Global digitalization, which the world witnessed during the pandemic, has transformed many sectors, including the financial industry. Due to new technological innovations, we are watching a large-scale revolution in the fintech sector.
According to the survey conducted by McKinsey, an international consulting company, in 2021, 51% of respondents used two or even more forms of digital payments. As of the following year, 2022, the number of digital payment users increased to 62%. This figure continues to grow, so businesses adapt to new realities where alternative payment methods have a significant advantage.
Alternative Payment Methods in E-commerce
As for the global e-commerce market, one of the most active growths in using alternative payment methods is noticeable here. According to a Ginger study, in 2020, users most often chose electronic or mobile wallets — up to 44.5% of the market share. In 2024, this data increased to 51.7%.
Considering these statistics, alternative payment methods have now become a traditional choice for European businesses. The right choice of payment method can positively influence conversion and sales.
Types of Alternative Payment Methods
Firstly, it is important to define the basis of alternative payment methods. Simply put, it is a payment method that doesn’t use cash or huge brands of bank cards. We can highlight four main types of alternative payment methods:
- E-wallet
The main advantages of using an electronic wallet are convenience and efficiency. A purchase can be made in just a couple of seconds using an electronic wallet such as Apple Pay or Google Pay. Due to Near Field Communication (NFC) technology, transactions can be completed faster than with a bank card.
- Mobile payments
A mobile phone is an alternative to an electronic wallet. Users can pay for goods and services by using funds on their mobile accounts. Moreover, there are even more options, such as payments via SMS, NFC, and QR codes.
- Cryptocurrencies
Another frequent choice as a payment method is digital currency. The main advantage of crypto payments is geographical accessibility. Users in any country can pay for purchases with cryptocurrency, regardless of the local currency. In addition, this method is considered more effective in protecting against fraud.
- Cash
Although cash is considered a traditional payment method, the modern market has managed to adapt even this method to online purchases. It works on the principle of "Buy Now, Pay Later" (BNPL). The customer makes an order online and pays for the goods offline.
How to Choose an Alternative Payment Method for Business?
As you can see, payment solutions for businesses can be quite diverse. But while choosing an alternative payment method, you may have questions like: "Which payment method is suitable for my business?", “How to properly connect this payment method on the website?” and "Do I need to implement an alternative payment method at all?"
Several important factors influence the choice of an alternative payment method, including:
- Customer's geographical location
Your customer's location is an important factor that directly affects the process of implementing an alternative payment method. For example, the UK is considered one of the leaders in cashless transactions. According to PCM, 95% of the country's population has free access to the Internet, and 97% of citizens have bank accounts.
At the same time, 51% of payments are made using cards, and 41% are made through alternative payment methods. Bank transfers account for only 7% of the total, and cash for 1%.
Therefore, if most of your customers are located in the UK, then introducing an alternative payment method for your business will be a good solution.
- Regulatory policy in the area of finances
Each region may differ in its finance circulation policy, which may have consequences. For example, in 2022, more than 60% of fintech companies were fined more than $250,000. That is why it is crucial to conduct research in advance to avoid violating the regulator's requirements.
- Commission fee
Another important step before implementing any alternative payment method for businesses is to analyze the conditions for commission fees.
What Risks Can Businesses Face?
Modern digital payment methods certainly have many advantages for businesses. However, it is important to understand the risks of implementing new payment methods.
- Stealing of customer personal data
No matter how high the level of cybersecurity is, there is always a risk that fraudsters will use new, more effective methods. You should be prepared for any fraudulent actions by applying all possible types of protection.
- Disputing an order
With the use of alternative payment methods, the option of returning goods becomes more accessible. This leads to a chargeback or claims against the seller, which cannot positively impact the company's overall sales.
- Abuse of the "Buy now — pay later" method
This method of purchasing is convenient for customers, but it can also cause financial losses for businesses. Offering this feature increases the risk of higher default rates and transaction disputes. Another problem is higher transaction processing fees compared to traditional payment methods.
Although implementing alternative payment methods carries risks, this technology is still one of the most popular solutions for fintech companies.
Reasons for the Growth of Alternative Payment Methods in Europe
The European market is one of the fastest growing in terms of digitalized financial transactions. For example, a 2021 E-commerce News study shows that 53% of purchases in Germany, 46% in France, and 53% in Italy were made via e-wallets.
There are several reasons for such a large-scale boom in alternative payment methods:
- Easier and faster payment method in e-commerce compared to cards.
- Convenient P2P function.
- A more reliable system of personal data protection when paying online.
- A new generation is more used to global digitalization.
At the same time, we can highlight a couple of driving factors to the implementation of alternative payment methods for businesses:
- A less complicated process of connecting additional payment methods due to the "plug and play" model used by most payment service providers.
- A wider variety of payments for users.
Even though it is too early to say that digitalizing financial transactions will lead to a global disruption of cash payments, the digitalization process is unstoppable. However, traditional payment methods still play a major role in the lives of customers and businesses.
Conclusion
Summing up everything mentioned above, users and businesses have already gotten used to non-traditional payment methods. Global digitalization has expanded opportunities for companies by offering new, innovative approaches. Among the main advantages of alternative payment methods is increased competitiveness by attracting new customers. Adopting technologically advanced payment methods also expands the customer base's geographical coverage and increases operations' efficiency in the modern market.
