Advantages of alternative payment methods: Drive revenue and reduce risk

Understanding alternative payment methods

As mentioned above, alternative payment methods are those that differ from traditional payment methods such as cash, credit or debit cards, and checks. Within the evolving payments ecosystem there is a diverse range of APMs, including the following:

Digital wallets

Digital wallet payments use stored card information, generating tokenized card numbers for each transaction. Consumers consider digital wallets, such as those offered by PayPal and Venmo, to be a secure and convenient way to shop without needing their card details each time.

Mobile payments

Also referred to as mobile wallets, mobile payments involve the process of paying for goods and services using a mobile electronic device such as a tablet or smartphone.

Bank transfers

Bank transfers enable customers to pay for goods and services online using direct transfers from their bank account. The advent of real-time transfers has made this an increasingly popular option.

Cryptocurrency

Cryptocurrency payments are those that utilize a digital currency that has been designed for use as a medium of exchange, working through a computerized network that is not reliant on a central authority.

Installment payments

Installment payments enable consumers to spread the cost of payments over several dates, usually funded from their bank account. Examples include PayPal’s Pay in 4 solution which allows consumers to pay in installments over an agreed time frame.

Prepaid cards

Prepaid card payments enable consumers to pay for goods and services using cards that have been preloaded with funds. This allows them to spend the balance on the card but no more, unless the card is topped up with additional funds.

QR code payments

QR code payments are a contactless form of payment performed by scanning a QR code from a mobile app linked to a bank account or alternative source of funds.

Alternative payment methods have seen a significant increase in global adoption, with more than half of all global ecommerce payments now made using APMs.¹ This is in large part thanks to the significant benefits of using APMs for both retailers and consumers, which are explained in more detail below.

Enhanced customer experience

Alternative payment methods improve convenience and speed for customers by removing the need to re-enter payment details for each individual purchase and providing the ability to spread payments and enable purchases. In recent years, customers have grown to prefer and increasingly demand these kinds of seamless and frictionless transactions.

For merchants, offering a range of payment methods can reduce the rates of cart abandonment, improve convenience, and can also make payments more accessible to those with disabilities. The average cart abandonment rate is roughly 65%, and although this is a reduction compared to the pre-COVID19 rate of 75%, there is still significant room for improvement.²

Some APMs, such as QR code payments, have also made it possible to pay outside of the cash register/PIN pad. This can make payments in certain situations significantly easier, such as allowing people to pay quickly at their table in a restaurant.

APMs represent the future of payments, enabling merchants to enhance customer experience, drive sales and grow the business.

Increased sales and revenue

The convenience and security offered by APMs has proven to be very popular with customers, which has enabled adopters to drive sales and increase revenue. This has largely been due to a reduction in cart abandonment and increased conversion rates online. However, by using APMs businesses have also been able to increase sales by expanding customer reach, moving into new markets and customer segments. In fact, alternative payments are projected to reach more than $15 trillion by 2027.³

Increased security and fraud prevention

Security is a priority both within the payments industry and for consumers. APMs have allowed businesses to make significant leaps in transactional security, employing advanced encryption technology, network tokenization, and biometric authentication methods to protect sensitive data. In addition, as APMs do not require the direct sharing of personal information with merchants, this has added a layer of fraud protection which in turn has increased consumer confidence and driven sales. As well as fraud prevention for consumers, APMs have also been effective in fraud prevention for merchants largely by reducing chargebacks.

Save costs and increase efficiency

The added convenience of alternative payment methods has allowed businesses to streamline transaction processes and has provided the potential to reduce operational costs. This has happened by reducing expenditure on transaction fees from more traditional payment methods. It has also reduced the need for reliance on third-party financial providers, enabling businesses to keep things ‘in-house’. In addition, automated reconciliation and reporting systems have also enabled businesses to reduce costs and operate in a more effective way.

International expansion and global reach

APMs have significantly expanded the global reach of payment services and facilitated increased cross-border transactions. The international expansion offered by digital wallets and online payment platforms means customers can now buy with confidence around the world, and that businesses can easily expand into new markets that were previously out of reach. It is also the case that different geographical regions tend to prefer different payment methods, so the ability to offer preferred options can encourage growth.

Leveraging APMs to drive sales and enhance operations

Understanding consumer needs and preferences regarding payments is key to improving the customer experience. The need for a seamless integration with existing payment infrastructure is paramount, reducing obstacles to conversion and driving sales. Of course, there are potential challenges and considerations for implementing alternative payment methods, such as understanding which payment methods are available in different countries and recognizing varying customer needs and preferences in different locations around the world. Navigating the regulatory policies and evolving rules around APMs in different territories can also be difficult. However, with the support of APM providers these challenges can be mitigated, allowing businesses to easily streamline operations and enhance the customer experience.

Level up payments infrastructure with PayPal

Alternative payment infrastructure has moved the dial of financial transactions away from traditional methods towards more modern, faster, and more convenient payments. This has provided consumers with an expanded range of payment options both online and in store. It has also allowed retailers to boost conversion rates and expand into new markets without significant expenditure. These benefits of APMs are driving adoption, already past 50% for online transactions, and look set to grow further in the coming years.

PayPal offers a range of alternative payment methods that businesses can offer their customers, keeping all payments secure and in one place. These tried and trusted services may help merchants to boost conversion and increase revenue while upholding the very highest standards of safety and security.