What Are Alternative Payments? 10 Alternative Payment Methods To Know About
It should come as no surprise that the payments market has changed with blinding speed since the COVID-19 pandemic struck last year. Small business owners who were previously wondering about alternatives to credit card payments are now even more curious about mobile payment methods that can keep their business running remotely.
If you’re fed up with card-only transactions and need guidance to find alternative payment methods that work for you, then look no further. We’re here to highlight the top ways to process cashless payments in an increasingly cashless world. Read on to learn everything you need to know about the top 10 alternative payment methods dominating the payments landscape in 2021.
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What Are Alternative Payment Methods?
Alternative payment methods are cashless and cardless transactions of funds. These payments include methods like bank transfers, digital wallets, mobile transactions, and more. Alternative payments usually use technology companies rather than banks or card networks to process transactions. Other examples of cashless payment methods also include cryptocurrencies and money orders.
What Makes Alternative Payment Solutions Appealing To Merchants?
Several factors are driving merchants to adopt alternative payment methods at a record pace. Before you narrow down your options for accepting cashless payments, we recommend that you first understand the benefits behind alternative payments.
Cashless payments impact the convenience and comfort of your payment process as well as your business’s bottom line. If that’s not enticing enough on its own, also consider that traditional payment processing solutions that use credit and debit cards are becoming more expensive every year.
The biggest reasons alternative payment solutions appeal to merchants include:
Consumer Shift Toward Digital Wallets
Digital wallets have enjoyed an uptick in user adoption since the start of the COVID-19 pandemic. Digital wallets, which differ from mobile wallets that pull funds from a debit or credit card, help merchants streamline their payment process and increase customer convenience.
Digital wallets can thank the overall adoption of digital payments for their heightened attention from merchants and their customers. This newfound interest is demonstrated by an astounding 83% growth in digital wallet spending that’s projected to occur between now and 2025. The average merchant may not have given a second thought to contactless digital wallet payments before the pandemic; it’s now unthinkable for businesses to pigeonhole customers into paying with only cash or cards.
Merchants should understand that to get the most out of their digital wallet payments, they need to invest in multiple platforms that remove friction and complexity from their payment process. We recommend that merchants pounce on the current popularity surrounding digital wallets by promoting the benefits of contactless, tap-to-pay payment options to their customers.
Expensive Credit Card Processing
It’s time for merchants to recoup some transactional costs as their customers shift toward cashless payments. Arguably the easiest way to recoup said funds is by partially or completely slashing credit and debit card usage with major providers.
Credit and debit cards rely on transaction fees that customers pay to keep card networks and providers running. Credit card processing fees, which have more than doubled in the past decade, have been a necessary evil for merchants and customers to accept. That is until COVID permanently changed the way that merchants conduct business.
Customers have traditionally been content to pay a little extra to keep using their credit cards for the sake of convenience. In light of the recent and overwhelming adoption of alternative payment methods, though, it makes more sense for merchants to stop eating processing fees and instead provide mobile payment methods with lower usage costs.
Greater Emphasis On Cybersecurity
A world of remote transactions inevitably becomes one that also demands high standards for payment security. Merchants need to emphasize the cybersecurity posture behind their cashless payment solutions to guarantee lasting customer confidence. Alternative payment methods may be convenient, but they can also seem unsafe; approximately 40% of US consumers who don’t use mobile payments cite security concerns as a major reason.
The good news? Cashless and electronic payments are also more secure than ever, thanks to credit card encryption and tokenization technologies for in-person and online payments. Other technologies like biometric authentication, which requires that users sign into their phone with a Face ID or fingerprint, do the heavy lifting when it comes to keeping alternative payment transactions secure.
Merchants will always need to be cognizant of the threat of cyber attacks, but they can also put up security walls to combat them. Plus, old-school swiped credit card transactions are less secure than contactless and mobile payments, anyway. Take advantage of this fact by doubling down on your cybersecurity solutions to encourage your customers to use your options for cashless payments.
Types of Alternative Payments
The top types of alternative payment methods in 2021 are those that let merchants enjoy greater profits without sacrificing time, energy, or money. What’s more, cashless payments make it easier for more merchants to open an eCommerce store to reach new markets and a larger customer base.
