June 15, 2018
Alternative Payment Methods (APMs) are gaining favor around the world; according to the Global Payments Report 2017 by WorldPay, are set to overtake credit cards as the most popular online payment method by 2021. The multi-billion-dollar vacation rentals industry is potentially seeing the most impact of APMs, given that rental platforms rely on the revenue generated by transactions made by travelers from all over the world.
APMs have proven to be simpler to use and offer faster settlement and transfer of funds between parties. And since they’re integrated with the consumer’s online banking, there is greater trust by consumers using the product.
For example, if a traveler from Germany goes online to book a cabin in the Adirondacks, he might choose to pay using his favorite German APM. The traveler needs to know that his transaction will be secure, and the vacation homeowner in the United States needs to be assured that no matter how their guest chooses to pay, the transaction will be approved and funds will be disbursed to him in his desired currency.
In a digitally distracted era, where time is a precious commodity, anything you can do to make things easier for your consumers is going to earn their business. Don’t worry if you’ve gotten attached to traditional payment methods. Accepting payments such as debit and credit cards and ACH will never go away, as they’re still a very dominant force in global payment trends. However, as more merchants and vacation rental platforms start to offer APMs as a payment method for buyers who want to pay as such, APMs will logically take up more share of transaction processing volume (TPV).
The vacation industry brings together multiple geographies, currencies, languages, cultures, and purchasing preferences. Visa Global Travel Intentions Study 2018 found that as more people travel, trips are becoming shorter and more frequent. This study also found that despite a myriad of technology available to modern travelers, some 77% of them prefer purchasing in cash, when abroad.
When it comes to vacation rentals, the appeal of authentic travel, or living like a local is on the rise. Renting a home or an apartment also tends to be a more convenient and economical option over a hotel. But when travelers from different countries have to give money to strangers in places they’ve never been, the trust element becomes absolutely vital.
It is essential that vacation rental sites understand that allowing their customers to pay via their preferred (and trusted) APM will lead to greater business.
Furthermore, a vacation rental platform that only accepts credit cards or, say, PayPal probably won’t attract German vacationers who would rather pay via Sofort or with cash when they arrive. The same can be said for Norwegian and Chinese vacationers who prefer to pay with APMs like Klarna, WeChat Pay or Alipay.
Moreover, as the majority of the vacation rental market’s customers is made up of tech-savvy millennials who prefer the convenience that mobile tech and wallet-based solutions offer, not offering APMs is seriously myopic.
If you’re wondering whether accepting APMs is risky, the good news here is that the cross-border risk of the transaction to both the traveler and the vacation rental platform is the same regardless of the payment method.
Effective fraud mitigation programs look beyond the payment type and explore a traveler’s overall online persona including device fingerprinting, prior purchasing history, bad prior payment instrument usage, email, and phone number before sending the transaction for authorization.
As it relates to the risk property owners may face, many APMs use multi-factor authentication and other step-up challenges like one-time passcode (OTP) in the authentication process. These add a significant security advantage and fraud mitigator over the traditional online transaction where payer authentication is not required.
As long as you have a trusted and experienced payment processor powering your transactions, you’ll have no need to worry about risks associated with APMs.
The barrier to adoption is less correlated to the appetite of the vacation rental platforms, and more due to the lack of global acceptance of these payment types. In other words, there’s no universally available APM that stands out above the rest in terms of popularity. Instead, it requires implementing a collection of APMs to achieve significant coverage.
But as more global processors and marketplaces begin offering acceptance of APMs in their suite of products, the adoption rate will accelerate considerably. If you’re not letting your customers pay with their preferred payment method and working to establish trust from the get-go, you can bet your competition will be.
At Yapstone, after analyzing millions of vacation rental payments around the world we process annually, we found that two-thirds of travelers live outside of the country where they booked a vacation.
In many instances, those travelers reside in a country that offers a cheaper alternative payment method to cash, check, or cards.
Consumers living in countries where APMs are a vital component of the payment mix type tell us they would rather have used an APM for the vacation rental, however, the merchant was not enabled to accept anything but traditional payments.
It doesn’t take a rocket scientist to figure it out. Concerns about payment security and a long & confusing checkout process are among the top reasons for shopping cart abandonment.
