An introduction to alternative payment methods

September 18, 2022

On a summer evening in 1966, a piece of plastic quietly started a European revolution in a former shoe and boot factory in Northampton, England. Why? Because that former factory was the then headquarters of Barclays Bank, and that piece of plastic was Europe’s first credit card.

At the time, the public paid for almost everything in cash, so they were wary of the credit card. But just a few years after that launch, there were millions in circulation, and cards became even more popular with the introduction of the debit card in the 80s and chip and pin payments in the early noughties.

Now, things are changing again. While people have historically paid using ‘cash or card?’, a wave of new and evolving options (powered by and developed alongside new technology) is disrupting the payments landscape – especially online. These payment methods are generally known as alternative payment methods (APMs).

Of course, cards are still an exceptionally popular way to pay. But, if you’re running an ecommerce business, it’s vital to understand these different alternative payment methods and what they offer to both consumers and your business. This article will explore this to help you make the right decisions to drive growth.

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Alternative payment method types

The term alternative payment methods includes any means of payment other than cash or a major international card scheme, such as American Express or Mastercard. There are several different types of APM, including:

Bank transfers

Bank transfers allow consumers to make direct payments from their bank accounts. This is also sometimes known as account-to-account payments or wire transfers. In Europe, bank transfers are an extremely popular payment method. Many European countries have one (or more) popular bank transfer methods, including iDEAL in the Netherlands and SOFORT in Germany.

If you’re selling internationally, it’s imperative to understand the bank transfer methods consumers in the country prefer to use. Our data shows the most popular payment methods across key European ecommerce markets, such as that iDEAL is the preferred payment method for 58% of Dutch consumers when buying from a domestic retailer. Bancontact is the leading method in Belgium, with 46% of consumers choosing it as their favourite way to pay.

For image below: Thinking about online purchases made to online retailers inside your own country, please choose your preferred payment method to use.

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Direct debits

Direct debits use authorisations that allow you to debit a customer’s bank account – as long as you give them advance notice of the amounts and dates of collection. Direct debits can be used for everything from regular subscription payments and monthly donations to one-click payments and paying in instalments.

In the UK, the Bankers’ Automated Clearing Services (BACS) Direct Debit is the most widely used direct debit method. In Europe, SEPA Direct Debit is the most popular direct debit type. Using our effortless payments solution, you can easily set up these payments. Your customers need to provide a signed mandate, which allows you to collect the funds from their bank account. With Mollie, your customers can sign mandates through iDEAL, Belfius, credit card, Bancontact, SOFORT Bank Transfer and the KBC/CBC Payment Button.

Domestic card schemes

These card schemes operate similarly to global card schemes such as Visa and Mastercard. However, the cards are only accepted in specific markets. Cartes Bancaires and PostePay are examples of domestic card schemes.

Cartes Bancaires is France’s most popular payment method for purchases from domestic and international retailers.

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Electronic wallets (e-wallets)

E-wallets provide a digital way for people to store funds. Users load their e-wallets with money via bank transfers cards, or cash. They can then use the money stored on their e-wallet to purchase goods or services.

PayPal is a type of e-wallet, but users can also use it as a pass-through wallet (more on that below).

Pass-through wallets

These wallets act as electronic cards that users can use for online transactions. If you use your wallet in person, the payment is generally initiated via magnetic secure transmission (MST) or near-field communication (NFC).

For purchases made online, the process is similar to making a payment using a credit card, except it’s usually faster because the required details are automatically entered. Usually, a consumer only needs to provide biometric information such as a fingerprint or a face scan to authorise a transaction. This reduction in checkout friction can be a huge conversion boost for ecommerce businesses.

Apple Pay and Google Pay are types of pass-through wallets.

Buy now, pay later (BNPL)

Consumers can use buy now, pay later payment methods to make a purchase and then pay for it later – either in one payment or instalments. For ecommerce businesses, BNPL provides more flexibility to shoppers and offers a better customer experience, which can increase conversions and average order value.

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BNPL methods are growing in popularity across Europe and are especially popular in Germany and Austria. Klarna and in3 are examples of BNPL providers.

Alternative payment method benefits for businesses

The growth of alternative payment methods is being driven by several factors, including the evolution of tech that’s creating new opportunities in finance (such as APIs and open banking) and the growing demand for mobile commerce and mobile payments.

Another reason alternative payment methods are becoming more popular is the benefits they provide to both businesses and consumers.

Frictionless payments

Most alternative payment methods offer a quick, frictionless payment experience. As well as being a better experience for shoppers, this can also help increase your conversion rate.

Increased conversion

Offering the payment methods that your customers prefer to use is key to increasing conversions. Our European Ecommerce Report found that 87% of consumers say it’s important that retailers offer the payment methods they prefer when shopping online and that providing a quick and efficient payment method is the main factor that convinces consumers to buy.

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So, knowing the payment methods consumers prefer to use and offering them can be vital to reducing cart abandonments and driving sales.

Get paid quicker

Many alternative payment methods offer instant payments, as opposed to card payments which can take up to five days to arrive in your business’s account. This can help you maintain a healthy cash flow and more efficiently manage your money.

Reduced costs

Using alternative payment methods can mean you pay lower fees than card payments, especially when you can avoid paying interchange fees. As many consumers across Europe prefer to use alternative payment methods to buy, this can save you a lot of money over time.

Offer alternative payment methods to drive growth

As the payments landscape continues to evolve, alternative payment methods are becoming more and more popular with consumers. And in some European countries, they are the payment method of choice for consumers.

Cards are still a vastly popular payment method, but to make sure you’re converting as many shoppers as possible you need to offer the right payment mix, which often includes domestic bank transfers, buy now, pay later options, and a range of digital wallets.

Doing that will ensure you create the best customer experience possible and turn browsers into buyers.

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Offer shoppers the best payment methods with Mollie

Here at Mollie, we provide an effortless payments solution that allows you to accept more than 25 payment methods, including major card schemes and established and growing alternative payment methods. This includes domestic bank transfer methods such as iDEAL and Bancontact, digital wallets, and buy now, pay later options. We make it simple to add and remove payment methods as needed and integrate our payments with your site, whether you’re using an ecommerce platform or a custom solution.

Sign up to Mollie and you also get:

  • Improved conversion with direct checkout and Mollie Components
  • Seamless chargebacks, re-orders, and cancellations
  • Simplify doing business with the Mollie App
  • Transparent pricing with no hidden fees and no lock-in contracts
  • Human, multilingual support teams across Europe
  • Manage payments in the Mollie Dashboard
  • A suite of integrations to power growth

Find out more about payments with Mollie, or sign up to start accepting payments using our effortless solution.