Just because you haven’t yet adopted an alternative payment method doesn’t mean you have to watch your customers flock toward your competitors. Let’s talk about the most popular types of alternative payments in 2021 and why they’re raising such a ruckus:
Digital & Mobile Wallets
Digital and mobile wallets are essentially prepaid accounts that store funds you use for future payments. Projected to account for more than 52% of worldwide eCommerce transaction volume by 2023, it’s safe to say that merchants are missing out on potential customers without a point of sale (POS) system that accepts digital wallet payments.
Digital and mobile wallets, in addition to their incredible rate of global user adoption, provide enhanced security for their users. Traditional credit and debit cards rely on a network to transfer and deposit funds from checking accounts, which presents the risk for interception of financial data by cybercriminals. Digital wallets, in contrast, provide better protection since they don’t store customer data on a merchant’s servers.
ACH & Bank Transfers
Easy-to-use mobile payment applications have made ACH payments and bank transfers viable alternatives to cash and card-based payments. ACH transactions process over an electronic computer network known as the ACH network to help merchants save on processing costs and provide a secure, convenient customer experience.
ACH payments that transfer funds from one participating bank to another aren’t made for every type of business. If at any time you want to have money in your hands before your customer walks out your door, you should probably use another type of payment. But the pros of accepting ACH payments can also be numerous and significant: accepting ACH payments and bank transfers typically costs less than it does to process debit or credit card payments and is typically free to your customers.
Cryptocurrency
Cryptocurrency is a relatively new contender in the growing field of alternative payment methods. Unregulated by governments or banks, cryptocurrencies are a decentralized form of currency with viable applications in both brick-and-mortar and online businesses.
Cryptocurrency’s decentralized nature gives it a considerable advantage over other alternative payment methods in terms of security. Processors and terminals that accept cryptocurrencies like bitcoin mitigate the risk of stolen data because they don’t store information on a merchant’s servers. There’s also a large incentive for merchants to build an eCommerce store that accepts cryptocurrency since cryptocurrency makes chargebacks impossible.
10 Alternative Payment Methods For Businesses
There’s no question that, these days, a merchant’s customers have preferences for payment options. Some shoppers prefer alternative payment methods for practical reasons, while others simply enjoy the added security and convenience. Whatever their reasoning, your customers deserve different options for cashless transactions that accommodate a remote and location-distributed business landscape.
But if you’re a merchant interested in adopting alternative payment methods, how do you filter through the options available to you? The answer is simple: check out the following guide to the top 10 alternative payment methods to decide which one is the best solution for your business.
1. PayPal
PayPal For Business makes sense for merchants who need a suite of services that can help them make more money from online sales. If you’re trying to establish an eCommerce presence and don’t know where to start, PayPal For Business can help with its plethora of eCommerce integrations including those with Shopify, Magento, and BigCommerce. And of the three options that PayPal offers for processing payments, two of them carry zero monthly or sign-up fees.
Merchants who are in the business of selling subscriptions and rely on recurring billing may run into headaches when using PayPal. Features like recurring billing, hosted checkout pages, and virtual terminals are paid services that only come with the PayPal Payments Pro plan, which costs $30/month to use. Unfortunately, recurring billing runs merchants an additional $10/month. PayPal’s other payment solutions, PayPal Payments Standard and PayPal Checkout, are free to use and come with no monthly fees.
2. Venmo
Venmo is one of the most popular modern cash apps and is well-suited to merchants with a customer base on the younger side. This mobile cash app leverages social networking to broadcast users’ purchases to friends and family, which pairs well with Venmo’s instant fund transfers. Most importantly, Venmo is free for merchants to use and sign up for, as is sending or requesting payments from customers. For merchants who need a quick way to start offering options for quick cashless payments, Venmo is a solid option.
Merchants who use Venmo as a payments app should know that, at the end of the day, Venmo is a P2P payments application: it’s not a banking product and it presents the risk of losing the money you store with it. If something were to happen to Venmo’s services and you lost your funds, you’d have no options for recourse (FDIC protections apply only to traditional banking products).
