Alternative Payment Methods to Offer Customers

In an increasingly competitive marketplace, it is vital to remove every little bit of friction that can cause a consumer not to complete a purchase. Friction can include everything from being unclear on the terms and conditions of purchase, to having a confusing or unintuitive checkout experience, to not accepting the consumer’s preferred payment method. Where once merchants needed only to work out how to accept payment from the major credit cards, today’s retail ecosystem demands committing to a broad range of payment methods.

What are the ‘Standard’ Payment Methods?

It makes sense, when discussing ‘alternative’ payment methods to establish what are considered the ‘standard’ methods. And, indeed, this can be slightly different depending on where the transaction will take place: not all nations took to e-commerce at the same time, or at the same pace, as one another, meaning that expectations of what should always be offered are different around the world. The core standard payment types are

• Credit cards: from the moment payments started to be taken digitally, credit cards were the fundamental instrument used. The major card networks (Mastercard, Visa, American Express, Discover) quickly built out what was necessary for them to be the conduit for most online commerce, especially in the United States and other advanced economies
• Debit cards: as debit cards increased in popularity, and as governments moved to cap the fees that could be charged for processing transactions using them, merchants both online and offline sought out ways to try to favor them in order to improve their overall margins
• Automatic Clearing House (ACH) transfers: the ACH system makes it possible for banks to move money between themselves, and was a popular method for making purchases early on, particularly in business-to-business transactions
• Other bank transfer mechanisms: outside the US, a broad array of mechanisms that generally mirrored ACH (for instance, Sofort in Germany and Austria, and iDeal in the Netherlands) were early movers in the space, making it tricky for US-based e-commerce pioneers to penetrate their markets

What are Alternative Payment Methods?

If the core, standard payment methods were best characterized as largely owned and driven by the big financial institutions that are the bedrock of the payments ecosystem, alternative payment methods tend largely to represent the efforts of players from outside Finance to try to get in on the game. For instance

• Money management systems, like PayPal or the more modern Revolut and Rapyd, where users can put money into their account then dole it out as needed. PayPal started as a way to simplify bank-to-bank transfers, by enabling them based simply on an email instruction - and one could say that the current iteration is simply a natural evolution. Its popularity is highlighted by the variety of bank-owned-and-operated alternatives now flooding the market, such as Zelle.
• Digital wallets, like Apple Pay and Google Pay, act as an overlay to the consumer’s banking environment, connecting to an array of different financial instruments (from bank accounts to credit cards and beyond) to deliver new, and often more user-friendly ways for merchants to enable customers to buy.
• Crypto-currency exchanges as a way for consumers and merchants to exchange value through non-traditional currencies, such as BitCoin, Ethereum, and Tether. While the actual benefits are a bit opaque, many terminally online consumers favor crypto-currency for its subversive feel and theoretically less-trackable nature.
• Mobile payment systems, such as Africa’s popular M-Pesa use inherently mobile-oriented technologies such as SMS message to exchange money between merchants and consumers
• Prepaid cards, which can be managed directly by the merchant, can be a way to ensure that customers commit future value, and are especially valuable for businesses that offer goods and services that might be gifted (think: all those restaurant vouchers sitting unused in your kitchen drawer!)
• Buy Now, Pay Later (BNPL) is a relatively recent addition to the stable, offering customers the option to pay for their goods over a period of time, while delivering the full value (minus fees, of course) to the merchant at the time of sale.

Why do Alternative Payment Methods Matter for Merchants

Study after study has demonstrated that consumers are less likely to complete a purchase if they cannot use their preferred payment method - being forced into using an uncomfortable option adds too much friction to the process. Indeed, in the early days of e-commerce US companies sometimes struggled to expand to other geographies specifically because their payment systems expected customers to use credit cards, despite citizens of other nations preferring other approaches.

Additionally, alternative payment methods often offer the option to manage processing fees down. For instance, iDeal in the Netherlands can have a fee as low as EUR 0.11 - 0.22, which, on a EUR100 transaction can represent as low as 0.11%. Similarly, direct bank-to-bank payments tend to offer substantially lower costs than traditional credit card deals.

Getting the alternative payment method list clear, then, can help merchants to close more deals, while paying less to get the payments processed. As businesses scale, this is the sort of scaling consideration that must be included in any strategy,

Preparing for Alternative Payment Methods

Many full-service payment processors offer access to alternative payment methods, which can make it seem like a no-brainer to simply sign up once and get access to the full range. However, while they can make it easier to expand your set of payment method options, they generally will not support your reducing the cost-to-process, as they have already taken the lower fees into account when setting their flat structures. In other words, the benefits of, say, a low-cost debit card transaction is offsetting a higher-cost AmEx sale. That, however, does not mean that you cannot expand your horizons!

First, ensure that you are collecting, storing, and transmitting all customer data through a token vault like Basis Theory: this reduces your PCI-compliance burden, while delivering excellent security for your customers, and opening up your options for payment partners. With cardholder data securely held in your vault, you can submit it to any payment service provider (PSP), from full-service gateway, to high-risk processor, to an esoteric geographical outlier that opens up a market for you far from home.