Your customers are not all the same in terms of where they live, how they shop, why they patronize your business, and the forms of payment they prefer to use. That’s why businesses usually offer different options – like personalized services or several shipping choices. The same goes for payments. Given the many choices beyond traditional card payments, customers have more and more alternative payment methods (APMs) available to them.
Which raises the big question: How does a business decide which APMs to offer? Much depends on the products and services, as not all methods match all offerings. The mix of APMs depends on many elements, including the business’s desire to attract new customers, the number of cross-border customers, and the customer-experience impact of the payment methods. Below you’ll find guidance on how to choose which APMs match your business – and customer – needs.
Alternative payment methods are any payment method other than debit or credit cards. APMs include digital wallets, direct bank transfers, vouchers, cryptocurrency, and “buy now, pay later” options. APMs can be global or local in nature. Global payment methods, like Apple Pay, can be used by customers in many countries, while local payment methods are designed for use in specific regions.
Global alternative payment methods allow people to pay for purchases in both their home countries and across borders. Local, country-specific APMs are likely to be very popular among that region’s inhabitants thanks to high levels of familiarity.
The word “alternative” may suggest that these payment methods are uncommon or relatively new. In fact, many of these payment methods have existed for years, and they’ve become very popular – in some cases, more so than card payments. What was once considered “alternative” is now very much mainstream.
For example, a Dutch customer might want to pay using iDEAL, one of the most popular payment methods in the Netherlands.1 But a customer in Belgium buying on the same website might opt to use the popular Belgian payment method Bancontact.
If alternative payment methods appeal to customers and are user-friendly, they’ll undoubtedly have advantages for the business, including:
Reaching new audiences. Alternative payment methods can help businesses overcome geographical and language barriers, easing a business’s entry into new markets. PayPal, for example, is available in more than 200 markets and supports 25 currencies,2 while Apple Pay is available in 83 countries3 and Google Pay is available in 75.4 There are also country-specific digital wallets, such as Mercado Pago in Mexico.
In addition to expanding into new regions, alternative payment methods can help businesses attract different demographic groups, especially younger people. Many digital wallet users skew younger. In the United States, for example, 58% of Venmo users are between the ages of 18 and 39 years old.5
Helping drive conversion. Customers may go elsewhere if the place where they’re shopping doesn’t offer the payment options they want. In one study, more than 55% of consumers surveyed globally consider their preferred payment method essential, or they won’t shop with the business.6 In addition, offering local payment methods can help increase authorization rates – which increases conversion. Since a local processor is familiar with local credit cards and banks, it’s more likely to approve the transaction.
Reducing risk and improving security. People are very aware of the risks of sharing personal information online, and may be understandably nervous about repeatedly entering credit card numbers. Payment methods that use network tokens can encode card information. These payment methods can also reduce fraud risks for businesses, since they don’t receive actual card data.
Businesses want to offer payment methods that are cost-effective and easy to integrate. Customers want familiar payment methods that create the least friction – meaning fewer steps during checkout involving, for example, entering addresses or credit card numbers.
The solution: Choose alternative payment methods that mesh well with business needs while also encouraging people to complete purchases. Ask the following questions of your business situation in order to narrow down the APM options:
Is your business planning to move into new markets? If so, it makes sense to investigate which payment methods are used regionally, and how popular they are with target customers.
Alternative payment methods should allow customers to check out with as few steps as possible. Most people don't like lengthy forms, gated checkouts, and lots of clicks to make their purchases, especially on mobile.
Reducing friction with digital wallet methods of payment may reduce churn rate. For example, the churn rate for PayPal digital wallet users is 25% less than the rest of the PayPal customer base.7
If it takes too much time and people power to integrate an alternative payment method, the business can’t launch the new method quickly. Many payment service providers like PayPal Braintree have solved this problem by offering new payment methods as a built-in feature, which means no fresh integrations are needed. That helps boost customer adoption right away.
Direct bank transfers tend to cost less than other methods of payment, which makes them attractive to businesses. It’s worth comparing costs of various APMs to see which ones are most cost-effective for the unique needs of the business.
The products or services being sold might dictate the choice of alternative payment methods. A buy now, pay later method may be a good choice for a high-end online furniture shop. On the other hand, a business that sells subscriptions might need a payment method with a recurring payment feature.
The ease of shopping online and receiving globally shipped goods has encouraged people to look farther afield for the products they need. Ideally, businesses will satisfy this need by researching where their customer base is located so they can offer APMs with easy payment options. These could take the form of global payment methods like digital wallets and/or local payment options specific to regions.
The world of alternative payment methods is not static. Inevitably, new methods and features will come along and capture people’s attention, prompting businesses to consider even more APMs. In addition, the regulatory environment is highly subject to change.
For example, in some countries, governments are requiring banks to adopt specific payment standards and even creating their own online payment solutions, such as Pix, created by the Banco Central do Brasil. And in Poland, the homegrown BLIK payment method covers almost 60% of all payment transactions in the country.8
To be ready for the evolving APM market, businesses should seek guidance from trustworthy payment service providers on everything from integration and costs to the unique payment methods and regulatory requirements in new markets. The end result is that businesses gain more time to focus on attracting customers and growing revenue.
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial and legal advice before making any business decision.
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