When was the last time you pulled out a wad of cash to pay for dinner or a stack of dollar bills to cover your rent? If you’re like the rest of the developed world, chances are, it’s been a while. The transition to a cashless society has been a long time in the making, but there are other interesting developments afoot, leading to a rise in Alternative Payment Methods (APMs).
With 96% of Americans, 95% of Brits, 93% of Germans, and 72% of South Koreans shopping online, credit cards still claim the lion’s share of all transactions.
However, according to the Worldpay Global Payment Report 2017, over half of all online transactions will be made using alternative payment methods by 2021. If you’re thinking in terms of Apple Pay, Google Pay, and PayPal only, it’s time to widen your perspective – there are hundreds of APMs emerging around the world.
How do you know which ones are right for your business? Let’s start with the basics.
What Is an Alternative Payment Method?
As the name suggests, an Alternative Payment Method is a way of paying for goods or services outside of the mainstream credit card schemes, like Visa, Mastercard, or American Express. As technology allows consumers to leverage online banking, manage digital wallets, or even use smartphones with biometrics to pay, APMs are increasing in popularity.
The Three Broad Classifications of APMs
While there are now numerous ways of paying – from Android Pay and Apple Pay to bank transfers and prepaid cards – APMs fall into three main categories:
1. Bank transfers
APM Bank Transfers are e-commerce purchases where consumers approve the transaction using online banking.* The Global Payment Report* found that out of all APMs, bank transfers are gaining ground almost as quickly as e-wallets for e-commerce. In fact, over the next five years, their popularity will exceed that of credit and debit cards combined. By 2021, bank transfers will be the second-most popular APM for e-commerce transactions. While the concept may seem alien in the US, 13 of the 36 countries surveyed by Worldpay cited bank transfers as their preferred payment method. Direct debit is also a preferred method of payment in some countries, most notably, in South Africa.
What’s behind the growth of bank transfers as a popular APM? Access and convenience.
In Western Europe, consumers value needing to remember nothing more than their online banking details. In countries like Germany where consumers are reluctant to use credit cards and fearful of accumulating debt, bank transfers are seen as instant payment with no bill coming at the end of the month.
Europeans also have a high level of trust in their banks and feel more confident making purchases without the risk of fraud.
2. Wallet-based solutions