What Are Examples of Alternative Payment Methods?

If you already accept credit and debit card payments online, it may be time to consider offering alternative payment methods. By giving customers more ways to pay, you can boost your conversion rate and reduce the number of abandoned shopping carts. Let’s look at some of the most popular alternative payment methods.

Digital Wallets

Digital wallets, or e-wallets, are services that allow consumers to pay for goods online without the use of a traditional debit or credit card. The customer will typically set up an account and link it to their bank account or credit card. They can store money in their e-wallet account to make payments online, or in some cases, they can transfer money directly from their bank account when making an online purchase.

Some consumers like using this option because it saves them from having to manually enter their credit card number, expiration date, and security code. Popular digital wallets around the world include Venmo, Alipay, and WeChat.

Mobile Wallets

Mobile wallets are similar to digital wallets except that they’re device-based. Examples include Apple Pay, Samsung Pay, and Google Pay. To complete a transaction, the customer holds their near-field-communication-enabled device to a near-field-communication-enabled payment terminal and then uses a form of biometric authentication such as their fingerprint to approve the transaction on their phone.

Like a digital wallet, mobile wallets are linked to bank accounts and bank cards. However, rather than transmitting the card or bank account details over the payment networks, the app pays using a token that is different every time so the merchant doesn’t see or store the customer’s payment information.

Bank Transfers

A bank transfer occurs when funds are transmitted directly from one bank account to another. Transfers must typically be approved by the sender via online banking. Many traditional payment processors don’t support this service due to the added vulnerability of requiring full bank account numbers, but bank transfers are nevertheless becoming more common in the world of online sales.

In many cases, bank transfers are used for the purpose of recurring payments. The customer provides their bank account number and approves the recurring transaction, and each payment is deducted from the account directly (known as “direct debit”).

Wire transfers are a type of bank transfer, but they shouldn’t be confused with the types of transfers facilitated through online banking. A wire transfer is a specific type of transaction that’s sent via a wire network. Because these types of transactions can be anonymous and difficult to trace, it’s recommended that you only approve wire transactions from people you know personally.

Cryptocurrencies

A cryptocurrency is a digital currency that’s encrypted using cryptography. Proponents love this payment method because it’s almost impossible to counterfeit or duplicate. Cryptocurrency payments are becoming increasingly popular around the world, and many merchants aren’t sure how to handle them. Savvy merchants who do accept these currencies can obtain a competitive edge among consumers who prefer virtual payment options.

Though Bitcoin is perhaps the best-known cryptocurrency, there were more than 9,000 such currencies in circulation as of 2023. Other popular options include Ethereum, Ripple XRP, and Litecoin. If you want to accept these types of currencies, you’ll need to work with a payment processor that supports them.

Buy Now, Pay Later

The “buy now, pay later” (BNPL) model is also becoming more popular. The customer purchases an item on your website but doesn’t pay for it right away. Instead, they pay for it in monthly or biweekly instalments, usually divided among four or more payments.

Companies like Sezzle and Klarna have become leaders in this payment model. They partner with e-commerce businesses and serve as the mediator between the customer and the merchant. As a business, you would typically be paid upfront by the BNPL provider, and they would then recoup the cost from the customer.

Electronic Cheques

An e-cheque, as the name suggests, is like a paper cheque in digital form. It’s sometimes called an internet cheque or online cheque. These transactions are similar to bank transfers, but they’re generally simpler and more secure.

Instead of using a payment gateway like credit card transactions, payments are sent via a secure electronic funds transfer system like an automated clearing house. As a result, e-cheques tend to have lower processing fees. Each transaction is facilitated with the help of the merchant’s payment processor.

Other Alternative Payment Methods

We’ve covered some of the most popular alternative payment methods. However, there are other alternative payment methods that are fairly new, lesser used, or that are primarily used in specific regions.

• Prepaid card. Prepaid cards work like debit and credit cards except that they are not linked to a bank account. Instead, the customer loads a certain amount of cash onto the card and can only spend this amount.

• Local payment methods. Local payment methods, such as local bank cards, are popular in some countries. Carte Bancaire, for example, is widely used throughout France. Accepting local payment methods can help you reach customers in specific countries.

• E-cash. Offering traditional payment methods is very important in regions like South America where a lot of people don’t have a bank account. E-cash, or electronic cash, allows customers to print out or save a photo of a barcode and take this barcode to pay in cash in a participating store. Once payment is confirmed, the merchant ships the order to the customer. E-cash is an especially popular payment method in Mexico and Brazil.

• QR code. QR-code payments are becoming more popular with smartphone users who prefer not to carry cash. The merchant either displays a QR code that links to their business bank account or generates a unique QR code for each sale. The customer then scans the code and completes the transaction using their preferred electronic payment method.

• SMS. Text messages can be used to provide a payment link or to request authorisation for a recurring payment if the merchant has the customer’s card details on file. This is especially useful for subscription services and businesses like health clinics with long-term customers.

• Loyalty points and gift cards. These methods allow customers to pay using a stored balance. This might be a stored balance of loyalty points accrued or credit stored on a gift card. The difference between these and other payment types is that the balance can only be spent at the shop that issued the loyalty points or gift card.

• Cash on delivery. This alternative payment method is still popular in countries where a lot of people are unbanked or prefer to pay using cash. Cash on delivery can work well for local businesses like restaurants. However, for items that need to be shipped outside of your immediate neighbourhood, e-cash is a safer option.

Why You Need to Accept Alternative Payment Methods

In 2023, the average cart abandonment rate was 70.19% according to data collated by Baymard Institute. Many of these customers were “just browsing.” However, others abandoned their carts due to extra costs at the checkout or because there weren’t enough payment methods. If you want to keep your customers happy, you need to offer more than just a quality product. You need a checkout process that’s fast, user-friendly, and convenient for consumers.

The more payment methods you offer, the more customers you’ll have access to—and the more customers will be happy to purchase from you. Offering more payment options is one of the best competitive edges you can give yourself, so don’t overlook its importance.

Deciding Which Alternative Payment Methods to Offer

How do you decide which alternative payment methods to offer? The decision ultimately depends on your customers and your business type.

• Your customers. Find out what the most popular payment methods are for your customer demographic and the area where your customers live. Carte Bancaire, for example, is a preferred payment method in France but would be next to useless if your customers are based in Japan. Likewise, offering traditional payment methods like cash on delivery or e-cash payments is extremely important for businesses that serve elderly and rural customers but may not be as necessary if you mainly serve Gen Z.

• Your business type. Different business models and industries lend themselves to different kinds of payment methods. Direct debit is a must-have alternative payment method if you operate on a subscription basis. In contrast, online grocery shops need to offer payment methods that are quick and convenient for one-time transactions. Digital wallets, local cards, and cash on delivery could be more suitable in this case.

Expand Your Customer Base

Accepting alternative payment methods was once a case of “going the extra mile.” Today, you’re automatically at a disadvantage if you don’t. Customers around the world have a wide range of preferences when it comes to how to pay and if you don’t accept their preferred payment method, they will take their money elsewhere.

The easiest way to expand your payment options (and your customer base) is to partner with a payment processor that can handle a range of alternative payment methods. Then, all you need to do is identify the methods that best suit your customers and business type and add them to your checkout for increased sales… and more revenue.