‘Alternative’ generally means unconventional or outside the mainstream. It’s something niche, specialist or with a small yet devoted following. When it comes to payments, however, ‘alternative’ is a misnomer. In some markets, alternative payment methods are more mainstream than niche.
In this article, we go back to basics to explain:
- What are alternative payment methods?
- Why have alternative payment methods emerged?
- What are some examples of alternative payment methods worldwide?
- Why do alternative payment methods need to be a consideration in your payment strategy?
What are alternative payment methods?
Alternative payment methods — APMs for short — refer to any form of payment that isn’t cash or a major international credit card brand.
Domestic cards, cash-based vouchers, digital wallets — such as Apple Pay and Google Pay — or bank transfers, including iDEAL in the Netherlands, POLi in Australia and New Zealand, and Przelewy24 in Poland are all considered alternative payment methods.
However, alternative payment methods are often more mainstream than niche. In many countries, they are the de facto way to pay, particularly online. Take German shoppers, for example, 57% of them prefer to use PayPal when shopping online. Meanwhile, in the Netherlands, consumers make 60% of their online purchases with the local bank transfer payment, iDEAL. This becomes even more important for SaaS payments or subscription payments.
And that’s precisely the point for businesses looking to attract customers globally. Selling online to consumers without accepting their preferred payment method is akin to leaving money on the table.
A whistle-stop tour of popular global alternative payment methods
There is no single, global way to pay. Every country has unique banking rails, payment methods, regulations, requirements and licensing. Payment habits also develop over time and are often formed by various cultural, political or economic and technological factors.
In North America, cards are the most popular form of payment online, accounting for 53% of ecommerce transaction value in 2019, according to GlobalData,. In the United States, this is mostly via Visa and Mastercard. Canada meanwhile has a robust domestic debit card, Interac, which is used in-store via card and online as a bank transfer payment method. LPMs are becoming more popular, though, especially amongst the younger generation using services Apple Pay, Google Pay, PayPal and Venmo — the mobile wallet service from PayPal. According to GlobalData, APMs such as these account for 30% of ecommerce transaction value.
More than 50% of consumers prefer using cards when shopping online, according to the 2019 Latin America Online Payment Methods report. This accounts for the international card schemes, as well as local schemes like Elo and Hipercard. Cash on delivery is also popular given the region’s large unbanked population. Increasingly the use of e-cash solutions is becoming more widespread. This is an offline way to make online purchases and is particularly suited to a region with a high unbanked population. Popular examples of e-cash in South America include Boleto Bancário in Brazil and OXXO in Mexico.
The landscape is similar in Europe to that in the US. Cards are by far the most popular method of online payment, with 53% of consumers saying they’d prefer to use debit and credit cards when shopping online, according to a 2019 Payments Europe report. Some popular domestic debit cards that sit alongside the global brands include Bancontact in Belgium and Cartes Bancaires in France. The same study found that 16% of consumers prefer using bank transfer methods, especially in Austria, giropay, Sofort and PayNow in Germany, iDEAL in the Netherlands and Przelewy24 in Poland. Other alternative payment methods, like Apple Pay, were preferred by 6% of online shoppers.
In Africa, mobile wallets are attractive due to the lack of bank branch infrastructure and a large rural population. Customers can load their mobile wallets in various ways, including cash, carrier billing, or bank transfer. Mobile networks, not banks, run many of the largest country and regional mobile money schemes. M-Pesa, MTN Mobile Money and Orange Money are all examples of mobile wallets owned and operated by mobile networks. Sub-Saharan Africa accounts for around 45.6% of the world’s total number of mobile money transactions.
In the Middle East, cash has reigned supreme until recently. Our data finds that in several markets, such as Bahrain, Qatar, and Saudi Arabia, cards are the favored online payment method. This is driven by deeper penetration from the international brands, as well as the development of government-backed payment networks. Examples include KNet in Kuwait, Oman Net in Oman, QPay in Qatar and mada in Saudi Arabia.
China has a robust domestic card scheme, UnionPay, which accounts for 45% of global card spending. Mobile payments are also popular in China. And it's anticipated that transactions totally $120 trillion were made using mobile wallets by consumers across China in 2020. Alipay and WeChat Pay dominate, with more than 90% market share between them. There is a large variety of popular alternative payment methods used by consumers across the rest of the region also. Some examples include GrabPay in Singapore, OVO Wallet in Indonesia and True Money in Thailand.
Why do alternative payment methods need to be a consideration in your payment strategy?
Not accepting customers’ preferred payment method is a conversion killer. Our research, conducted in partnership with Oxford Economics showed that 56% of consumers said that if they couldn’t use their payment method of choice, it would permanently put them off shopping on a site.
Alternative payment methods must be a key part of your payment strategy. Customers like what is familiar. If they usually pay a certain way, why would they do something new to shop with you? When convenience is key to closing sales, why add extra payment friction and hassle? Let them pay their way, wherever they are.
And it’s not enough to be reactive. You're too late if you only start offering APMs when they reach critical mass. By this point, your potential customers will already be spending money with your competitors that catered to their needs sooner. Instead, you must be proactive and work to get a deep understanding of the direction local trends are heading so you go beyond their expectations, delivering frictionless, first-class payment experiences.
The challenge for merchants is knowing where to start getting this information. Nuances in the way people pay are subtle and not always apparent at first glance. And that’s where it helps to partner with experts who have that deep understanding of the local markets you operate in and work with you to understand and develop strategies to capture opportunities ahead of your competitors.
You also need to make sure that your payments technology stack is suited for your business — allowing you to add new payment methods at speed and without creating additional complexity. Not all payment providers can do that. So make sure that you’re working with a provider that gives you the international coverage you need, as well as capabilities to adapt and evolve as your business develops.