Alternative Payment Methods Are Changing E-Commerce

Alternative Payment Methods (APMs) are still relatively new forms of payment in the United States, so you probably haven’t read too many statistics about just how much they’re impacting the global economy — but you’re about to.

In many countries, APMs have become the online payment method of choice compared to mainstream credit cards like Visa V, MasterCard MA, or American Express AXP. For example, Sofort is now dominating payment transactions in Western Europe because of the way the product creates an easy and secure bank transfer to pay for goods online.  Sofort accounts for $4 million per month in online transactions across 30,000 merchants in 13 European countries.

Then there’s iDEAL, another bank transfer network that accounts for 60 percent of all online transactions in the Netherlands. Equally impressive is GiroPay, which supports all major German banks and has 35 million online consumers.

More information about these APMs and the other hundreds around the world can be found in PPRO’s Annual Payment Almanac, a little book you should cozy up to if you want your online marketplace or eCommerce company to stay competitive or expand into global markets.

Experts like Bruce Dragt, EVP of YapStone notes that APMs will, without a doubt, become mainstream worldwide. “If your online payment checkout system doesn’t support APMs, it could cost you thousands, if not millions per year in lost sales and revenue – depending on the size of your business,” he warns.

In a recent article on Medici, Dragt outlines the different types of APMs, which include bank transfers, eWallets, and cash-in solutions. “There are a variety of reasons why APMs have become so prevalent in the payment ecosystem,” he explains. “But the three main reasons revolve around creating trust, reducing payment  fraud, and minimize shopping card abandonment .”

Let’s expand on those a little, shall we?

Creating Trust in the Marketplace

The sharing economy has changed the way we do business. But when two individuals transact with one another online, payment processes have to be put in place to ensure both sides know they are protected and that the positive user experience encourages them to transact again and again. 

According to Dragt, accepting APMs has become imperative for marketplace businesses that are based on peer-to-peer transactions. “At YapStone, we process the payments for global marketplaces and have seen the huge impact APMs can have — particularly in the vacation industry,” he says. “In the case of companies like HomeAway and AirBnb, individuals are booking international travel accommodations from their peers on the other side of the world. They know they can pay in their local currency and their preferred payment method, while also ensuring that the person they are renting from will receive the payment securely, in their local currency, and without a hitch.”

That’s right, peers are no longer solely transacting with people from their own country. Adapting to cultural norms and accepting different currencies is absolutely crucial to global business expansion.

Reducing Payment Fraud

Years back, the chip card was introduced to prevent card present fraud. It made a lot of sense stopping fraudsters from making a copy of a credit card and using it for point-of-sale purchases. However, financial institutions could not predict the ingenuity of fraudsters, who simply turned their attention to the internet, causing online fraud rates to increase by 16 percent, accounting for $700 million in added losses.

Reducing fraud is top-of-mind for every eCommerce company; luckily APMs might be the answer to heightened security. According to Ralf Olhausen of PPRO, a record 16.7 million people in the United States fell victim to online fraud this past year – all of them using cards for purchases.

Olhausen likens using a payment card for online purchases to publicly flaunting a big wad of cash. He explains that a more secure method of paying online is to “open an account with a reputable e-wallet and set it up so that you can only spend the funds you pre-load onto it. If crooks do manage to harvest your account details, all they’ll get is whatever is left on the card after your last transaction, not the entire contents of your bank account.”

Given that added layer of security, APMs are also great for businesses. As Dragt points out, “APMs help reduce operating costs by reducing the activities needed to reduce fraud. Practically, this is seen in reducing the number of fraud analysts who are reviewing orders and the number of staff needed to handle chargebacks.”

Bank transfer APMs are working wonders when it comes to preventing fraud because of their easy and efficient authentication processes. For example, sites that accept Sofort as a payment option follow an easy 4-step process:

1. At checkout, customers choose “SofortBanking” as their payment method
2. They are directed to a screen that reviews their order and allows them to select which bank they’d like to use
3. The customer is then prompted to enter their online banking credentials and the system sends a verification code to their preferred communication channel.
4. Once this one-time code is entered, the sale is complete.

That authentication significantly heightens security and the whole transaction takes under 90 seconds.

Minimizing Shopping Cart Abandonment

Shopping cart abandonment is an all-too-common occurrence for numerous businesses. In fact, the typical shopping cart abandonment rate for retailers is between 60 and 80 percent.

There are a plethora of reasons why an individual would abandon an eCommerce purchase, but usually it's because the customer:

1. Didn’t feel the site was secure and didn’t trust it enough to give their payment details
2. Became overwhelmed by a checkout system with far too many steps and decided the purchase just wasn’t worth it
3. Wasn’t given the choice to use their preferred and trusted payment method

Offering alternative payment methods are a good way to minimize shopping cart abandonment because of the way they facilitate a swift, secure transaction. Companies like YapStone and PPRO are helping APMs be ready for the prime-time world of global eCommerce, meeting the needs of the consumers who favor them and fitting into the operating environments of the merchants who provide them.

While minimizing shopping cart abandonment is essential, APMs are generating the most value because the growth in global ecommerce payments is largely being driven by cross-border ecommerce.

“Now that consumers can spend outside their domestic markets and buy products and services not available at home, ecommerce payments see even greater uptick,” says Dragt. “APMs are consumer-centric. They are used extensively for in-geography transactions and as cross-geography transactions grow, consumers expect the same payment options whether the eCommerce merchant is down the road or across the globe.”

Here’s the Nutshell

As eCommerce payments evolve, APMs will become more common options at checkout because they allow customers in all countries to pay for goods and services in their local currency and with their desired and trust method of payment. Data from other countries proves that customers will soon demand that companies accept APMs at checkout. Time to seize the moment.