The eCommerce industry changes quickly. New trends come and go, new audiences emerge, and customer expectations change. With these new trends, audiences, and expectations, the industry must adapt to serve them. One particular concept that has become increasingly powerful is the use of alternative payment methods (APMs).
According to industry data, 55% of all online transactions will be made using alternative payment methods. Let’s look at the millennials and Gen Zers, for example. We sometimes poke fun at them, but they account for over $200 Billion in purchasing power which is nothing to laugh at. And for them, these alternative payment methods are in high demand.
These new audiences demand something different and the power they wield is undeniable. If you aren’t paying attention to these audiences, you are making a mistake. Alternative payment methods are just one of the many innovations that have been adopted by the modern buyer, but one that can deeply influence purchase decisions.
What are Alternative Payment Methods?
Alternative payment methods are more than just PayPal or traditional payment forms where you enter in a card number and your billing address. Examples of alternative payment methods can include mobile wallets, instant financing or try before you buy. These alternatives are gaining traction because they are flexible and allow consumers to have more choice in purchasing the items they love.
For industries like fashion or luxury goods, these alternatives are becoming especially popular because of their ability to increase average order values and decrease abandoned carts. Imagine this: A customer is interested in purchasing an item from one of their favorite fashion designers, but that item is nearly $400. The average millennial, for instance, is more inclined to use their debit card for purchases rather than a credit card, which means the cash available to them is only what they have in their bank account. Instead of completing that purchase, the customer walks away to try another day. But what if that wasn’t the case? What if there were flexible payment options that allowed the customer to walk away with that item today? Well, there are. By making those alternate payment options available, merchants can avoid forcing customers to make hard decisions at checkout. Instead, they are giving customers the ability to check out with ease, removing the barriers.
Choosing Alternative Payment Options
It all comes down to finding the alternative payment mix for your audience that encourages the most conversions. Not all payment methods are made equal and not all of them work for every audience. Before you dive into adding every payment method under the sun, make sure to do your research.
Merchants need to ask themselves the following four questions before making a decision on alternative payment options:
- What devices do my customers use most?
- Who are my customers (interests, ages, genders)?
- Where are my customers and what are the most popular payment options?
- What are others in my industry doing?
By asking these four questions, merchants are gaining the knowledge needed to make an informed decision on what alternative payment methods may be best for them.
Alternative Payment Method Options
It’s important for merchants to understand their options. After learning more about their customers wants and needs, merchants must examine the options available to them to meet those needs. Below we will discuss just a few.
Mobile Wallets
A mobile wallet allows merchants to use their smartphones to store payment information from credit and debit cards, then allows them to use that device to make a purchase. With the rise of “mobile first”, this is becoming an increasingly popular option. From Apple Pay to Google Pay, there are many options that are entering the mobile wallet space. For brick and mortar retailers, this option could be a game changer, especially for the rising millennial buyer. With the added level of convenience and speedy checkout process, it makes buying simple and efficient for customers.
Instant Financing
Instant financing options are often misunderstood, which is sad. Instant financing is a method that allows customers to pay a specific amount over an extended, defined period of time. They can be approved within seconds, complete their purchase, and reuse that same method with other merchants who offer that payment option. Options like Klarna, an instant financing solution, allow merchants the ability to offer their customers the flexibility to buy items that would often be out of reach, therefore decreasing abandoned carts. For industries like fashion and apparel, luxury goods, and home furnishings, this can be a major step in the right direction. Merchants that have chosen to implement a feature, like Klarna payments, have seen a 68% increase in mobile conversion rates, a 68% increase in average order value with customers paying in installments, and a 20% higher purchase frequency with customers using delayed payments.
Try Before You Buy
While shopping online has become increasingly popular and over 80% of consumers are doing it, there is still some skepticism. Particularly in industries like fashion, the option to “try before you buy” is in high demand. Amazon recently implemented its “try before you buy” strategy with Amazon Wardrobe. Now we all like to hate Amazon but this strategy isn’t out of reach. This program allows customers to fill a box with items, try them on at home, return what they don’t want, and only pay for what they keep. This eliminates the fear of being charged for something a customer doesn’t want and having to wait days to see their money returned to their cards through an arduous return process.
Oldies but Goodies
With the rise of alternative payment methods, we don’t want to forget the tried and true methods—they are still relevant. And there is still a large audience who is most comfortable with these methods. PayPal, Amazon Pay, and payment gateways, with forms for card information and billing address, aren’t going anywhere. So it’s important to think back to the 4 important questions and make sure you have both the traditional and “new age” payment methods that best suit your customers.
So Where to Go From Here?
It’s quite simple. Open up to the future or be left in the past. The rise of alternative payment methods will most certainly not be the last innovation that we will see, but it’s slowly becoming a major player in eCommerce. It’s important for merchants to keep their ears to the ground and stay informed. In order to thrive, merchants must create experiences that keep customers coming back. If you’re interested in exploring the idea of alternative payment methods for your online store, contact us.
