By Delia Pedersoli, COO, MultiPay Global Solutions
Alternative payment methods (APMs) are on the rise and set to have an even bigger impact on retail than contactless payments. Encompassing any means of payment other than traditional credit cards and physical cash, a perfect storm of technological innovations has led to an explosion in the number and variety of APMs now available to consumers.
With cash and cards increasingly not suited to an online and multichannel world, APMs include prepaid cards, mobile payments, cryptocurrencies, e-wallets, bank transfers, and ‘buy now, pay later’ instant financing. APMs also offer huge advantages for retailers too. Lower transaction fees, instant payment processing, and an enhanced customer experience for shoppers are some of the benefits retailers stand to enjoy by offering APMs at checkout.
Propelled by an acceleration during the pandemic in the already existing shift from cash to contactless digital payments, there is a renewed interest and excitement from consumers in using APMs. Globally, the number of noncash retail payment transactions increased by 13 percent each year between 2018 and 2021[1], with the number of consumers using digital payments jumping from 51% in 2021 to 62% last year[2]. This surge leaps a further 25 percent in some emerging markets across Africa and Asia with many governments pushing the uptake of digital payment systems such as UPI in India and Pix in Brazil.
What makes APMs attractive for retailers?
According to PPRO, 42% of millennials in the UK say they feel confident using bank transfers and mobile payments[3], and, for Gen-Z, this figure is 35%. However, older generations are also using APMs in ever greater numbers. Ultimately, these changing payment habits reflect a desire for greater convenience. With that in mind, providing more payment options can enable businesses to not only drive cost savings and growth but also broaden their appeal across the board.
Firstly, by removing credit and debit cards from the transaction, processing fees can be instantly reduced. As a result, retailers can drive significant cost savings, something especially important in today’s economic climate and the very real prospect of recession. This reclaimed revenue can then be used to drive growth, prepare for market uncertainly or focus on improving other aspects of operations and customer experience (CX).
Secondly, the rewards from a data perspective could be a retailers’ dream. By connecting APM systems with data insights platforms and loyalty cards, merchants can build a more complete picture of their customers. By consolidating customers payments from both in-store and on-line transactions, retailers can identify specific customer trends and habits that can then be used to provide targeted promotions.
In addition, when incorporating simple QR codes into the payment process, APMs allow consumers to select any form of payment they would like via their smartphones. This means that retailers can easily enable transactions to be completed via a continually updated range of digital payment options and cryptocurrencies, further improving their CX, and safeguarding the longevity of payment schemes. Tesco, for example, has started trialling the use of QR codes to enhance the shopping experience for time-poor ‘workaholic’ shoppers in South Korea, using them to power its first scan-to-order virtual store. Shoppers simply scan codes at kiosks located in subway stations to buy items whilst on their commute to later have the orders delivered straight to their front door.
However, just because a retailer can add as many types of APMs to their offering as possible, doesn’t mean this is always the best strategy. APMs, and their respective schemes, can also be highly localised; an alternative payment method that is ubiquitous in one country or market might be virtually non-existent in another. For businesses eyeing an expansion into a new market or looking to broaden their global appeal, choosing the right APMs to support is essential. In China, the use of AliPay, for example, is almost universal, but less likely to be found outside the country where Apple Pay and Google Pay are more commonplace.
Where to start with APMs
Working with the right payment solutions provider is crucial for retailers looking to integrate APMs into their payment infrastructure. Ideally, customers should be able to purchase the same range of goods from a retailer via any payment methods they support, regardless of where or how they choose to shop. A provider offering the right API to ensure any new payment method entering the market can also be easily integrated into a merchant’s infrastructure is a must for future-proofing payment systems.
The rapid pace of development of APMs is both a blessing and a curse. Those retailers that get it right will see increased sales, customer loyalty, and trust as consumers embrace paying however, they choose. Those that fail to act, will fall short of expectations, and spend the next few years playing catch up. With cash and cards a thing of the past for millennials, Gen Z and emerging Gen Alpha consumers, APMs are increasingly expected as a standard part of future customer experience. Staying ahead of this trend and future-proofing payments, especially in today’s economic climate, must be a priority for all retailers.
[1] McKinsey & Company – Sustaining digital payments growth: Winning models in emerging markets
[2] McKinsey & Company – Consumer trends in digital payments
[3] PPRO – Younger generations drive UK alternative payment method adoption for online transactions
