What Are Alternative Payment Methods: Types, Benefits and Why Your Business Needs Them
In today’s digital-driven environment, conventional methods of payment are rapidly giving way to more innovative and versatile alternatives. These alternative payment methods offer an array of benefits for both consumers and merchants. In this blog post, I will focus on the definition of APMs, their types, and the advantages they offer. I will also highlight their growing significance for merchants like you in this fast-paced, digital era.
What are alternative payment methods?
Alternative payment methods (APMs) cover any non-traditional means of making a payment, beyond the standard cash or mainstream credit and debit card transactions. These methods often leverage digital technologies and can encompass a wide variety of platforms and instruments, as you will learn below.
Types of alternative payment methods
As a merchant navigating today’s digital age, understanding and adopting a variety of payment methods is crucial for reaching a wider customer base and improving transaction efficiency. Here are some prevalent types of alternative payment methods, accompanied by examples:
1. Digital wallets
Digital wallets, also known as eWallets, store users’ payment information (such as bank account details and credit or debit card information) securely and offer a streamlined checkout process, which can enhance the shopping experience and potentially increase conversion rates.
Probably the most prominent example is PayPal. According to a 2022 survey by McKinsey, more than two-thirds of Americans anticipate having a digital wallet within the next two years, and many of them will likely use more than one.
2. Mobile payment apps
As more consumers use their mobile devices for shopping, mobile payment apps have become increasingly significant. These apps allow customers to make payments directly from their smartphones, often through NFC or QR codes. Examples include Venmo, Zelle, and Square. An example we created for our client is boon, one of the first payment apps offering NFC payments.
Although not yet universally accepted, cryptocurrencies like Bitcoin, Ethereum, and Litecoin offer a new kind of payment method. They can provide benefits like lower transaction fees for international payments and access to customers who prefer cryptocurrencies for their security and anonymity.
4. Buy Now, Pay Later (BNPL)
BNPL services, such as Klarna, Affirm, Afterpay, and Zinia allow customers to purchase items immediately and pay for them over time, usually in interest-free instalments. This can lead to higher conversion rates and larger average transaction values. A study from Juniper Research has predicted that the number of BNPL users will experience substantial growth of 157% by 2027.
5. Bank transfers
Direct bank transfers, facilitated by services like ACH in the US or SEPA in Europe, can provide a secure and efficient way for customers to pay, particularly for higher-value transactions.
Each of these alternative payment methods has its advantages and may appeal to different customer demographics. Understanding and offering these options can help you meet your customers’ needs and stay competitive in the evolving retail landscape.
I know that payment integration can be a challenge. That’s why we created a solution that supports credit cards and several APMs.
Benefits of alternative payment methods
APMs bring a host of benefits to merchants, allowing them to adapt to changing customer behaviours and leverage technological advancements in the financial sector. Here are some key of them:
1. Increased Conversion Rates
APMs often streamline the payment process, resulting in a quicker, more efficient checkout experience. This can lead to reduced cart abandonment and higher conversion rates. Offering payment methods that customers prefer and trust can also improve conversions.
2. Expanded customer base
By offering a wider range of payment methods, you can cater to a broader demographic, including those who prefer using specific digital wallets or mobile payment solutions. Additionally, APMs enable seamless cross-border transactions, opening up your business to international customers.
3. Improved cash flow
Some APMs, like direct debit solutions, can provide quicker settlement times compared to traditional methods, improving cash flow.
4. Reduced costs
Certain alternative payment methods can have lower transaction costs than traditional card payments, especially for cross-border transactions. This is particularly true for some forms of direct bank transfers and cryptocurrencies.
5. Improved security
Many alternative payment methods incorporate advanced security measures, such as encryption and tokenization, reducing the risk of fraud and potentially saving merchants from significant financial losses.
6. Competitive advantage
By keeping up with fintech trends and offering a variety of payment methods, your business can stay competitive and meet the evolving expectations of modern customers.
Remember, while alternative payment methods can bring significant advantages, it’s essential to choose the right ones for your business considering your specific needs, customer preferences, and the costs associated with each method.
Why are alternative payment methods important for your business?
Customers expect more flexible, efficient, and secure ways to pay. Offering a variety of payment methods can enhance customer experience, leading to higher customer satisfaction and loyalty. Otherwise, it can also have a negative impact on conversion rates.
A survey by Checkout.com and Oxford Economics revealed that 55.7% of consumers said they would never shop on a site again if they were unable to use their preferred payment method. This proves that customers like the familiar and are hesitant to change their normal payment method only to buy from a new store.
So what do you as a merchant need to do?
Understand consumer behaviour: You need to understand consumer preferences, as they are constantly changing.
Understand your business: Not every alternative payment method available will be ideal for your business and industry.
Understand your market: Remember that almost every country has its specific APMs. What works for consumers in Germany might not work for those in the United Kingdom.
Axelgate can help
Our experienced team specializes in developing banking and payment apps. We help clients reach new customers and strengthen their competitiveness. Learn more about how we work.