What are alternative payment methods?

Alternative payment methods refer to payment systems other than traditional cash, cheques or card transactions, commonly used for online or digital transactions. These encompass Direct Debits, digital wallets (like Apple Pay, Google Pay, and PayPal), mobile payments, peer-to-peer (P2P) payment platforms, cryptocurrency transactions, bank transfers and 'buy now, pay later' services such as Klarna. These alternatives offer unique advantages such as enhanced convenience, heightened security measures, and often immediate transaction times.

A brief history of alternative payment methods

In many ways, the rise of alternative payment methods began with PayPal, a transfer service allowing people to send low-cost international payments. This led to an explosion of alternative payment methods, with major players such as these familiar providers taking an increasingly large role in the international payments space:

• Alipay

• Apple Pay

• Google Pay

• Klarna

• GoCardless

• Stripe

There are many reasons why alternative payment methods have become so popular in recent years. One of the key causes of the expansion is the fact that shoppers’ payment habits are changing. They no longer wish to be restricted by traditional forms of payment, desiring a convenient, hassle-free payment experience. Furthermore, checkout technology has become much more sophisticated, making implementing alternative payment methods significantly easier for merchants.

The importance of alternative payment methods

In short, alternative payment methods provide customers the convenience and choice they want. They enable people to pay in a way that suits them, so as a merchant, it’s especially important that you’re able to offer a broad range of payment options at the checkout point. That way, you can gain an edge over your competitors, who may only offer traditional forms of payment.

Alternative payment methods can also benefit companies that wish to enable seamless cross-border payments. While traditional credit cards will well serve many countries, you may need to offer alternative payment methods to reach global customers, particularly those in emerging regions of the world.

Put simply, customers want a payment experience that’s as frictionless as possible. By offering alternative payment methods, that’s what you’re providing. This is especially important for merchants pursuing global expansion, ensuring you can connect with as many potential customers as possible internationally.

Examining alternative payment methods in detail

Now, let’s look at some of the different alternative payment methods in a little more detail:

• Online banking – First off, there’s online banking. This refers to any payment made from a bank account where you don’t need to enter your credit card information.

• Direct Debit – It’s also worth remembering that Direct Debit is an alternative payment method favoured by many subscription-based businesses. Working with a payment service like GoCardless, Direct Debit is a great way to accept recurring payments while reducing your susceptibility to involuntary customer churn.

• Digital wallets – One of the most popular alternative payment methods are digital wallets, which are essentially prepaid accounts where you can store money for future transactions. Examples of digital wallets include PayPal, Paysafe, and Neteller.

• Bank transfers – Also referred to as wire transfers, a bank transfer is a direct transfer of money from a customer’s bank account to a business’s bank account.

• Mobile payments – Mobile payments are exactly what they sound like; payments made using your phone. Two of the most popular examples include Apple Pay and Samsung Pay.

• Cryptocurrencies – Another, more recent addition to the alternative payment method stable is cryptocurrencies. You’re probably familiar with Bitcoin, but there are vast numbers of cryptocurrencies (over 8,685 as of January 2023) to explore. While many cryptocurrencies are volatile and may be difficult actually to use to make transactions, they’re sure to be an essential part of the payments space in the future.

Global trends and usage of alternative payment methods

In this globalised era, understanding the usage and trends of alternative payment methods worldwide is crucial for any business that aspires to expand its customer base. Some regions have unique preferred payment methods that significantly differ from others, emphasizing the importance of adaptability and offering a wide range of payment options.

For instance, digital wallets are North America's leading alternative payment method, while mobile payments, like M-Pesa, dominate the African market. In Asia, specifically in China, payment apps such as Alipay and WeChat Pay have transformed the payment landscape.

Furthermore, the COVID-19 pandemic has accelerated the adoption of alternative payment methods as contactless transactions become the norm. Understanding these trends can help businesses target their customers more effectively and provide them with the most convenient and efficient payment experience possible.

Ultimately, the increasing adoption of alternative payment methods globally underscores their growing significance in shaping the future of online and offline commerce.

Case Study

When the pandemic changed working lives worldwide, relocating staff from office to home, a huge demand for services such as printing emerged, and Epson needed to adjust to the new realities quickly.

The company initially launched their ReadyPrint service with credit and debit card payment options. However, it wasn’t long before customer surveys and high rates of payment abandonment in key markets revealed a clear and strong demand for more choices, specifically local payment options.

