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Key Takeaways
- From the ancient barter system to modern cryptocurrencies, payment methods have evolved.
- Discussing the various Alternative Payment Methods like prepaid cards, real-time bank transfers, and mobile wallets.
- How businesses can boost their payment efficiency and improve customer loyalty with Alternative Payment Methods.
Introduction
Over the past decade, the financial domain has transformed unprecedentedly due to rapid advancements in technology and digitization. With this advancement, alternative payment methods have grown in popularity as they offer customers rich and frictionless experiences and are much more effective, convenient, and affordable than traditional methods.
To keep up with customer demands and expectations, every business needs to offer and accept these payment methods. But before providing alternative payment methods, you must know how they work. Well, that’s what we will be covering in this article. But first, let’s start with the basics.
What are Alternative Payment Methods?
Alternate Payment Methods refers to digital mode of payments for goods and services without involving cash or a card. With a massive increase in the number of digital transactions taking place, there has been an exponential rise in the number of people adopting Alternative Payment Methods across the globe.
The history of alternative payment methods
Now that we have understood about alternate payment methods, let us go back to the history of alternative payment solutions and understand how they have evolved over the years. Here are a few key milestones in the history of alternative payment systems.
Barter system
Barter was the first payment system that was active even before the invention of currency. In the barter system, people used to exchange goods and services through bartering.
The invention of metal coins
Back in the day, around 600 BC, metal coins(gold, copper, silver) were used as a medium of exchange for goods and services.
Invention of paper money
One of the significant advancements in payment methods took place when China first invented paper money during 618-907 CE. Paper currency has evolved to be the preferred payment method because of its convenience.
Issuing banknotes or promissory notes
European banks started issuing banknotes as promissory notes, which gave users the authority to claim specific amounts of money (gold/silver/paper money) in the 17th century.
Issuing checks
The ancient Romans invented the concept of paying in paper checks, which allows users to execute payment transactions without needing physical cash or coins. Checks were considered one of the most secure and convenient payment methods, and therefore, they were embraced by many nations across the globe.
The invention of credit cards
The world’s first-ever credit card was launched in the year 1950 by Diners Club, founded by Frank McNamara in the United States. This idea has been widely adopted worldwide and then extended by more banks.
Electronic funds transfer
The 20th century welcomed technology with the rise of computers. Electronic Fund Transfer facilitated the transfer of funds between individuals and businesses.
Debit cards
Debit cards were introduced in 1970, enabling users to make transactions directly from the bank. Debit cards have gained immense popularity because of their convenience and ease; people can make payments anytime and anywhere.
Online payment systems
The world witnessed a technological revolution in the 1990s with the invention and growth of the internet. This empowered online payment systems to allow their users to execute electronic payments and transfers over the internet. Online payment systems are one of the major contributions that revolutionized the e-commerce industry by facilitating an easy and secure way to execute transactions and shop online.
Mobile payments
With the invention of smartphones, mobile payment technologies like Google Pay have gained immense popularity among individuals and businesses. These systems empower users to make payments through their smartphones, ensuring security and convenience.
Cryptocurrency
The invention of Blockchain technology has paved the way for cryptocurrencies, which marks the beginning of a new era in executing alternative payments. Blockchain technology facilitates secure, decentralized peer-to-peer transactions, eliminating the need for banks.
From bartering to cryptocurrencies, each alternative payment has evolved to offer better efficiency, security, and accessibility.
7 Types of Alternative Payment Methods
Here are some of the popular alternative payment methods
Prepaid cards:
Prepaid cards are the cards the customer accesses the funds that he has already topped up. Prepaid cards differ from credit and debit cards. These cards are not directly associated with any bank account. These cards do not allow the customer to spend anything more than what he has loaded.
Realtime bank transfers:
By opting for real-time bank transfer payments, customers can pay for goods and services online through direct transfer of money from their bank.
Direct debit:
Debit card payments are one of the most commonly used payment methods for recurring payments. Merchants can pull funds directly from the customer’s bank account upon successful authentication that acknowledges the consent of the customer. Customers will also receive a confirmation from the merchant before the transaction takes place.
Electronic wallets (e-wallets):
When checking out online, customers opt for a cash-based payment method and generate a barcode or unique acquirer reference numbers (ARNs) to identify their payment. The customer receives this printed out or on the screen of their mobile device at a participating retail location to pay in cash. Once payment is confirmed, the merchant ships the goods or credits the customer’s account in the case of a service.
Digital wallets:
Digital wallets are one of the most popular alternative online payment methods. Digital wallets operate via near-field communication technology, which facilitates users to initiate payment transfers by tapping on their phones. Digital wallets enable fund transfer, eliminating the need for a physical card or cash. Digital wallets also empower users to save their card details to execute transactions.
Mobile wallets:
Mobile wallets have gained immense popularity in recent times for the utmost convenience they offer users to go cash-free. Customers can fill funds in their mobile wallets through a bank or card transfer and use them while paying bills, making purchases, or transferring money.
Buy now, pay later
The buy now pay later concept is similar to credit card payments. BNPL facilitates users to make the payment in a single go or divide the cost over several installments and pay it.
