What are alternative payment methods (APMs)?

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June 15, 2023
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What are alternative payment methods (APMs)?

An alternative payment method (APM) is any way to pay for goods or services that doesn’t involve cash or a card that belongs to a recognizable major card scheme, such as Visa, Mastercard or American Express.

In recent years, APMs have grown in popularity, offering businesses and consumers a much greater list of ways to send money or make transactions. These options can often be more effective, convenient, or affordable than traditional methods.

But no one APM is dominant, and preferences vary significantly across location and demographics. That’s why it pays to understand exactly how they work and how they change from one place to another. With that in mind, in this article, we go back to basics to explain:

In this article, we go back to basics to explain:

  • What are alternative payment methods?
  • Types of alternative payment methods
  • Popular local and global alternative payment methods worldwide?
  • What are the benefits of accepting alternative payment methods?
  • How to choose the best alternative payment method for your business

What are alternative payment methods?

Alternative payment methods — APMs for short — refer to any form of payment that isn’t cash or a major international credit card brand.

Domestic cards, cash-based vouchers, digital wallets — such as Apple Pay and Google Pay — or bank transfers, including iDEAL in the Netherlands, POLi in Australia and New Zealand, and Przelewy24 in Poland are all considered alternative payment methods.

However, alternative online payment options are often more mainstream than niche. In many countries, they are the de facto way to pay, particularly online. As of 2022, 93% of German shoppers use PayPal for online payments, and 90% in France, Italy, and the UK, making it by far the most popular digital wallet in the Western world.

In the meantime, in the Netherlands, consumers make 70% of all online purchases with iDEAL. This becomes even more important for SaaS payments or subscription payments.

And that’s precisely the point for businesses looking to attract customers globally. Selling online to consumers without accepting their preferred payment method is akin to leaving money on the table.

See how the Seera Group has leveraged local payment methods to improve the customer experience and grow revenues.

Types of alternative payment methods

  • Prepaid cards: prepaid cards are a type of card that a consumer loads with funds in order to make purchases. They can spend the balance on the card, but no more, unless they top it up with additional funds. Unlike a debit card, a prepaid card is not directly linked to a bank account. And unlike a credit card, the consumer is not borrowing money, they are spending money they already have
  • Cash-based payments (electronic cash or e-cash): When checking out online, customers choose a cash-based payment method and generate a barcode or unique acquirer reference numbers (ARNs) to identify their payment. The customer takes this printed out or on the screen of their mobile device to a participating retail location to pay in cash. Once payment is confirmed, the merchant ships the goods or credits the customer’s account in the case of a service. Examples of e-cash methods include Boleto, Oxxo and Fawry
  • Realtime bank transfers: This payment method allows consumers to pay for goods and services online using direct online transfers from their bank account. iDEAL and Sofort are examples of this payment method
  • Direct Debit: Direct debit payments are commonly used for recurring payments. Consumers consent to give a merchant the ability to pull funds directly from their bank account for an agreed service. Consumers will get advance warning from the merchant that the transaction will happen. Examples of direct debit payments include SEPA Direct Debit, ACH, and BACS
  • Domestic card schemes: Domestic card schemes operate in a similar fashion to the global card schemes operated by Visa and Mastercard. The difference is that these cards will only be accepted in one or a few markets. These are often popular where available as they’re tailored to the unique needs of consumers in the market and can often provide merchants with lower processing costs. Bancontact, Carte Bancaire and Mada are just a few examples of local card schemes
  • Electronic wallets (e-wallets): E-wallets are a digital way to store funds. Customers load their e-wallets with funds via bank transfer, card or cash and use them to make payments online, offline, as well as person-to-person and cross-border in some cases. Examples of e-wallet methods include PayPal and Alipay
  • Mobile wallets: Mobile wallets are another electronic way to store funds, this time on a mobile device. Customers load their mobile wallets via bank transfer, card cash, or through their mobile carrier. Making purchases, transferring money person-to-person, and paying bills can be done electronically online, in-app or in-person via the contactless interface, via QR code, or SMS on a feature phone
  • Digital wallets: Digital wallets are a way to store payment cards. They generate tokenized card numbers for each transaction. Many consumers consider these a secure, convenient way to shop online, in-app or in-store without revealing or typing out card details each time. Apple Pay and Google Pay are examples of pass-through digital wallets
  • Buy now, pay later (BNPL): BNPL allows customers to either pay the whole amount later or spread an item’s cost over several installments. Purchases are mostly funded via a bank account, debit, or credit card. Klarna, Affirm, and Afterpay are a few examples of this service.

What are the benefits of accepting alternative payment methods?

Not accepting customers’ preferred payment method is a conversion killer. Our research, conducted in partnership with Oxford Economics showed that 56% of consumers said that if they couldn’t use their payment method of choice, it would permanently put them off shopping on a site.

