Alternative payment methods (APMs) are the payment methods that aren’t made by cash or major card scheme.
Alternative payments appear as disruptors of the existing payment landscape, bringing innovation for faster and more efficient payments. The target market of each country has its own preferred payment methods, reflecting the level of technology disruption and customer preferences in the given country.
The COVID-19 is the turning point for digitalization and acceleration of digital payments when e-commerce, remittances, and cross-border payments saw immense development.
In general, it’s considered that Generation Z shapes future payments and is one of the many reasons for the evolvement of APMs, as they maintain better control of digital appliances.
According to Billtrust research, nearly 79% of Gen Z and 75% of Millennials acknowledged that they use P2P payment platforms at least once a month to make payments. In addition, COVID-19 immensely impacted the rise of digital payments, bringing in greater payment opportunities.
For example, remittances also experienced a shift from cashed-based payments to digital payments, enabling the migrants for seamless payments to their homes overseas and thus the flow remained strong in spite of negative predictions during COVID-19.
The case with remittances proved that APM covers a variety of life-valued services for relatives from rural areas who can’t have direct access to banks. On the other side, as customers search for APMs other than traditional payments, the merchants and businesses should introduce a range of APM that boasts sustainable business growth. As a matter of fact, the interoperability of APM provides a solid ground for E-commerce development as they enable optimizing the payment processing and remove the payment friction.
It’s significant when a business operates internationally as the adoption of APM cross-border payments gives access to a broader global market. The variety and choice of APMs differ regionally, as customer preferences, conditions, and prioritizations.
Here are the examples of different types of APMs:
1. Bank transfers
This payment method perfectly suits the consumers that prefer to use direct online transfers from their bank account to pay for goods or products. These payment methods are specifically popular in Western Europe, primarily due to the popularity of iDeal and Sofort payment services.
2. Direct Debits
Direct debit payments are commonly used for ongoing recurring payments, such as bills and subscriptions. Usually, the customer gives consent to enable merchants to pull a certain sum from the bank account and receives notification before the payment is executed. Examples of such payments include SEPA Direct Debit, BACS Direct Debit and ACH.
3. Cash-based payments
This method enables customers to shop online, and then pay for the products in a brick-and-mortar stores, using invoices, issued by the national networks. During the checkout process, the consumer chooses the necessary payment network, and an invoice with a barcode is issued. The customer approaches with this invoice the relevant market, shop or chemistry and pays for the purchases in cash. The method is extremely useful for the population that does not have access to a bank account or credit card.
The method is widely spread in Latin America, as for world line statistics, cash-based payments typically represent around 20% of total e-commerce volume. The most commonly used cash-based payment method is probably Brazil's Boleto Bancário usually referred to simply as Boleto. In Mexico Oxxo the preferred invoice payment method. “PagoEffectivo” is the most relevant cash-based payment method in Peru.
E-Wallets is probably one of the most widely spread payment methods among smartphone savvy Generation Z and Millennials. The e-wallet is downloaded into the smartphone, the funds are debited via bank transfer, credit card and cash, and then is used in a variety of payment transactions, such as P2P payments, cross-border payments, online and offline payments.
As payment space evolves, each country has its own popular version of e-wallets. Paypal is the innovator in this field, being of the e-wallet pioneers. QIWI is one of the most widespread methods in Russia. Alipay dominates China market, Apple Pay is one of the most popular payment methods in the USA Market.
5. Social media payment platforms
Social media has extended far beyond the notion of a place for communication. Social media channels are a huge base of customers, that can be easily attracted to payment. The payment gateways integrated into social media channels such as WeChat, WhatsApp Pay, and Google Pay enabling them to become a full-fledged ecosystem for shopping and banking.
6. Buy Now Pay Later
Buy Now Pay Later (BNPL) is one of the mainstream payment methods in 2021. This method allows customers to pay after products and goods are purchased or pay in small installments. The purchases are paid then via a cheque or bank transfer payments can also be deducted from your debit card, credit card, or bank account automatically.
Each company that offers the BNPL program has its own condition, but in general, no fees and interest are charged on your purchase.
7. Prepaid cards
A prepaid debit card is an alternative card banking that allows you to spend the money you insert into the card. The advantage of prepaid cards is that they prevent overspending and enable users to benefit from loyalty programs and bonuses.
To keep up with ever-evolving changes in the payment landscape, it’s necessary to adapt and customize the business to the innovations. Alternative payment methods aren’t considered alternative anymore, since they offer a wide selection of payment choices, eliminate borders and improve payment processing.