Off-hand spoiler: according to the World Payments Report 2020, the rise in e-commerce and alternative payment methods is expected. The world economy is steadily driving towards the cashless model.
Sure, the COVID-19 pandemic deserves a separate focus in this matter. Due to the pandemic crisis, cashless payments became a must for market competitiveness. Although debit and credit cards still stand at the head of popular online shopping tools, alternative payment methods are starting to outperform. Users prefer to pay easily and quickly, so digital wallets, QR-codes, mobile apps, prepaid cards, etc., have become widespread. Intensive growth in the number of consumers who prefer to use mobile devices for shopping on the Internet, instead of traditional online shopping, using a computer or laptop, also fueled this trend.
Alternative payment methods: types and the concept explained
Alternative payment methods (APM) represent any form of payment that is not any major credit/debit card scheme or cash. Simply put, it’s an ability to pay for goods and services in other ways than traditional ones. New technologies allow customers to take advantage of existing online banking, digital wallets, and even smartphones to make payments using biometric data, which increases the popularity of APM.
The APMs can be roughly divided into 3 groups:
Wallet-based solutions. These are mobile transactions and e-wallets for online payments (e.g. PayPal, Alipay). Electronic wallets are really convenient and offer shoppers the secure storage of funds. You can replenish your wallet in various ways. Almost any person now uses a mobile device, which basically becomes a wallet. Such payment methods are gaining popularity due to their convenience and ease of use.
Bank transfer (also known as wire transfer or credit transfer). This is when money moves from one entity or person to another. Payments via bank transfer require buyers to confirm the transaction with the online bank. The popularity of bank transfers is growing at almost the same rate as the popularity of e-wallets.
Cash-in. There are two types of cash-in: prepaid cards, which run on traditional platforms such as Visa and Mastercard, and prepaid accounts, which work the same as prepaid cards but operate outside the credit card system. The cash-in card must be replenished in advance to make a payment, and the available funds on the card are actually the spending limit.
Choosing payment methods: new consumer behaviour trends
According to the survey of Capgemini (as of August 2020), the world pandemic recalibrated the consumers’ behaviour in the matter of payment method choice.
- 41% of cash users tried a contactless card;
- 35% of card owners added it to a digital wallet (the reasons for that are speed, convenience, and ease);