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Alternative Payment Methods (APMs) are forms of payment that vary from traditional options like cash, cheques and credit cards. They are becoming increasingly popular for shoppers seeking more flexible and convenient solutions.
To highlight this trend, a recent McKinsey study found that over 90 per cent of respondents used digital payments in the past year – up from 80 per cent in 2021. This shows that the growth of alternative payment options is not just a fleeting fad. It is a clear indicator of changing consumer preferences.
As such, embracing APMs has moved from being optional to a necessity. Consumers now expect the flexibility to pay through their preferred channels. This shift means offering a variety of alternative payments — including digital wallets, bank transfers, mobile payments and other credit card alternatives — to remain competitive.
For businesses, incorporating APMs does more than just improve the customer experience. It represents a commitment to modernising payment processes and adapting to evolving consumer expectations. By doing so, companies keep up with current trends and future-proof payment services.
What Is an Alternative Payment Method?
Simply put, an APM is any form of payment that isn’t a traditional cash or card transaction. APMs are innovative solutions that combine evolving consumer needs, technology and shopping habits. As APMs become more widespread, businesses must consider offering different payment solutions to satisfy their customer base.
Traditional payment methods are typically familiar and reliable — but limited in flexibility and options. Examples include cash, cheques, debit cards and credit cards. They are accepted almost everywhere but may be less convenient to use.
In contrast, APMs offer frictionless, flexible and more user-friendly functionalities. Some examples of alternative payment methods include:
- Digital wallets
- Mobile payment providers
- Bank transfers using the web, mobile device or apps
- Buy now pay later (BNPL) instalment arrangements, such as Klarna and Clearpay
- Cryptocurrencies like Bitcoin managed through providers like BitPay.
The key difference lies in adaptability and ease of use. While traditional methods are still widely used, the rise of APMs signifies a shift towards a more inclusive payments model. These non-traditional payment methods often provide faster, more secure and user-friendly transactions.
For businesses, understanding APMs isn’t just knowing what alternative payment methods are. It’s about recognising how finance and technology work together. Then, it’s about incorporating the payment systems that match your customer needs.
What are the Different Types of Alternative Payment Methods?
APMs are reshaping how people think about spending. The range of options available means consumers can choose the method that fits their preferences. Let’s dive into some of the top alternative payment methods and how they work.
Direct Debit Payment
A direct debit payment is an authorisation-based method where funds are withdrawn directly from a bank account. Typically used for recurring payments, this method offers the convenience of automated transactions. Creating a direct debit ensures bills and subscriptions are paid on time without manual payment.
Reliability and ease of use are what make direct debits appealing. They allow users to “set and forget” — ideal for regular payments — reducing the risk of missing a due date. The recipient controls direct debit payments, meaning the customer must have funds ready.
Account-To-Account Payments
Account-to-account payments enable a direct and swift movement of funds between bank accounts. Most commonly, these payments are straightforward online payments, one-off transfers or local card payments. They are typically carried out via online banking and other payment platforms, such as iDeal in the Netherlands and Sofort across Europe.
Above all, account-to-account payment services enable efficient online purchases. They are a streamlined and established process with a secure transaction route directly between accounts.
Prepaid Cards
Prepaid cards are a versatile and budget-friendly payment method. Users load money onto cards in advance, then make purchases until the balance runs out. This method, often offered by traditional providers like Mastercard and Visa, offers financial control and security.
As prepaid cards are not linked directly to a bank account, only the loaded amount can be spent. This reduces the risk of card loss, overspending or fraud. Prepaid cards are an excellent choice for budget management and are particularly popular among travellers and young adults.
Digital Wallets
Digital wallets, or e-wallets, represent a secure and convenient way to store payment information and make online transactions. Services like PayPal and WeChat Pay are popular examples.
With a digital wallet, users can link various payment methods (like bank accounts and credit cards) and choose between them at checkout. The advantage of digital wallets lies in their flexibility and security. They often employ advanced encryption and fraud prevention measures, combining various payment options in one accessible place.
Mobile Wallet
Mobile wallets take the concept of digital wallets a step further by integrating them into mobile devices. They enable contactless payments in physical stores via near-field communication (NFC) technology. Mobile wallet services like Apple Pay, Alipay and Google Pay are becoming the preferred payment method for many shoppers.
The primary reason is their sheer convenience. In effect, a smartphone becomes a wallet, holding card details and streamlining transactions. They also add a layer of security, requiring passcodes or biometric authentication at checkout.
From the automation of direct debits to the sophisticated convenience of e-wallets, these APMs are not just facilitating transactions. They are giving both consumers and businesses more options than ever.
Why Use Alternative Payments?
So, why exactly are APMs gaining such momentum? Let’s explore the core reasons behind the rising popularity of alternative payments.
- Convenience: At the forefront of the appeal is APMs’ unmatched convenience. These methods streamline the payment process, making it quicker and more efficient than traditional methods. Customers can transfer funds or complete a purchase with just a few taps on their devices. Services like Apple Pay and Google Pay embody this convenience, allowing users to pay with their smartphones and eliminating the need to carry physical cards or cash.