Offering Direct Debit in the UK and SEPA Direct Debit in Europe, Epson saw a 40-50% improvement in customers completing their transactions vs abandoning them midway through the process. 

Epson Europe’s Head of Digital Programs, Mauro Bartoletti, noted,

Predicting the future of alternative payment methods

The market has rapidly expanded, and many experts believe that alternative payment methods will shape the future of global e-commerce for years to come. In Africa, for example, mobile payment users outnumber bank account holders, while in China, Alipay is the most popular payment method. Although credit cards are still popular worldwide, particularly in the United Kingdom, many countries are flocking to alternative payment methods in far greater numbers than traditional ones.

Key takeaways

• Direct Debit and other Alternative Payment Methods (APMs) streamline transactions through automated payment collection.

• These APMs offer flexibility, letting merchants adjust subscription amounts and schedules while providing additional services like instant payments.

• APMs cater to global markets, supporting various local bank payment methods in over 30 territories.

• APMs create a frictionless customer payment experience by reducing checkout abandonment and chargebacks.

• As online payments continue to rise in popularity, APMs like GoCardless play a crucial role, enabling businesses to adapt to changing consumer habits and reach more international customers.

We can help

Setting up alternative payment methods, such as Direct Debit for your clients, is straightforward with tools like GoCardless. By automating the payment collection process, GoCardless drastically cuts down the administrative responsibilities of managing and tracking payments for your team. 

GoCardless makes it quick and easy to get started, and with no contracts or long-term commitment required, there’s no risk. You can set up instant, one-off, or recurring payments in the merchant dashboard in just a few clicks, and GoCardless automatically creates and sends all the necessary forms, doing all the heavy lifting for you. You can also connect to GoCardless via over  350 partner apps, such as Xero and Quickbooks.

Discover how GoCardless can be your reliable ally in managing Direct Debits, making it easier for you to concentrate on what matters most - your business growth.

Frequently Asked Questions

What are the 4 types of payment methods?

The four main types of payment methods in the UK are Credit/Debit Card Payments, Direct Debit, Digital Wallets, and Bank Transfers.

1) Credit/Debit Card Payments: The most widespread and commonly used method, enabling users to make payments through their bank cards both online and offline.

2) Direct Debit: This method allows businesses to take payments directly from customers' bank accounts, often used for recurring payments such as utility bills and subscriptions.

3) Digital Wallets: Innovative payment solutions such as Apple Pay, Google Pay, and PayPal store card details securely, enabling quick and convenient contactless payments via smartphone or online transactions.

4) Bank Transfers: Also known as wire transfers, these involve directly transferring money from one bank account to another, typically used for larger one-time payments. These alternative payment methods provide versatility and convenience, shaping the future of financial transactions in the UK.

Why use alternative payment methods?

Using alternative payment methods such as Direct Debit, Digital Wallets, and Bank Transfers offers several advantages for both businesses and consumers. Firstly, they enhance customer convenience, providing diverse payment options to cater to individual preferences, thereby increasing the likelihood of successful transactions. Alternative methods such as Direct Debit are excellent for recurring payments, automating the process and ensuring punctual bill payments. Digital Wallets like Apple Pay and Google Pay offer increased speed and ease for contactless and online payments, improving customer experience. Furthermore, these methods often include additional security features such as encryption and tokenisation, reducing the risk of fraud. Lastly, certain methods like Bank Transfers are ideal for larger transactions, facilitating a seamless transfer of funds directly between accounts. Thus, alternative payment methods are pivotal in boosting convenience, security, and versatility in the evolving landscape of digital transactions.

What are alternatives in online payment?

Employing alternative payment methods like Direct Debit, Digital Wallets, and Bank Transfers in the UK brings several distinct advantages to consumers and businesses alike. These methods offer flexibility and convenience, catering to a broad spectrum of consumer preferences and encouraging seamless transactions. Direct Debits, for instance, automate recurring payments, ensuring timely payment of bills or subscriptions. Digital Wallets such as Apple Pay or Google Pay streamline the process of online and contactless payments, enhancing transaction speed and user experience. Importantly, these alternative payment options also heighten security with features like encryption and tokenisation, thus reducing fraud risk. For large payments, Bank Transfers offer a trusted and straightforward method, allowing funds to move directly between accounts. Hence, the use of alternative payment methods significantly contributes to a more versatile, secure, and user-friendly financial ecosystem.