Indeed, shopping cart abandonment - when a potential customer adds items to their basket but never completes the purchase - is a big risk for merchants who offer a limited range of payment options. Customers may deem the options you do offer to be untrustworthy, or may not be able to afford the items unless they can pay in installments.

Alternative payment methods must be a key part of your payment strategy. In fact, we consider APM integration a vital online payment system feature. Customers like what is familiar. If they usually pay a certain way, why would they do something new to shop with you? When convenience is key to closing sales, why add extra payment friction and hassle? Let them pay their way, wherever they are.

And it’s not enough to be reactive. You're too late if you only start offering APMs when they reach critical mass. By this point, your potential customers will already be spending money with your competitors that catered to their needs sooner. Instead, you must be proactive and work to get a deep understanding of the direction local trends are heading so you go beyond their expectations, delivering frictionless, first-class payment experiences.

We've also written about the security and time-saving benefits of APMs in our feature: 'How alternative payment methods can reduce chargebacks'. Feel free to go and give that a read if you're curious about reducing fraudulent payment disputes.

How to choose the best alternative payment method for your business

The challenge for merchants is knowing where to start getting this information. Nuances in the way people pay are subtle and not always apparent at first glance. And that’s where it helps to partner with experts who have a deep understanding of the local markets you operate in and work with you to understand and develop strategies to capture opportunities ahead of your competitors.

You also need to make sure that your payments technology stack is suited for your business — allowing you to add new payment methods at speed and without creating additional complexity. Not all payment providers can do that. So make sure that you’re working with a provider that gives you the international coverage you need, as well as capabilities to adapt and evolve as your business develops.

Here’s how to choose the best alternative payment methods for your business:

  • Understand your customers - as we’ve seen, payment preferences vary considerably between different regions and demographics. Research the most popular payment methods among your target market and ensure your offer them at checkout
  • Understand your business - at the same time, consider which APMs are right for your business needs and requirements. For example, how does the cost per transaction affect your bottom line? How easy are they to set up and manage? Do they contravene any regulations you need to abide by? You don’t need to offer every single APM to maximize conversions, and some may even have a negative impact on your business

Explore alternative payment methods with Checkout.com

At Checkout.com, you can gain valuable insights and access our comprehensive range of alternative payment methods, specifically designed to meet the needs of your business. Take a step towards optimizing your payment experience and maximizing customer satisfaction with maximum acceptance rates and end-to-end solutions.

What are the benefits of accepting alternative payment methods?

Not accepting customers’ preferred payment method is a conversion killer. Our research, conducted in partnership with Oxford Economics showed that 56% of consumers said that if they couldn’t use their payment method of choice, it would permanently put them off shopping on a site.

Indeed, shopping cart abandonment - when a potential customer adds items to their basket but never completes the purchase - is a big risk for merchants who offer a limited range of payment options. Customers may deem the options you do offer to be untrustworthy, or may not be able to afford the items unless they can pay in installments.

Alternative payment methods must be a key part of your payment strategy. Customers like what is familiar. If they usually pay a certain way, why would they do something new to shop with you? When convenience is key to closing sales, why add extra payment friction and hassle? Let them pay their way, wherever they are.

And it’s not enough to be reactive. You're too late if you only start offering APMs when they reach critical mass. By this point, your potential customers will already be spending money with your competitors that catered to their needs sooner. Instead, you must be proactive and work to get a deep understanding of the direction local trends are heading so you go beyond their expectations, delivering frictionless, first-class payment experiences.

How to choose the best alternative payment method for your business

The challenge for merchants is knowing where to start getting this information. Nuances in the way people pay are subtle and not always apparent at first glance. And that’s where it helps to partner with experts who have a deep understanding of the local markets you operate in and work with you to understand and develop strategies to capture opportunities ahead of your competitors.

You also need to make sure that your payments technology stack is suited for your business — allowing you to add new payment methods at speed and without creating additional complexity. Not all payment providers can do that. So make sure that you’re working with a provider that gives you the international coverage you need, as well as capabilities to adapt and evolve as your business develops.

Here’s how to choose the best alternative payment methods for your business:

  • Understand your customers - as we’ve seen, payment preferences vary considerably between different regions and demographics. Research the most popular payment methods among your target market and ensure your offer them at checkout
  • Understand your business - at the same time, consider which APMs are right for your business needs and requirements. For example, how does the cost per transaction affect your bottom line? How easy are they to set up and manage? Do they contravene any regulations you need to abide by? You don’t need to offer every single APM to maximize conversions, and some may even have a negative impact on your business

Explore alternative payment methods with Checkout.com

At Checkout.com, you can gain valuable insights and access our comprehensive range of alternative payment methods, specifically designed to meet the needs of your business. Take a step towards optimizing your payment experience and maximizing customer satisfaction with maximum acceptance rates and end-to-end solutions.

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