- Security: Keeping data secure is paramount in any financial transaction. APMs often employ advanced security measures like encryption and tokenisation, which enhance safety. Digital wallets, for instance, store payment information securely and anonymise data during transactions — reducing the risk of fraud and identity theft.
- Global reach: Alternative payment methods like PayPal or Alipay offer a broad international reach. They let users shop and send money in different parts of the world much more easily than traditional methods. This global connectivity breaks down the barriers posed by traditional payment methods, which can be limited by geographical constraints and currency issues. For example, JCB works with Trust Payments to expand European cross-border payment possibilities.
- Rewards: Many APMs come with the added benefit of rewards programs. These incentives range from cashback offers to points users can redeem for goods and services. This makes them an attractive option for consumers. Credit card alternatives, which often lack such rewards, could become increasingly overshadowed by these rewarding alternative options.
- Consumer protection: Consumer protection is a critical aspect of alternative payments. Many of these methods provide enhanced consumer protection features, such as dispute resolution and fraud protection. This level of safety builds trust and confidence among users.
From convenience to heightened security, global accessibility to robust consumer protection, APMs set new standards for managing transactions. The only question is — which should you offer?
Which Alternative Payments Should I Offer?
For businesses looking to stay competitive in today’s market, offering APMs is becoming increasingly important. But choosing the right options can be challenging. Payment preferences vary from one region to another and across consumer groups.
How to choose an alternative payment method
When choosing alternative payment methods for your business, consider the following tips.
1. Know Your Customers
The first step in determining which APMs to offer is understanding your customer base. Different demographics have varied preferences. For example, a McKinsey report found that people aged 18-24 are twice as likely to use in-store digital payments than those 55 or older. Meanwhile, other groups may prefer direct bank transfers or digital wallets like PayPal.
Conducting customer surveys or analysing purchasing trends can provide invaluable insights into their payment preferences. Understand who your customers are and how they like to pay. This will then inform your choice of APMs.
2. Focus On Your Market
Each market has its distinct set of preferred payment methods. According to Statista, for example, eight in ten shoppers in China use Alipay in-store. This rises to nine in ten as an online payment method.
In another study, European shoppers were twice as likely as North Americans to use account-to-account payments. By understanding the popular payment methods in your target regions, you can better cater to local preferences.
3. Evaluate Your Business
The nature of your business plays a crucial role in deciding which payment methods to incorporate. For instance, if your business operates predominantly online, then e-Commerce alternative payment methods are essential. An Ernst & Young study found that digital wallets are now the most commonly used e-Commerce payment method in North America, for instance.
Credit card alternative payment methods like mobile wallets might be more appropriate for a brick-and-mortar store. According to Insider Intelligence, debit card transactions remain popular in-store — but mobile payments and BNPL are gaining traction.
4. Think About Scalability
If your business has a global presence or plans to expand internationally, incorporating global alternative payment methods is a solid strategic move. Integrating options like PayPal, which is recognised worldwide, can be a key factor in attracting and retaining international customers.
5. Champion Security
Lastly, make sure that any APM matches your security needs. Consider industry standards and local regulations. This protects your business and builds trust with your customers, ensuring transactions are safe and secure.
Overall, selecting the right alternative payment options for your business requires a balanced approach. Look at customer preferences, market trends, the nature of your business and security needs. Then, you can choose payment methods that enhance the customer experience and contribute to your business’s success.
Conclusion
Understanding what alternative payment methods are is key for today’s businesses. After all, there are many different APMs, each with growing popularity due to factors like convenience and security. Companies that understand APMs are best placed to offer alternative payments that meet customer needs.
Trust Payments supports a diverse range of alternative payment methods. Our service ensures your business can seamlessly integrate modern payment solutions that match your needs. By embracing APMs with Trust Payments, you can offer the payment options your customers want to use.
Contact us to learn more.
Frequently Asked Questions (FAQs)
Alternative payment methods offer enhanced convenience, heightened security and global reach. They address changing consumer preferences, ensuring transactions are efficient and user-friendly. This makes APMs a vital addition — or even replacement — to traditional payment options.
The most popular APM changes depending on location. Currently, digital and e-wallets, like PayPal and Apple Pay, are among the most popular APMs worldwide. Alipay and WeChat Pay are also extremely popular in Asia. These APM options provide security, speed and convenience in one digital solution.
Depending on your needs and location, there are many possible alternatives to PayPal. An excellent choice is Google Pay or Apple Pay. These APMs offer similar functionalities, allowing secure digital transactions and a user-friendly interface. Other options include various benefits, depending on your preferences.
Instead of a credit card, consider using solutions in our list of alternative payment methods, such as:
- Digital wallets
- Direct account-to-account bank transfers
- Mobile payment solutions like Apple Pay and Google Pay.
Prepaid cards are also a good option for some, offering controlled spending without needing credit.
Apple Pay is one of the most popular alternative payment methods worldwide. It's a mobile wallet that enables contactless payments using NFC technology. Apple Pay offers a secure and convenient way to transact without physical cards or cash.
