What are alternative payment methods?
Technological advancement has brought changes to various industries, including finance. Today, people are turning to alternative payment methods (APMs) to conduct daily transactions. APMs refer to payment solutions that differ from traditional credit or debit card transactions.
The significant growth of APMs has been linked to the ever-evolving digital commerce. APMs are projected to account for over half of global e-commerce transactions by 2024, demonstrating their increasing relevance in modern financial ecosystems.
How many alternative payment methods exist?
The APM ecosystem is diverse, with thousands of options tailored to specific markets. The following are some of the most popular types of APMs:
Digital wallets (e.g., Apple Pay, Google Pay)
Cryptocurrencies (e.g., Bitcoin)
Buy Now, Pay Later (BNPL)
Virtual cards
Prepaid cards
Why are alternative payment methods important?
With many consumers switching to APMs, businesses are expected to accommodate these changes in preferences. Here are some reasons why businesses should consider accepting APMs.
Enhanced customer experience
APMs simplify the checkout process, reduce friction and improve user satisfaction. More than 66% of customers abandon their carts for reasons like the lack of alternative payment options. Offering a broader range of payment options helps reduce cart abandonment and improve customer retention.
Increased sales
Businesses that integrate APMs often experience sales boosts. Due to the convenience, consumers are less likely to abandon their carts and proceed to make their payments, leading to higher conversion rates for the businesses.
Cost efficiency
APMs often come with lower transaction fees than traditional credit cards, which have seen fees double in recent years. For small businesses, this can translate into significant cost savings.
Global reach
APMs enable businesses to expand into international markets by facilitating cross-border transactions. With the growth of global e-commerce, offering diverse payment options is key to overcoming the limitations of traditional banking systems.
Security and fraud prevention
Many APMs employ advanced security technologies like encryption and biometric authentication, making them more secure than traditional methods. This fosters trust among consumers concerned about fraud and data breaches.
Adapting to market trends
As consumer preferences shift towards mobile and digital payments — especially post-COVID-19 — businesses must stay competitive by embracing these trends. Ignoring APMs could result in missed opportunities and decreased sales.
Alternative payment methods market share
APMs take a significant portion of the global payments landscape and this trend is expected to grow. However, it is worth noting the trend differs based on the region. The Asia Pacific region is at the forefront of digital wallet use, accounting for two-thirds of global digital wallet spending. While in North America digital wallets are seeing an increase in use, many consumers still use credit cards for e-commerce transactions.
Alternative payment methods growth
The growth of APMs has accelerated, particularly following the COVID-19 pandemic, which shifted consumer preferences toward digital payments. During the COVID-19 pandemic, buyers and sellers tried to minimise contact. This situation led to a further decline in cash use, which already saw declines in the pre-pandemic era.
Governments across the world implemented physical distancing measures and it made people spend more time at home. This situation made them rely more on e-commerce to fulfil their daily needs. It accelerated the adoption of APMs as they are perceived to be more convenient and safer.
Several critical factors have contributed to the growth of alternative payment methods.
Technological advancements: The rise of mobile technology and digital banking has made it easier for consumers to access diverse payment options, improving the overall transaction experience.
Changing consumer behaviour: Consumers increasingly favour faster, more convenient payment methods such as digital wallets and BNPL over traditional credit cards.
Regulatory support: Governments are promoting digital payment innovations, supporting security enhancements, and fostering conditions for broader APM adoption.
The outlook for APMs remains highly positive, with robust growth potential. Digital wallets, for instance, are expected to account for 54% of global e-commerce transactions by 2026, while credit and debit cards represent 16% and 10% of transactions, respectively. The number of BNPL users is also predicted to quadruple from 2021 to 2026, a significant increase in just five years.
Alternative payment method trends
As consumers' needs continuously change, the APM trends will also evolve. Several trends shape the evolution of APMs, including:
QR Code Payments: Particularly popular in Asia, QR codes are streamlining transactions and gaining traction globally.
Digital Currencies: The growing acceptance of cryptocurrencies is opening up new transaction pathways, supported by blockchain technology’s security and decentralised nature.
Mobile Wallets: These continue to lead APM trends due to their integration into consumers’ everyday lives, offering convenience and a wide array of functionalities.
