Alternative Payment Methods: Why Your Business Needs Them (+ 3 Best Recommendations)
The old saying “cash is king” isn’t true in a world recovering slowly from the COVID-19 pandemic. Alternative payment methods (or APMs) are on the rise because they offer a safer, cleaner payment experience.
Many small to medium-sized businesses didn’t accept cash during the height of the pandemic. Others went a step further, foregoing card payments in favor of touchless payments through Apple Pay or P2P payment apps.
The bottom line is that traditional payment methods simply don’t cut it in today’s world. To survive and thrive, modern retailers must provide customers the payment options they demand at checkout.
This comprehensive guide takes a look at alternative payment methods –– what they are, why they’re important for your business, and explores some of the best options out there today.
Let’s get started.
What are Alternative Payment Methods?
When we talk about “alternative payment methods,” we aren’t talking about popular payment methods like credit cards or debit cards.
Alternative payment methods refer to any method of paying for goods outside of cash or cards. This includes everything from contactless payments with digital wallets to bitcoin and prepaid cards to mobile payments.
Alternative payment options are more than just a trend –– they’re the future. A whopping 28% of US customers will pay for goods by e-wallets by 2022.
Also, alternative payment methods aren’t meant only for online purchases or e-commerce transactions. In fact, more than 100 million Americans are expected to make in-store mobile payments in 2021.
Why Do You Need Alternative Payment Methods?
Customers have come to expect retailers to offer alternative payment methods for online purchases as well as in-store transactions. APMs make it possible for a wider range of customers to check out products with their preferred currency. This translates into increased sales for retailers that make alternative payment options a priority.
You may be wondering why people don’t just stick with tried-and-tested credit card or debit card payments. It’s because alternative payment methods make buying through social media safer while reducing or eliminating transaction fees for online payments.
So, customers have the opportunity to purchase from e-commerce merchants they may not be familiar with, without having to worry about data theft.
In addition, many alternative payment methods require retailers to pay their credit card processing company a smaller percentage per transaction. This results in increased margins for retailers which, in time, covers the cost of implementing APMs.
Types of Alternative Payment Methods
The primary alternative payment methods are:
- P2P (peer-to-peer) payment apps – P2P payment apps can protect customers’ bank accounts from hackers and shady businesses. They’re an easy way to securely transfer small amounts of money and great for local payments to known entities. P2P payment apps include PayPal and Venmo, as well as in-chat forms of payment via Messenger, Zelle, WhatsApp, etc.
- Cryptocurrencies – Cryptocurrencies are also great for online purchases. This is the hottest payment service at the moment. Crypto offers increased security, easy cross-border transactions, and often has a smaller carbon footprint than cash or traditional bank transfers. (We’ll delve into crypto a bit deeper in a moment.)
- Contactless payments – Contactless payments, on the other hand, prevent credit card hackers from stealing customers’ credit card information in-store. Digital wallets are more convenient for customers than carrying cash or a credit card. At the touch of a button, customers can access these wallets on their iOS or Android phones. The customer just holds their chip or mobile device up to the card reader and information is processed automatically. Contactless payments reduce opportunities for contagion spread, which is why they caught on like wildfire during the pandemic. Solution providers include Google Pay, Apple Pay, Alipay, etc.
- ACH payments – ACH payments are slightly more mainstream. ACH or Automated Clearing House payments are direct electronic funds transfers between banks. They cost less to process than credit or debit card transactions, but they also take longer to go through. Any bank that’s optimized for ACH can be an ACH payment provider.
Bitcoin and Other Cryptocurrencies
Cryptocurrency has been hailed for its security. It’s encrypted and since it’s processed in real-time, it prevents chargebacks for retailers.
Bitcoin is a form of cryptocurrency but it isn’t the only cryptocurrency on the market. Ethereum, Dogecoin, Cardano, and Litecoin, among others, are also hot-topic crypto assets.
Certain forms of crypto-currency have also been optimized for cross-border payments. This enables consumers to safely shop with international retailers, and it enables individuals to send money to their families overseas.
Say a company based in Europe –– France, the Netherlands, or Germany, etc. –– needs to use the euro for international business. Certain cryptocurrencies can offer fee-free international funds transfers.
The downside of cryptocurrencies is that, since they are so new, the market is still highly volatile. This means that the value of assets fluctuates significantly from day to day.
PayPal and Other P2P Platforms
Retailers seeking a more reliable APM might opt for a P2P (peer-to-peer) payment platform. P2P payments let consumers make online purchases without giving the merchant their credit card information. They’re perfect for companies that process a lot of online banking transactions.
PayPal and Stripe are leaders in the P2P space. PayPal for Business is great for retailers who want to build out their online presence with e-commerce integrations. Stripe is an Irish-American payment processing platform with similar integrations that’s great for high-bandwidth businesses with a lot of transactions. Even Venmo has recently come out with a payments platform for small to medium-sized businesses.
Unlike PayPal, the money transfer service Zelle doesn’t charge to send funds within minutes. Zelle operates using a direct debit from one account to another in nearly real-time. But Zelle can’t be used for credit or debit card transactions.
How to Choose the Right Alternative Payment Method
Traditional payment methods such as cash, check, and credit cards just don’t cut it anymore. APMs allow retailers to forego the drawbacks of credit or debit cards, such as card schemes, chargebacks, and security risks.
However, before you jump in, there are a few important things to consider when you choose an alternative payment method for your business. The five key factors retailers should look at are fees, ease of use, features offered, customer adoption, and security.
3 Best Alternative Payment Methods for Small Businesses
As discussed in the previous section, there are factors to consider when choosing between APMs for an SMB. The right APM, however, goes beyond fees and security to take customer preferences into account. It’s all about the ease of use.
The right alternative payment method will depend as much on a company’s customer preferences as their unique business model. Based on these considerations, here are three of the most popular APMs:
E-wallets protect the customer’s sensitive payment information when they shop online. Alipay is a popular e-wallet service created by Alibaba (China’s answer to Amazon). Apple Pay, Google Pay, and PayPal also have their own e-wallet options.
Small businesses may still have too low of a payment volume to open a merchant account through a traditional bank. In such cases, Venmo can be a great alternative. Venmo is free for SMBs. Since it was originally built for P2P transactions, it has a personal feel, like paying a friend.
Klarna is a popular fintech company that provides online financial services such as international payments for online storefronts. Sofort, a popular German payments company, was acquired by Klarna in 2014. Klarna offers direct international payments and it’s rated 4.3 on TrustPilot. Retailers that operate in the U.S., however, can save more on transactions with a membership model.
Hopefully, now you have a better understanding of alternative payment methods and which one might be right for your business. We’ve covered a wide range of APMs above. However, if your company operates within the US, Payment Depot could help you save an average of $400 a month on credit card processing.
Payment Depot uses a membership-based wholesale pricing model to help retailers save on credit card processing. It’s perfect for small-to-mid-sized businesses with a higher transaction volume. Reach out to Payment Depot’s award-winning customer service team to learn how your U.S-based business can start saving today!