Staying Relevant - Why Merchants should embrace alternative Payments methods

Payments | Steven Purton |
09 May 2023

As the world becomes more digitally driven, fuelled by technology and changing consumer expectations and behaviour, alternative payment methods (APMs) are gaining momentum. Consider the rise of mobile wallets and digital payment platforms, Buy Now Pay Later (BNPL) and the expansion of open banking application programming interfaces (APIs), speeding up time to market for even more payment solutions. And as the adoption of real-time payments accelerates, enabling near-instantaneous fund transfers and settlement, it’s clear that merchants need to stay well informed to capitalise on these new ways to make the sale.

There are various descriptions of what an APM is, but generally APM refers to any payment method that doesn’t involve cash or cheque. APMs can be credit and debit cards, digital wallets, mobile payments, open banking and even cryptocurrencies. Popular due to their convenience, accessibility, and security, merchants who offer APMs attract more customers and increase revenue.

Let’s unpack the advantages and wins APMs offer for customer and merchant alike.

INCREASE CONVERSION RATES

One of a merchant’s top priorities is to increase conversion rates and boost revenue. And, as customers are more likely to complete a purchase if they trust and are familiar with the payment method, an effective way to boost sales is to offer a variety of options. But before adding to their APM catalogue, it is important that merchants understand customers’ payment preferences through the analysis of sales data, by talking to customers and by conducting surveys. For instance, if a local payment method is popular, then adding this will increase acceptance and revenue. But it’s not just the payment method itself that’s important, it also needs to be easy to use for both merchants and customers. To achieve this, merchants need the necessary supporting infrastructure in place to streamline processes.

REDUCE CART ABANDONMENT

One of the biggest challenges that merchants face is cart abandonment; where customers add items to their online shopping cart but leave the website before completing the purchase. Although cart abandonment can be caused by many factors, if customers don’t see a payment option they recognise (or even prefer), it can lead them to abandon their cart and go elsewhere. Combine that with a complicated checkout process and you’ve increased the chance of cart abandonment further. It’s therefore essential when adding APMs to ensure that the checkout process is streamlined, easy to navigate and takes only a few steps to complete the purchase.

LOWER PROCESSING COSTS

Processing fees can quickly add up and eat into profits. To help gain traction, many APMs offer lower processing fees than traditional payment methods, helping to save money. It’s important to compare options to find the most cost-effective solution and to also reach out to providers to negotiate lower processing fees. Many are willing to negotiate, especially for high-volume merchants. Merchants should also think about reconciliation and ensure that the payment method can fit into their current reporting suite.

INCREASE SECURITY

APMs often come with additional and stronger layers of security, such as multi-factor authentication, biometric verification and encryption, making it harder for fraudsters, reducing risk and increasing security for both merchants and customers. Cybercriminals are more likely to target websites that only accept a single payment method, as they know that their stolen credentials will work. Also, APMs with their built-in fraud protection measures reduce the likelihood of costly and time-consuming chargebacks (where a credit card provider demands that retailers make good on loss following a fraudulent or disputed transaction).

EXPAND GLOBAL REACH

Although expanding internationally offers merchants an exciting opportunity, it also comes with its own set of challenges. How do you accept payments in a different region and currency? By offering local APMs (examples include AliPay in China and iDeal in the Netherlands), merchants can expand internationally with ease and increase their chances of success. APMs also help navigate complex and often costly currency conversions as many offer built-in currency conversion that removes barriers and makes payment acceptance easier. By providing local payment options, merchants can attract more customers and increase market share, gaining a competitive advantage in new markets. Merchants should research the preferred payment methods in these markets, choose reputable APM providers, and in so doing, provide a seamless and secure payment experience to customers globally.

INCREASE LIFETIME VALUE

In addition to increased conversion rates, reduced costs and cart abandonment, better security and increased reach, offering APMs helps boost customer loyalty and lifetime value. Customers are more likely to trust and be satisfied with merchants who demonstrate a commitment to providing a secure and convenient shopping experience. By adding more streamlined processes, merchants stay competitive and also cater for customers who may not have access to, or prefer not to use, more traditional payment methods.

TIPS FOR A SUCCESSFUL APM STRATEGY

Display accepted APM logos prominently on your website and in physical stores. This will help customers quickly identify their preferred payment methods, increase their confidence and reduce any confusion or hesitation.
Monitor sales data and continue to refine the checkout process and payment options to meet customers’ changing needs.
Review processing fees regularly and refine to ensure you’re getting the best deal.
Stay up to date with latest trends and APMs by engaging with industry research and by regularly monitoring industry publications, websites and blogs for payment trends and innovations.
Participate in industry conferences, workshops and seminars to network with peers and learn from experts.
Connect with payment service providers (PSPs), payment processors, financial institutions and fintechs for valuable insights.
Be aware of consumer behaviour and preferences and the changes in regulations and standards that may impact your business.

THE FUTURE OF APMS

The future of APMs is likely to be characterised by increased convenience, security and innovation. We’re likely to see ever more seamless and secure payment experiences, with increased interoperability between different financial institutions and payment providers. This will also enable personalised and predictive payment solutions that can better anticipate consumer needs and behaviours. Meanwhile, the adoption of real-time payments and faster payment networks is expected to accelerate, enabling near-instantaneous fund transfers and settlement, and facilitating new use cases for payments in open banking. Finally, although still in its infancy, an emerging payments trend is the use of cryptocurrency and blockchain technology with more merchants and consumers exploring the use of digital currencies as a form of payment.

By staying vigilant and proactive, merchants can adapt to changing consumer preferences and evolving payment landscapes, and make informed and beneficial decisions about new APMs. Follow me on LinkedIn for the latest in payments!

Steven Purton

PRINCIPAL INDUSTRY CONSULTANT

Steven has over 22 years of experience within the payments industry, enjoying a number of different roles across major payment providers. Prior to joining Endava, Steven worked for a multinational universal bank, where he worked with several tier 1 merchants to design and implement payment solutions. Steven applies his wealth of experience to assist a vast array of merchants and financial institutions to accelerate their digital aspirations and keep up with the ever-evolving technology and payment trends. Outside of payments, Steven has a passion for travelling and exploring new places, going skiing and following football and Formula One racing.

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