preferences.
Rushing to offer payment options that customers distrust or dislike may prompt them to switch to a business offering methods they prefer.
Merchants must also evaluate which APMs align with their business requirements and needs. Consider factors such as the cost per transaction and ease of setup and management. Ensure compliance with relevant regulations.
Offering every APM isn't necessary for maximizing conversions. Rather, focus on offering the right and most preferred APMs for the target market. Some payment methods may even have adverse effects on a business.
Conclusion
Alternative payment methods (APMs) are diverse ways to pay for goods or services beyond traditional cash or major card schemes like Visa or Mastercard.
Merchants that integrate alternative payment methods in their payment strategy can reduce cart abandonment while meeting customer preferences. This is essential for creating a familiar and convenient payment experience.
Being proactive in understanding local payment methods, trends and customer needs is key to staying ahead of the competition.
When selecting APMs for your business, consider customer preferences, regulatory compliance, and the impact on your bottom line to offer the most effective payment solutions.
 - Shopify)