Alternative PaymentsIt’s Time to Start Thinking BEYOND Credit Cards

Alternative Payments: What are 4 Key Methods to Pay That DON'T Involve Cards or Cash?

Once upon a time, the most common question at the checkout counter was “cash, or check?”

A lot has changed over the last few decades, though. Many stores now refuse to accept checks at all. Plus, a small (but growing) number of retailers are even moving toward cash-free operations.

Now, with digital channels becoming more dominant, even the expectation that buyers will use a payment card is disappearing. New payment methods are gradually chipping away at the global dominance of credit and debit cards as a payment method, both in-store and online.

In this post, we’ll explore the world of alternative payment methods. We’ll see how they work, why they’re important, and how merchants should move to take advantage of this revolution in payment technology.

What are Alternative Payments?

Alternative Payments

[noun]/ôl • tər • nə • div • pā • məntz/

An alternative payment method can be any means of paying for goods or services that does not involve cash, check, or a credit card issued by a major bank. Mobile payments, eWallets, bank transfers, and some prepaid cards are examples of alternative payment methods.

Simply put, an alternative payment method is any means of paying for a purchase without using cash or card. The growth of alternative payments was largely spurred by the rise of eCommerce. Customer preferences developed through digital channels led merchants to embrace more cardless and cashless ways to pay.

The Covid-19 pandemic drove an unprecedented number of customers to online shopping. This also spurred the use of alternative payments, especially outside the North American market.

Payment cards using conventional chip-and-PIN technology are still the dominant payment method preferred by US shoppers. That’s not the case when we look at the global picture, though. Globally, just under 50% of retail shoppers pay using a digital wallet app. Payment cards are in second place at 34%.

What are the Benefits of Alternative Payment Methods?

Credit cards are neither flexible nor secure enough to cover the widening range of customers’ changing shopping behaviors. So, what can alternative payments offer that traditional payment methods don’t? The answer is different depending on the market.

International Transactions

Alternative payment models include unbanked consumers traditionally underserved by conventional payments. It’s estimated that over 80% of the global population doesn’t even have the option of paying with plastic. It’s no surprise, then, that many of the fastest-growing markets in Africa, Asia, and Latin America are dominated by alternative payment methods.

Merchants who offer the same payment options as local merchants are more likely to be perceived as being in tune with the region, the people, and local preferences. This is particularly relevant in markets with a high concentration of unbanked consumers.

Many of the new payment technologies discussed below can help open the market to millions of new participants. It’s a radical step forward in payments inclusivity. It’s also a tremendous opportunity for merchants who may be able to reach these customers for the first time.

Domestic Transactions

What about merchants who aren’t really concerned about expanding into emerging markets, though? Alternative payment models offer a range of benefits for domestic merchants as well.

Generally speaking, we can break alternative payment technologies into four basic types: electronic funds transfers, eWallets, cryptocurrency, and installment payments. Let’s look at each of these in a little more detail.

Electronic Funds Transfers

With electronic funds transfers, funds are simply moved from one account to another. Peer-to-peer (P2P) providers like Zelle and Cash App are an example. If both parties have enabled the service, the payer can transfer cash from their account straight to another person or a merchant.

We can further subdivide bank transfers into a few basic models:

Learn more about EFTs

Digital Wallets

A digital wallet lets customers shop online and pay for purchases with funds from the wallet. Of course, the eWallet first has to have money loaded onto it, often by tying it to a traditional payment source, such as a credit card or bank account. Common examples of eWallets are Apple Pay, Google Pay, and Alipay. 

Mobile wallets can facilitate transactions using near-field communication (NFC) technology. They may also allow for QR code scans in some cases.

These aren’t alternative payment methods in the strictest sense, as transactions are still charged directly to a payment card. Regardless, they are an alternative method of using that information. As such, they’re worth mentioning here. 

Different eWallet apps can function in different ways:

Learn more about digital wallets

Buy Now Pay Later (BNPL)

One of the fastest-growing alternative payments methods is the “Buy Now Pay Later,” or “BNPL” model.

These plans became especially popular during the Covid pandemic. As the name suggests, BNPL models let customers make a purchase at the moment, then pay at a later date, often in multiple installments. This offers several advantages over conventional credit cards. For instance, it’s generally less expensive, and can also be utilized by customers who don’t have access to a credit card.

The process is remarkably simple: during checkout, the buyer chooses to pay via BNPL, then selects a repayment plan (monthly or all at once). There may be interest fees involved, but the true danger of BNPL is simply not paying on time: interest rates can be substantial, and are not regulated under a universal federal-level framework. That means there’s considerable leeway in the fees and interest charges the lender can legally assess.

BNPL services can be provided by a third party, or by one of the major card networks:

Learn more about BNPL

Cryptocurrency

Cryptocurrencies like Bitcoin are often in the news, but the majority of consumers aren’t quite sure what they are or how they work.

Cryptocurrency is based on a blockchain, or a public ledger that records all transactions where funds move from one wallet to another. These transactions are always “push” payments; in other words, only the authorized owner of the currency can use it to make a purchase, making the payment especially secure (at least in theory). The user’s funds are also kept in a digital wallet designed specifically for the currency used.

Some of the most widely-known and accepted cryptocurrencies include:

Learn more about crypto payments

Cash-Based Alternative Payment: Exchanges & Prepaid Cards

There are a couple of novel payment technologies that don’t neatly fit into any of the above payment modes. In a sense, both are workarounds that allow for consumers to (sort of) pay for online transactions using cash.

We wanted to take a moment here to acknowledge these as well.

Which Payment Offerings are Best for My Business?

Make no mistake: cash and plastic are still king.

Every merchant needs to give buyers the power to make a payment with a credit card. Beyond that, however, the choice of alternative payment options can depend on where customers are located, and how much the merchant will pay in fees.

Location is relevant because the payment method of choice varies from country to country. In some countries, digital payments or credit cards will be widely used and accepted. Other regions or countries, however, might still be very cash-dependent.

Research the most popular payment channels of the country or regions you wish to do business in. Then talk to multiple payment providers to get an idea of processing costs for alternative payment methods. Use those benchmarks to find the best options for your business.

Have additional questions? Want to learn more about protecting your bottom line in a fast-changing, uncertain market? The experts at Chargebacks911® are here to help. Continue below to get started.