9 Advantages of Accepting Alternative Payment Methods
Alternative payment methods help businesses to cater to diverse customer preferences and enhance transaction convenience. The benefits of offering alternative payment methods are pretty numerous, including:
- Speed and convenience: Alternative payment options assist businesses in enhancing customer service. With speed and convenience, they offer alternate payment methods that are highly preferred by customers across the globe.
- Seamless payment processing: ATM also eliminates the need to re-enter payment details for each purchase, which facilitates seamless payment processing.
- Expanded customer base: By offering various payment options, businesses can attract and retain customers who choose specific payment methods.
- Increased sales: Offering alternative payment solutions to your customers can boost conversion and sales.
- Global reach: Businesses that accept alternative payment methods can cater their services to customers across the globe.
- Competitive edge: Businesses that embrace alternative payment technologies exhibit forward-thinking and adaptability, which enables them to stay competitive. This move will also help them position themselves as industry leaders.
- Reduced Transaction Costs: Most alternative payment methods have lower transaction fees than traditional methods, resulting in cost savings for your business.
- Enhanced Security: Most alternative payment methods comprise advanced security features such as encryption, tokenization, and biometric authentication, making them one of the most secure payment methods.
- Faster Settlement: Most alternative payment methods offer faster/instant settlement times compared to traditional banking systems, resulting in faster settlement and improved cash flow management.
Top Local and Global Alternative Payment Methods Worldwide
Direct debit, mobile wallets, buy now pay later (BNPL), and online banking are a few of the top payment methods adopted worldwide. But every country has specific regulations, banking terms, payment methods, licenses, etc. Therefore, it isn’t easy to vote for a single payment method.
List of alternative payment methods used worldwide
North America: Digital wallets are observed to be one of the most popular payment methods used in the United States. Apple Pay, Google Pay, PayPal and Venmo are also gaining more traction in recent times.
South America: E cash is one of the most preferred alternative payment solutions of North America. Few of the popular eCash solutions include Bancario, OXXO and Boleto.
Europe: Europe is also observed to prefer digital wallets and credit/debit cards. SEPA payments are also preferred by most Europeans as SEPA payments are accessible in 37 countries.
China: Alipay is the most preferred alternative payment option in China. Mobile payments are also one of the most popular payment methods embraced by the people of China.
Middle East: Mobile wallets such as KNet, Oman Net, QPay are one of the most preferred alternative payment solutions in the Middle East.
The Future of Alternative Payments
The future of alternative payments for businesses is hovering for continued growth and innovation. With the rise of payment methods like digital wallets, cryptocurrencies, and mobile payments, every business needs to offer diverse payment options to cater to evolving consumer preferences.
Integration of these payment methods into business platforms will surely enhance convenience and accessibility. Besides, advancements in blockchain technology and biometric authentication are paving the way for enhanced transaction security. Businesses adapting these emerging technologies will thrive in the global economy.
How to Choose the Best Alternative Payment Method for Your Business
Convenience is the key to enhancing customer experience. Businesses should seriously consider offering alternative payment methods to their customers. By facilitating ATMs, businesses let the customer pay the way they want.
One of the key challenges for businesses is to understand the customer’s preferred payment options. Therefore, businesses need to develop their payment strategies that are flexible enough to accept alternative payment methods.
Another major factor that businesses must consider is the countries they are dealing with and are trying to expand their businesses to. For instance, businesses operating in European countries must look for payment gateways that facilitate SEPA payments.
With the rise of several alternative payment methods across the globe, considering a robust payment system that is seamlessly integrated into your business and supports your needs will change the dynamics of your business payment strategy.
FAQs
1) What kind of business needs alternative payment methods?
In today’s world, regardless of the industry, every business needs alternative payment methods (ATM). Businesses must adapt to diverse customer preferences concerning payment methods. For any business to stay ahead of the competition, it is crucial to offer alternative payment options.
2) What is the most popular alternative payment method in the United States?
PayPal is one of the well-known alternative payment methods that enables international money transfers not just to the US but to more than 200 nations. PayPal owns both Zelle and Venmo, which are very popular alternative payment options in the US; they are not accessible outside of the country.
3) What are the merchant fees for alternative payment methods?
Merchant fees vary for each ATM based on various factors, including provider, type of transaction, region, volume of the transaction, and more. For credit and debit cards, these fees typically range from 1% to 3%, while for mobile wallets, they can range from around 2% to 3% per transaction.
4) Are alternative payment methods secure?
ATMs are often considered secure as they often prioritize security through encryption, tokenization, and fraud detection measures. Besides, most customers find them secure. However, businesses should choose reputable platforms with good security measures to make them safer.
5) What are the disadvantages of alternative payment methods?
Technical issues, security threats, password threats, time limitations, and amount limitations are a few of the major disadvantages of alternative payment methods. Also, higher transaction fees than traditional methods and limited acceptance in some regions add to these disadvantages.
6) What are the examples of alternative payment options?
An ATM is any choice of payment that doesn’t involve cash. In simple terms, alternative payment methods are payment options that are cash free. Alternative payment methods examples include bank transfers, digital wallets, mobile wallets, cryptocurrency, electronic cash, and more.