3. Square Cash
If you operate a one-person business, the Square Cash app may be the right option for you. This payments app lets customers and businesses send or request cash with an email or by using a “cashtag” — a unique identifier for each purchase. Square Cash is a robust option for businesses that need to move money and accept payments with ease and is similar to top digital wallet options like PayPal and Venmo. Sending cash for personal use is free with Square Cash, although merchants pay a 3% fee on personal payments sent with credit cards and a 1.5% fee on instant deposits sent to their bank accounts.
The Square Cash App includes notable processing limits, which means merchants who process lots of high-ticket transactions should consider other alternative payment solutions. Since Square Cash’s support team is separate from Square’s standard support, this app is also poorly suited to merchants new to setting up and using alternative payment methods for their customers.
4. Zelle
US-based money transfer service Zelle is popular for its fast processing times that make running an eCommerce shop simpler. The biggest draw when it comes to Zelle is that it takes only a few minutes for money to show up in your business’s bank account after a purchase. That’s because Zelle is controlled by multiple member banks that govern the service’s trusted network and subsequently allow for fund transfers at lightning-fast speeds. Start-up businesses that need to quickly process low-volume payments should consider Zelle, which charges zero fees for users receiving or transmitting funds.
Merchants can’t receive any funds sent from a debit or credit card to their Zelle account, which makes Zelle a less-than-perfect option for very small businesses and micro-merchants that thrive off individual, repeat customers. If you’re running a business that mainly relies on credit cards for payments, this isn’t the app for you. Consider alternatives like Venmo that let merchants send, receive, and request funds using credit cards.
5. Bitcoin
Bitcoin is a self-regulated cryptocurrency rapidly gaining popularity among eCommerce retailers. This cryptocurrency is a good match for merchants that want to minimize the risk of their customers’ payment information being compromised. Chargebacks with bitcoin are impossible, which provides a great incentive for merchants to finally kick their eCommerce presence into gear. Bitcoin is especially attractive to merchants with a technologically savvy consumer base as well as businesses that are comfortable with bitcoin’s fluctuating, speculative market.
Easily the biggest drawback to adopting bitcoin payments is the uncertainty surrounding its value. Bitcoin’s true value changes on an almost daily basis and can seem fickle to merchants who have limited budgets to allocate toward new alternative payment methods. Compared to other options for alternative payments, Bitcoin is relatively unused; merchants need specialized bitcoin processors to store cryptocurrency for conversion into physical cash.
6. AliPay
Thinking of expanding your sales to China and beyond? If so, AliPay should be on your radar. AliPay is a third-party online payment service provider that comes with a digital wallet. China’s second most popular mobile payment application, AliPay is also expanding its services to other countries that are practical for merchants focused on breaking into international markets. Creating an account with AliPay is free, after which you can add and save a credit card to start making payments with an average merchant fee of 0.55%.
Being an e-wallet service, AliPay holds onto sensitive user information such as financial records. AliPay users run the risk of their spending and user information becoming compromised by hackers. If your information stored with AliPay is hacked, you won’t have any recourse to reclaim your stolen funds.
7. Apple Pay
Although it wasn’t the first digital wallet, Apple Pay was the first service to make digital wallets popular. Apple Pay is a godsend for merchants who want customers to store multiple forms of payment, like credit and debit cards, as well as prepaid cards and Apple Cash (loaded from a bank account). The name of the game when it comes to Apple Pay is convenience: Apple Pay lets customers tap to pay via a contactless reader and is supported by big-name payment service providers like Square and Stripe. Debit card transactions with Apple Pay are free, while a 3% fee applies to transactions made with credit cards.
If you don’t already own an NFC-capable reader or terminal, you’ll need to invest in one to adopt Apple Pay. This investment can turn merchants off to using Apple Pay, especially if they decide that their realistic options for using NFC-capable terminals are limited. Merchants that don’t operate any physical locations or aren’t interested in investing in NFC readers or terminals should steer clear of Apple Pay.
8. Google Pay
Google Pay, similar to a full-featured digital wallet, allows customers to store their credit cards, debit cards, cash, and loyalty cards in one place. Merchants searching for all of the features of a digital wallet as well as robust security measures should consider Google Pay. Google Pay safely stores card information which it encrypts using tokenization technology. Merchants who use Google Pay don’t need to worry about storing customer card info on their own system and can reduce the risk of fraudulent charges and chargeback claims.
