Feb 26, 20199 min read

Why Alternative Payment Methods are Shaping the Future of E-commerce.

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by Jordan Dooley

In 2019, 55% of all online transactions are predicted to be made using alternative payment methods. We dive into this phenomenon along with different alternative payment methods across the world to see what the future looks like.

Once a concept goes mainstream, it transforms from fad to norm. This is the case with alternative payment methods (APMs), a phenomenon that is rapidly merging into the conventional world of e-commerce.

Industry data predicts that in 2019, 55% of all online transactions will be made using APMs. This growth is driven by the fact that consumers are drawn to online shopping experiences that let them dictate payment choice. As APMs become more commonplace around the world, the online payment method ecosystem will continue to develop.

If you’re an online merchant or someone in charge of boosting sales, you’re probably thinking: am I keeping up with consumer demands?

It’s a valid question, but let’s take a step back. Before we talk about why consumers are going gaga for APMs, let’s talk about what they actually are.

What are Alternative Payment Methods?

Alternative payment methods are a little like the concept of alternative music genres. Eventually, the artists that get widespread attention creep into the mainstream scene. The same goes for online payment methods. An innovative concept is introduced to market, and it has two outcomes: it either garners national attention or flops. The ones that stand out in the crowd stick.

The concept of an alternative payment method is as intuitive as it sounds. An APM is an alternative way of paying that doesn’t rely on traditional payments like a credit card or an immediate exchange of funds.

Instead of being tied to one specific payment model, e-comm platforms can integrate more flexible options for shoppers. There are a few different types of alternative payment methods.

First, there are APMs that involve bank transfers. This is when an online purchase is made, and the shopper approves the funds using an online banking method. This method is gaining ground according to the WorldPay Global Payment Report and as online banking continues to grow, this method is likely to see more traction.

Another common APM is a digital wallet-based solution. This is where a consumer pays for an item using a mobile device. Typically this is done using a mobile app that allows a shopper to link a credit card to the app to authorize purchases. Mobile is quickly expanding beyond traditional credit and paving the way for more alternative payment methods that include financing.

Instant financing itself has increased in popularity due to the flexibility in payment terms. With the added perks of being fast and convenient, instant financing is quickly joining the ranks of mainstream payments. Unlike a traditional credit application, there are less details required from the consumer to process their application. On mobile this is clutch. This can be done easily on desktop or mobile and allows shoppers to pay for purchases over time. Instead of being constrained to strict terms, shoppers can choose to pay in a timeframe that works best for them.

In the fashion space, consumers are longing for the tangible dressing room experience but still want the ease and convenience of buying online. The try before you buymethod makes it so there’s no need to compromise – shoppers can order their sweaters or swimsuits or shoes, sometimes as many as they want, try them on in the comfort of their own home, decide what to keep, and then pay for those items. This shopping experience makes so much sense, it’s kind of a wonder that it isn’t already the norm.

What’s Driving the Development of Online Payment Methods

More and more shoppers are trading in “bricks for clicks,”  AKA ditching brick-and-mortar stores for online shopping. E-commerce is enjoying the APM phenomenon, and its growth is largely driven by the ability to give consumers choices, opening up an entirely new world of payments that aren’t as easy to implement in physical storefronts.

There are three factors propelling APM growth: demand, convenience and an influx of innovative checkout technology.

Shoppers today are changing their payment habits. No longer do they want to be restricted by traditional payment methods, and now they don’t have to be. The mobile boom has helped APMs gain traction. With more security concerns around entering payment credentials online, shoppers are getting savvier about how they choose to pay. Not to mention the hassle involved in entering detailed payment information across online forms.

With consumer demand comes response, and technology providers are basing innovation on how to deliver convenience. More and more, payment providers are delivering experiences built with customer choice in mind. Instead of being restricted to paying upfront or with a credit card, APMs like instant financing and try before you buy offer convenient and more appealing ways to pay.

Checkout technology itself has allowed merchants to easily integrate APMs into their existing payment processing capabilities. Since a hassle-free process is always appealing, merchants are more likely to try these new trends. Instead of worrying about upgrading clunky, outdated legacy systems, online payment methods develop with merchants’ needs and continually adapt to match what customers are demanding.

The latest report from the Census Bureau of the U.S. Department of Commerce indicated that in the first quarter of 2018 alone, retail e-commerce sales hit $123.7 billion. The appetite for online payment methods appears to be keeping up with that same growth trajectory. Data from Statista shows that 75% of U.S. consumers use online payment methods when making an e-commerce purchase and the transaction value of the digital payment method market is estimated to hit roughly $927 million.

The world is becoming increasingly digital, and the way in which shoppers prefer to pay for their items is no exception. As online shopping gains even more control in the retail world, so will APMs.

Alternative Payment Methods Around the World

Mention credit cards and most people will say they’re commonplace in the average consumer’s wallet. But globally that isn’t exactly the case. Credit card penetration worldwide is at just 17.6%. While there are plenty of cards in circulation, usage isn’t consistent from region to region.

Offering only credit card payment options means merchants are missing out on an international consumer base. With more accessible payment options, merchants can capture shoppers regardless of their credit or banking habits.

On a global scale, APMs account for roughly 50% of transactions. In many regions consumers have a distaste for the traditional banking system and it’s estimated that roughly three billion people in the world don’t have a traditional bank account. That same population is far more likely to have a mobile device with capabilities to use an online payment method.

China is one example of a country where online and mobile are dominating the eCommerce ecosystem. Data from PYMNTS indicates that China’s eCommerce growth is seeing a 65% boost year-over-year, which has been attributed to the rise in online payment methods and APMs.

The Future of Online Payments

To stay competitive in the crowded eCommerce market, merchants already know they need to stand out. Alternative payment methods are one sure way to deliver on that promise. As the world of online payments becomes more robust and checkout technology continues to evolve, so will the shoppers’ demands.

Every industry prediction on alternative payment methods is bullish, and it’s obvious why: consumers like to be in control over their own shopping experience. APMs meet the demand for empowering people to pay in a way that fits their needs and lifestyle. Gone are the days where credit cards are the only way to pay online, and consumer attitudes toward both traditional payment methods and APMs reflect this changing tide.

It won’t be long until the concept of an alternative payment method is simply referred to as another payment method. This is the future of e-commerce for merchants who want to deliver a customer-centric experience focused on flexibility, choice, convenience and speed.

So we’ll go back to that original question – are you keeping up with consumer demands? And we’ll ask one more – what does the future of your e-commerce experience look like? If it doesn’t include alternative payment methods, it’s probably time to revisit your customer acquisition strategies to see where they fit into the mix.