March 28, 2018
When was the last time you pulled out a wad of cash to pay for dinner or a stack of dollar bills to cover your rent? If you’re like the rest of the developed world, chances are, it’s been a while. The transition to a cashless society has been a long time in the making, but there are other interesting developments afoot, leading to a rise in Alternative Payment Methods (APMs).
With 96% of Americans, 95% of Brits, 93% of Germans, and 72% of South Koreans shopping online, credit cards still claim the lion’s share of all transactions.
However, according to the Worldpay Global Payment Report 2017, over half of all online transactions will be made using alternative payment methods by 2021. If you’re thinking in terms of Apple Pay, Google Pay, and PayPal only, it’s time to widen your perspective – there are hundreds of APMs emerging around the world.
How do you know which ones are right for your business? Let’s start with the basics.
As the name suggests, an Alternative Payment Method is a way of paying for goods or services outside of the mainstream credit card schemes, like Visa, Mastercard, or American Express. As technology allows consumers to leverage online banking, manage digital wallets, or even use smartphones with biometrics to pay, APMs are increasing in popularity.
While there are now numerous ways of paying – from Android Pay and Apple Pay to bank transfers and prepaid cards – APMs fall into three main categories:
1. Bank transfers
APM Bank Transfers are e-commerce purchases where consumers approve the transaction using online banking.* The Global Payment Report* found that out of all APMs, bank transfers are gaining ground almost as quickly as e-wallets for e-commerce. In fact, over the next five years, their popularity will exceed that of credit and debit cards combined. By 2021, bank transfers will be the second-most popular APM for e-commerce transactions. While the concept may seem alien in the US, 13 of the 36 countries surveyed by Worldpay cited bank transfers as their preferred payment method. Direct debit is also a preferred method of payment in some countries, most notably, in South Africa.
What’s behind the growth of bank transfers as a popular APM? Access and convenience.
In Western Europe, consumers value needing to remember nothing more than their online banking details. In countries like Germany where consumers are reluctant to use credit cards and fearful of accumulating debt, bank transfers are seen as instant payment with no bill coming at the end of the month.
Europeans also have a high level of trust in their banks and feel more confident making purchases without the risk of fraud.
2. Wallet-based solutions
Wallet-based solutions come in two flavors: in-person transactions using a mobile device, and digital wallets for paying online. A digital wallet (or e-wallet) allows consumers to safely store funds for transfers and payments, and are set to overtake credit cards as a payment method in the US by 2021.
E-wallets can be funded in various ways, bringing rise to their popularity. From a bank account to emailing funds, they offer a fast and efficient checkout experience. This means no more waiting in line in-store or filling out lengthy credit card forms online. The most popular e-wallets currently include PayPal, Alipay, and Yandex.Money.
When used on a mobile device, the phone essentially becomes a wallet. Thanks to the convenience of Apple Pay and Google Pay, this APM is gaining popularity, with more consumers making mobile payments on a weekly basis. Worldwide mobile payments are expected to exceed $1 trillion in 2019; they are also gaining traction in Europe, with a massive 200% increase from 2015 to 2016.
There is also an upward trend in mobile payment systems in developing countries as people do not need bank accounts or credit cards to send and receive money.
Cash-in APMs offer a solid alternative to credit cards and bank accounts. They come in two different forms currently: prepaid cards that run on traditional networks like Visa and Mastercard, and prepay accounts that work like prepaid cards, but don’t run off the credit card system.
Cash-in APM cards need to be loaded in advance of the purchase. The balance available on the card effectively acts as the spending limit; these cards are popular with people with bad credit, younger consumers, or those with limited resources. Interestingly, of the 36 countries surveyed by Worldpay, prepaid cards are most popular in Italy, on par with bank transfers. Prepay APMs are most popular in South Africa and Nigeria.
It should also be noted that in some developing countries like the Philippines, Nigeria, India, and Indonesia, cash on delivery is still the preferred APM.
By 2019, 55% of all online transactions will be made using APMs. While PayPal may be one of the most widely recognized APMs in many western countries, Alipay and WeChat Pay dominate the market in China, and there are more than 200 different types of APMs globally. So, if you’re not currently allowing your consumers a variety of payment options, you could be missing out on key business.
APM popularity varies greatly between countries. While we may be comfortable with e-wallets in the States, Europeans place more value in the security of bank transfers. If you’re planning on doing business overseas, or you already do, it pays to study the market and local purchasing preferences.
In Argentina, for example, allowing for payment in installments will greatly increase your chances of making a sale. In China, you need to get comfortable with Alipay and WeChat Pay, and in Denmark, they prefer local alternatives as well, such as Mobile Pay and Klarna.
Providing customers with convenient payment methods and streamlining the checkout experience is essential; the growth in global ecommerce is largely being driven by cross-border e-commerce.
Now that consumers can spend outside their domestic markets and buy products and services not available at home, e-commerce sees even greater impulse.
The improvement in logistics has also been a key factor, with marketplace companies like eBay and Amazon making it easier to shop overseas, and Alipay not only handling payment but also guaranteeing delivery of goods to China.
Localized payment methods are crucial when it comes to doing business abroad. You may have the right product that your target market seeks, but if you’re not offering the consumer’s preferred payment method, you won’t seal the deal. This is particularly true in different markets, like China. Currently, only around 5% of all online payments in this market are made with credit cards.
APMs have become highly relevant in the travel industry, and China is leading the way with its growing use of mobile devices and confidence with mobile purchases. According to Chinese airline retailing platform, OpenJaw Technologies, in this corner of the world, mobile devices are the future of travel.
Chinese Internet users have already reached over 700 million. Of that number, some 90% accessed the internet from their mobiles and made purchases from their handhelds, including travel of all kinds. The Chinese traveler is constantly seeking a personalized service. Using a preferred payment method is essential to cater to this target.
WeChat Pay, with almost 800 million users, is the most popular form of payment, followed by Alipay. China is particularly quick to accept APMs, as already more than 50% of online transactions happen via mobile, as opposed to 20% in the United States.
While traditional payment methods still dominate much of the travel industry, the growth in APMs is notable as travel operators want to accommodate their clients. APMs are particularly key in the vacation rental industry, where you have a property owner in one geography and a traveler coming from another.
One of the best ways of increasing trust when using new platforms in different countries is by allowing travelers to use the APM of their choice – one that they are familiar with and comfortable using. Moreover, many geographies – particularly in parts of Africa and Asia – do not have Visa or Mastercard options, and require APMs to book travel.
There is much room for growth in APMs when it comes to vacation rental platforms. With tech-savvy millennials transacting online and making up a powerful segment of the vacation rental market, platforms offering these rental services need to appeal to millennials’ reliance on convenience and speed.
While credit cards still dominate the payments market in much of the world, APMs are on the rise. Companies need to cater to local purchasing preferences if they seek to meet the changing needs of their domestic consumers or conduct business in different markets.
A great product and a localized marketing message aren’t enough. A company must develop or find the right payment partners for APM acceptance and payouts, and target specific APMs popular in that country or region. Failing to integrate the right APMs will cause your business to fall at the final hurdle.