The Rise of Alternative Payment Methods: Offer More With Payment Orchestration
Over the last few years, the payments landscape has undergone a significant transformation with an abundance of new alternative payment methods entering the processing market, rapidly changing the needs of customers and their checkout experiences.
Traditional methods such as debit and credit cards are no longer the only options and preferences for customers, and more and more merchants are now tapping into the growing trend of alternative payment methods (APMs) such as Buy Now Pay Later (BNPL), domestic payment schemes and digital wallets and offering these at checkout.
As merchants are increasingly embracing these into their strategies they are also faced with new challenges such as integrating multiple methods and also addressing their security, risk and reconciliation needs. Payment orchestration helps to overcome these barriers by providing merchants with a simple platform with instant access to the growing number of alternative payment methods whilst ensuring maximum security and minimising the risk of fraud. Orchestration also streamlines the reconciliation processes, making it easier for merchants to manage their back-office efficiently and ultimately increasing their bottom line.
Why should merchants consider APMs in their payment strategies?
Customers now expect greater flexibility and choice when it comes to their checkouts. Therefore, by not offering a comprehensive range of alternative payment options, there is a risk of losing potential customers to competitors that provide these methods and additionally reducing the chances of repeat purchases from existing ones.
“59% of merchants have said their customers have frequently abandoned a shopping cart when their preferred payment is unavailable”Paypal, 2023
It’s now pivotal for merchants to offer the most relevant payment methods in each market as doing so will provide a richer and more seamless experience, satisfying the diverse and growing preferences of customers and maintaining their loyalty, benefitting both your brand and position in your market.
Different Types of Alternative Payment Methods
Buy Now Pay Later (BNPL)
Buy Now Pay Later allows customers to access an instant, short-term credit line at checkout. Customers can purchase goods and services upfront and pay for them later in instalments, often interest-free. BNPL is used by over 15 million individuals in the UK, and research has shown that almost 70% of consumers spend more when using a BNPL service than they would otherwise.
“70% of consumers spend more when using a BNPL service”Insider Intelligence, 2022
It has become increasingly popular, specifically among younger consumers, as an accessible alternative to traditional financing options. According to a study by Forbes (2022), 80% of 18 to 24-year-olds in the UK are utilising BNPL services. Merchants can significantly benefit from targeting this demographic by offering this payment choice at checkout.
BNPL helps consumers manage their cash flow, so affordability becomes less of an issue. Additionally, the instant credit checks of providers result in a seamless checkout experience, despite the heavy lifting in the background.
Domestic Payment Schemes
Domestic payment schemes operate similarly to global payment schemes, such as Visa and Mastercard, but their reach is limited to a specific region or area.
One of the advantages of domestic payment scheme is that they are tailored to specific needs and preferences of their local markets which can make them familiar and trustworthy to customers, increasing the likelihood of conversions.
Another benefit for merchants is that domestic payment schemes often have lower processing fees than other payment types so implementing them can be an effective strategy for businesses to increase profitability. Additionally, accepting these payment schemes can help businesses expand their customer base and offer more payment options to their consumers.
Digital Wallets such as ApplePay, Google Pay and PayPal have become increasingly popular as they provide users with a convenient and secure way to store their payment details on mobile or internet devices and store their payment details in one location. These wallets offer users the flexibility to checkout directly from their bank accounts, debit and credit cards, and even can be topped up with balances of their own.
The rise in the use of digital wallets reflects many businesses pivoting to become cashless in light of the pandemic and due to consumers and companies having concerns about handling money. They enable individuals to pay speedily and securely, confirming transactions by advanced security measures such as biometric authentication or tokenisation.
The popularity of digital wallets is expected to continue to grow rapidly in the coming years, and will soon become the preferred alternative payment method, with it being predicted they will account for 84.5% of online spending by 2024.
Merchants can benefit greatly from using digital wallets, as they offer several advantages such as a much lower chargeback volume compared to traditional card transactions. With a 99.6% lower chargeback volume, merchants can process a higher completion rate of orders without the added risk of disputed transactions.
Two main types of digital wallets are:
Store Value Digital Wallets
Store value digital wallets such as PayPal and AliPay have become increasingly popular in recent years due to their convenience and ease. These wallets allow users to load funds into an account which they can then use to transact or send to other users. There are also variants where funds are loaded automatically at the time purchases are made.
Pass Through Wallets
Pass through wallets such as GooglePay and ApplePay are also a popular and secure wallet. These wallets act as a digital intermediary between the user and the merchant, maintaining card details and security information and using these to facilitate transactions.
A key benefit for this type of wallet is that it doesn’t move money around or maintain balances, with funds just passing through them. They operate similarly to credit and debit cards, with their key differentiator being that unique tokens are created for each purchase so the card details of where funds are coming from is never shared.
Offer Alternative Payment Methods And More With Orchestration
As merchants, offering a wide range of alternative payment methods for customers may seem daunting, as it can be complex and expensive to manage. However, payment orchestration platforms, like Paydock, can simplify the process allowing you to offer all of the above payment types (and more!) whilst further enriching needs for security, efficient back-office processes and more from a single API, reducing cost and complexity and minimising risk.
Additionally, Paydock offers the ability to future-proof your ecosystem, giving you the confidence to offer the latest entrants and trends in the rapidly changing payment landscape. This allows you to continue focusing on growing your business and meet the evolving needs of your customers.
If you’re a merchant seeking to simplify and optimise your payment processes with payment orchestration, don’t hesitate to contact us today. Our team of experts can help you explore the benefits of payment orchestration and guide you through the process of integrating it into your business.
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