Although Google Pay is a relatively affordable payments platform — it includes no fees for debit card and bank transfers and only applies a 2.9% fee to credit card transfers — it still requires that merchants invest in a contactless credit card reader at their checkout. Similar to Apple Pay, Google Pay doesn’t make much sense for merchants with little to no physical presence that would use contactless readers.
9. Click To Pay
Click To Pay is a new service that’s offered by a consortium of Visa, Mastercard, American Express, and Discover. Merchants who offer Click To Pay provide customers with the means to store payment information for credit and debit cards issued by Click To Pay’s four card brands. Lowering the rate of shopping cart abandonment is the real goal of Click To Pay, which lets merchants who work with multiple payment cards provide customers with a convenient, secure way to make online purchases.
Click To Pay doesn’t cost you or your customers anything to use or implement (in most cases), but transactions processed using Click To Pay incur the same interchange fees and processing costs as any other type of transaction. Merchants interested in the Click To Pay service should be prepared to handle chargebacks and PCI compliance requirements, which can act as barriers to entry for certain businesses. Additionally, the signup process to start using Click To Pay is pretty unintuitive and requires that merchants add a Click To Pay API to their website (if they have one) to show customers that Click To Pay is even a payment option during checkout.
10. ACH/eCheck
Merchants can use the Automated Clearing House (ACH) to provide numerous benefits to their customers. ACH and eCheck payments make sense for merchants who rely on subscription products and services, recurring online payments, eCommerce payment options, and electronic invoicing. ACH/eCheck payments are also great for merchants who conduct business largely online and want to avoid credit card interchange fees. Costs to start using ACH/eCheck payments vary depending on your provider; certain processing companies impose relatively high per-transaction fees while others charge low per-transaction fees but high monthly fees.
ACH and eCheck payments offer convenience but fall short when it comes to speed. These payments are slow compared to other payment types since they need to travel from one point across the ACH network to another. Merchants also need to verify that their payment service provider offers ACH options in the first place since ACH/eCheck payments are less prevalent than traditional credit card payments.
Which Alternative Payment Systems Are Right For My Business?
You now know all about the best options for processing alternative payments. With so many options available, though, how do you finally decide on the one that’s best for your business?
Consider the following points to narrow down your list of options for alternative payment methods:
- Features: Always start with the depth and breadth of features. You want to settle on a solution that brings something unique to your business without imposing lots of fees or extra charges.
- Functionality: You can’t have quality features without property functionality. Your solution should be easy to navigate with functionality that’s equally intuitive to use.
- Flexibility: Alternative payment methods are, by definition, flexible when compared to traditional card and cash payments. Invest in a solution that makes it easy for your customers to choose between multiple payment methods such as credit, debit, or bank transfer payments.
- Security: Your customers won’t be using your new payment processing solutions very often if their payments aren’t secure. Ensure that your processing solution offers security features such as fraud protection and encryption to keep both your business’s and your customers’ data safe.
- Price: Last, but certainly not least, is price. Your payment processing solution should come with transparent pricing that’s set up in an easy-to-understand format. Make sure you understand which transactions incur fees and at what rate they incur them before you finally decide on an alternative payment system that’s right for your business.
Should I Add Alternative Payment Solutions To My Business?
Think of your customer base as you search for the answer to this question. Of the payment methods covered above, some are already widely adopted (Google Pay) while some are best for tucking away until you break into global markets (AliPay) or want to stay ahead of payment trends (e.g., Bitcoin).
As a small business, finding a payment processor that suits your business model and offers alternative payment methods is more critical than ever. However, if you have a lower monthly volume, a traditional merchant account may be a bit harder to come by. Third-party processors such as Square and Stripe both offer a wide range of integrations and developer support as well as in-person credit card readers so that you can offer your customers more ways to pay.
Intrigued by innovations in alternative payments and want to learn more about the eCommerce landscape they fit into? Check out our Beginner’s Guide To mPOS SOftware and The Best Small Business Credit Card Processing Companies for some added perspective!