As businesses respond to these trends and changing consumer preferences, integrating APMs will be essential for staying competitive in an increasingly digital economy. Businesses that want to widen their outreach should also consider incorporating APMs into their payment system.
APMs are important in payment orchestration. Payment orchestration refers to the integration of various payment service providers, payment gateways, acquirers, and other financial services. It enables users to move money conveniently and efficiently. With the variety of APMs, customers have more payment options that are suitable for their specific conditions and managing them will be simpler via payment orchestration.
Types of alternative payment methods
APMs are gaining traction as more consumers seek options beyond traditional credit and debit cards. Here are some of the most common APMs, along with their benefits and challenges:
Digital Wallets
Also known as mobile wallets, digital wallets are mobile applications that enable users to make payments without having to carry cash or cards. These apps store payment information and keys to users’ payment accounts. PayPal, Apple Pay, and Google Pay are among the widely used digital wallets.
Benefits:
Fast and convenient for consumers.
Secure, using encryption and biometric authentication.
Allows users to store multiple cards and payment methods in one app.
Challenges:
Requires internet access and smartphones.
Some consumers may have privacy or security concerns.
Buy Now, Pay Later (BNPL)
This payment method allows users to make purchases and then pay them later, at a specific time. Some BNPL applications allow customers to pay in instalments. Several popular BNPL applications are Klarna, Afterpay, and Affirm.
Benefits:
Enables consumers to split payments over time, often interest-free.
Boosts purchasing power for shoppers without immediate funds.
Challenges:
It can encourage overspending or debt accumulation.
Merchants may face higher processing fees.
Direct Debit
Direct debit is a payment method in which an organisation withdraws funds from a user’s bank account. The amount of the fund withdrawn is based on the agreement between the organisation and the user. Examples of direct debit are ACH in the US and SEPA Direct Debit in the EU.
Benefits:
Ideal for recurring payments (e.g., subscriptions).
Lower transaction fees for businesses.
Challenges:
Requires consumer consent for automatic withdrawals, which may be a barrier.
Sometimes customers do not have enough funds in their accounts.
Cryptocurrencies
A cryptocurrency is a digital currency that works in a decentralised system, where transactions are verified by validators and recorded in the blockchain for the public to see. Some popular examples of cryptocurrencies are Bitcoin, Ethereum, and Solana.
Benefits:
Decentralised, offering potentially lower fees and privacy.
Appeals to consumers interested in secure, anonymous transactions.
Challenges:
Highly volatile, making them unpredictable for payments.
Limited acceptance among mainstream merchants.
Prepaid Cards
This card can be used to conduct transactions, but it is not linked to a specific bank account as the card itself contains money value. Examples of prepaid cards are gift cards and reloadable debit cards.
Benefits:
Controlled spending, only allowing users to spend pre-loaded funds.
Useful for budgeting and gifting.
Challenges:
Less widely accepted than standard credit/debit cards.
May incur fees for loading funds or inactivity.
For businesses engaged in international trade, cross-border APMs are essential for smooth transactions. Commonly used cross-border APMs include:
PayPal: Available in over 200 countries, facilitating international payments.
Alipay and WeChat Pay: Dominant in China, these platforms support cross-border payments, particularly for businesses targeting Chinese consumers.
Wise (formerly TransferWise): Known for low-cost, quick international money transfers.
What are some popular APMs in different regions around the world?
As previously mentioned, certain APMs may be more popular than others in each region. In North America, for example, PayPal, Apple Pay, and Google Pay are widely accepted digital wallets. Meanwhile, people in Southeast Asia often use GrabPay. Then, Latin American countries widely use PicPay as their digital wallets, although other options like Nubank are available.
The BNPL sector also varies worldwide. Afterpay and Klarna are rising in popularity among Western customers. In Southeast Asia, where BNPL has seen significant growth, the BNPL ecosystem is more diverse.
In Africa, Kenya-based M-Pesa is widely used. M-Pesa is a mobile money service that facilitates transactions via SMS. This allows customers who do not have access to smartphones to conduct transactions conveniently.
What are the main industries using alternative payment methods?
The use of APMs is more prevalent in certain industries than in others. Industries with high adoption rates of these payment methods include:
Retail and e-commerce
Retail, especially online shopping platforms, is at the forefront of APM adoption. This is driven by the need for seamless transactions and enhanced customer experiences. APMs provide faster checkouts, reduce cart abandonment rates, and offer flexible payment options, which attract a wider range of customers.