So, if your vacation rental site is forcing customers to pay outside of their comfort zone (or means), they’ll simply go elsewhere. What’s the point of building a beautiful site with incredible properties that people want to stay in if they feel forced to leave at the final stage?
As you already know, APMs offer an alternative method of paying from your traditional credit card schemes. But we’re not just talking about PayPal or Alipay. There are literally hundreds of APMs cropping up around the world and where you do business will have a major impact on the types of payment methods you should use.
Essentially, APMs fit into three broad categories:
1. Bank Transfers
Bank transfers may not seem all that cutting-edge; in the US, this way of paying online lags behind other countries. But in parts of Europe, Germany in particular, where trust in the banking system is high, bank transfers are by far the preferred payment method.
Bank transfers offer people the convenience of remembering just one set of login details, rather than having several different options of paying. And as e-commerce is not as prolific in this country, there are naturally fewer payment alternatives for it at the current time.
Bank transfers in the old continent are usually instant and, in countries reluctant to accumulate debt (we’re talking about Germany, again), people like to know that they have no surprise credit card bill arriving at the end of the month.
Direct debit is also the preferred way of paying for things in some countries around the world, most notably, South Africa. Convenience is a major driver here, as well, especially where repeat purchases are concerned.
Ironically, e-wallets or wallet-based solutions don’t involve your wallet at all. Just as we progressed from bulky CD players and chunky cameras, the traditional wallet’s getting left in the dust as well. This major APM player is becoming the most popular of all, and it covers two different types of wallets.
In-person transactions, such as when you swipe your mobile to pay in a store with Apple Pay or Google Pay are the first type of e-wallets. China leads the way in these types of mobile payments by far, hitting $5.5 trillion in 2016 – 50X that of the United States!
Online e-wallets include solutions we all know, like PayPal, Yandex.Money, and Alipay, but there are countless others as well. For example, in China, Tenpay is gaining in popularity, while Qiwi is a popular alternative in Russia. There are also use-specific eWallets; Skrill and Neteller, for example, are mostly used for gambling.
According to WorldPay, wallet-based APMs are set to take over credit cards as the main way of paying online, even in the US, in just a couple of years.
The emphasis with this APM is on speed. Customers get a fast and efficient checkout experience and don’t have to dig around for their card or tap in any numbers. They also don’t have to wait in line if they’re buying a product in a store with their mobile payment solution.
3. Cash-Based Solutions
Cash-based, or cash-in, solutions can either refer to good old cash-on-delivery (yes, that is still a major means of paying for things in some countries around the world, most notably Nigeria, India, the Philippines, and Indonesia), or Prepaid and Prepay cards. What’s the difference?
Both are considered a cash-in APMs because they require the user to top them up with cash – its rather like adding credit to a cell phone. But whereas prepaid cards still run on the traditional Visa and Mastercard rails (albeit with a credit limit limited by the amount of money on the card), prepay cards are independent of the major card schemes.
These could be store cards, cards used on public transport, or cards that work within a certain network. Cash-in APMs are naturally popular among people who can’t get access to credit cards, either because of bad credit history or their age (under 18).
APMs are understandably affecting e-commerce. As businesses reach into more markets than ever before, they need to understand the payment preferences of their new customers – and that by not offering them their preferred APM, they may lose out on their business.
Just put yourself in your customer’s shoes for a moment. Would you buy from a website that only accepted payment in Bitcoin, or made you go through steps of creating an account with a payment processor you’d never heard of?
Probably not, so don’t expect your customers to.
The WorldPay report shows us that APMs are a significant part of the future of payment trends. We’re already seeing that APM adoption is on the rise and set to replace credit cards even in the US. However, widespread adoption will be hampered by the volume and types of APMs that are popular around the globe.
Which APMs a vacation rental site accepts will vary depending on where the majority of their customers reside. It is clear that making a vacation rental site as open as possible to all payment methods will naturally expand their payment footprint opening the business to more types of tourists with no added risk.
It’s not hard to see why APMs are growing in popularity as consumers opt for comfort, speed, and efficiency. They are usually simpler to use and trusted by consumers. Trust is an essential element for encouraging a sale – particularly in the vacation rental industry where people often don’t know the culture or understand the language.
Traditional payment methods aren’t going to go away. But as businesses get better at giving their customers what they want and more people move around the world, they’ll start taking up a larger slice of the payment mix. And that creates a win-win situation for both the consumer and merchant.