What are alternative payment methods?

Are your customers churning at the checkout page? That might be because you do not offer their preferred payment method. To stay competitive and meet the evolving needs of customers, merchants must offer a variety of online payment methods that cater to their users’ preferences, or else risk losing them at the payments stage.

Besides offering simple credit card checkouts, merchants should include alternative and locally preferred payment methods as well. But what are alternative payment methods? How are they different from country to country? And what are the advantages of offering multiple kinds of payment methods at checkout? That’s what we’re exploring in this edition of Payments 101.

What are alternative payment methods?

Alternative payment methods (APMs) are non-traditional online payment options, the “traditional” payment options being conventional credit and debit card transactions. APMs offer consumers more convenience, security, and flexibility when making purchases online. This is because shoppers develop preferences for certain payment methods depending on their geographic location, their current financial situation or the types of devices they use. 

Some of the most popular alternative payment methods include:

‍Digital wallets: Also known as e-wallets or mobile wallets, these services store users' card information securely and allow them to make transactions using their smartphones, smart watches or other devices. Popular digital wallets include PayPal, Apple Pay, Google Pay, and Samsung Pay.

Buy Now, Pay Later (BNPL): Buy Now, Pay Later has become one of the most popular payment methods in recent years. At its core, BNPL is a financing option that allows customers to make a purchase and pay at a later date or to pay in installments over time, often without interest or fees. Some popular BNPL providers are Klarna, Afterpay and Affirm.

Direct debit or bank transfers: A popular way to pay in Europe, direct debit or bank transfers enable customers to transfer funds directly from their bank account to the merchant's account, either immediately or as an invoice. ACH transfers are popular in the US, SEPA transfers are big in Europe, and Faster Payments is the preferred bank transfer method in the UK.

Local payment methods: There are certain payment methods that only exist in or are preferred by customers in specific markets, countries or regions. Customers in the Netherlands, for instance, will probably prefer to pay by iDeal. Pix is very popular in Brazil and Alipay is the dominant payment method in China.

‍Prepaid cards and vouchers: Prepaid cards and vouchers remain a popular way to pay for items online without having to connect to a bank account. Customers can purchase these cards or vouchers with a predefined value and use them for online transactions. Examples of popular prepaid cards for online shopping include Paysafecard, Neosurf, and Flexepin.

What are the advantages of alternative payment methods?

Offering multiple ways to pay online has many advantages, both for your user experience and for your bottom line.

Reduce cart abandonment and increase conversions

Integrating alternative and locally payment methods helps reduce card abandonment and therefore also increase checkout conversions, because you’re ensuring that your customers will be able to pay with a payment method that works best for them.  It has been reported that adding a variety of payment methods can boost conversion rates by as much as 30%.

Cheaper than conventional credit card payments

Another advantage of integrating local alternative payment methods is that they are often cheaper to process than credit cards, allowing you to lower the cost per order and improve margins. In fact, we have seen that enabling and processing payments through alternative payment methods can reduce payment processing costs by up to 10%.

Certain payment methods incur different fees depending on the processor, even if their flat rate stays the same. Usually payment methods that are strong in a certain market have the lowest rates since they have multiple funding sources. In Germany, using a girocard or SEPA direct debit are among the cheapest and most commonly used payment methods. Bank transfers can also be a more cost effective payment method in local markets, especially for enterprise merchants that could benefit from a fixed fee price. 

Improve customer satisfaction

Finally, adding alternative payment methods to your checkout options can improve customer satisfaction and in turn lead to increased customer lifetime value, as customers will appreciate that you are catering to their preferences. Local APMs can also give you an advantage in cross-border payments, attracting customers in regions where credit and debit cards are less common. This is a great way of differentiating your business from competitors and increasing your global presence. 

Contact Payrails

Every merchant has unique needs. That’s why Payrails creates custom payment strategies tailored to each merchant so that they receive the best possible results. Whether you’re just looking for payment routing or are interested in a full payment infrastructure overhaul, discover your options by getting in touch with our team today.