Travel and hospitality
The travel industry uses APMs to cater to international travellers and simplify the booking process. APMs facilitate cross-border transactions, allowing businesses to accept payments from a global customer base and offer flexible payment plans for significant purchases like flights and accommodations.
Financial services
Banks and financial institutions adopt APMs to enhance their offerings and improve customer engagement. APMs enable efficient and low-cost transactions, real-time payments, and improved cash flow management for businesses and clients.
Gaming and entertainment
The gaming industry relies on APMs to accommodate a global and diverse player base. These payment methods offer instant access to content and allow developers to bypass traditional banking limitations, reaching more players globally.
Utilities and subscription services
Utility providers and subscription services use APMs to ensure consistent and hassle-free payments. These solutions automate billing, reduce late payments, and offer convenience to customers and businesses.
Remittance services
Remittance companies use APMs to facilitate cross-border money transfers. APMs provide quicker and more affordable ways to send and receive money internationally, reducing dependence on traditional banking systems.
What should businesses consider when adopting APMs?
The projected growth of APMs and their benefits should entice businesses to adopt them. However, there are several factors to consider when it comes to APM adoption.
APM security
Security is key in modern payment systems. Customers will abandon carts when they perceive the payment methods offered to be insecure. Several notable security features can be found in APMs, including:
Encryption: Encryption is a mechanism where information is transformed so that only authorised parties can decode them. In transactions, this prevents users’ financial data from being stolen or modified.
Tokenisation: It is a mechanism to replace sensitive data with a “token” that has no intrinsic value. In credit card payments, for example, users need to input a token instead of their primary account number (PAN) during the transaction.
Two-Factor Authentication: It is a digital authentication method where users should present two or more authentication evidence to access a payment website or application.
APM cost
In APM use, there are cost factors that should be considered as well. Transaction fees and setup costs differ from one APM to another. Merchants should also consider the cost of maintaining their APM use as it can add up easily.
APM may not always be the right choice in certain scenarios, such as when traditional payment methods offer lower costs. Conducting research to know the costs incurred for using certain APMs will help merchants in the long run. However, the process of compiling the information can be tedious.
Top alternative payment methods
Certain APMs gain notoriety for their ease of use, accessibility and branding. Here’s a list of the most popular and widely used APMs globally.
PayPal
A well-established digital wallet with over 300 million users globally, PayPal offers secure online payments and transfers. It’s widely accepted by online retailers and merchants.
Alipay
Alipay is the leading mobile payment platform in China, with over 1.3 billion users. It enables QR code payments and integrates seamlessly into Alibaba’s e-commerce ecosystem.
WeChat Pay
Part of the WeChat super app, WeChat Pay allows users to make payments directly within the app. It’s used for a variety of transactions from retail to online services, boasting hundreds of millions of users.
Apple Pay
This is a mobile wallet service provided by Apple, allowing users to make contactless payments via iPhones, Apple Watches, and other Apple devices. It uses tokenisation for enhanced security.
Google Pay
It is Google’s mobile payment solution for Android users, supporting both in-store contactless payments and online purchases. Google Pay integrates with loyalty programs and a variety of payment methods.
Amazon Pay
It allows consumers to pay for purchases on third-party websites using their Amazon account, leveraging the brand trust and security Amazon is known for.
UnionPay
The largest card network in China, UnionPay is increasingly accepted internationally and provides a robust alternative for Chinese consumers making purchases abroad.
How can companies benefit from APMs in their payment infrastructure?
It can be concluded that by integrating APMs into their payment infrastructure, companies can expand customer reach, improve conversion rates, boost customer satisfaction, lower transaction costs and ensure security. The question is how to do the APM integration without disrupting the business operation.
APEXX Global provides businesses with a wide array of APMs, helping companies consolidate their payment options through a single integration. APEXX offers access to leading APMs such as PayPal, Alipay, Apple Pay, and WeChat Pay, allowing businesses to optimise payment acceptance and improve the overall customer experience across regions. The platform facilitates easy onboarding of new payment methods, scalability for growing businesses, and tools for cost optimisation across various payment providers.
Click here to see more details on APEXX’s APM offerings.
