Alternative Payments Methods Defined

Alternative payments methods defined

Breaking tradition is always tough. But alternative payments, which include anything that isn’t cash or a major international credit card scheme, have rapidly turned into a leading global payment method. This entails all forms of digital payment apps, such as:

 

• E-wallets: With an ecommerce boom fueled largely by the COVID-19 pandemic, today’s e-wallets are fully digital wallets that offer combinations of secure storage and payment acceptance gateways for online transactions and eliminate the need to carry a physical wallet.
• Bank transfers: From Europe to Asia, many countries offer direct payment options from a customer’s bank account to the merchant’s bank account, bypassing the need for cards or cash.
• Cryptocurrencies: This is a digital currency built on a peer-to-peer network, known as blockchain, that uses a decentralized system of record-keeping rather than a centralized authority. While many cryptocurrencies still have substantial volatility, they are growing in popularity and more stable ones including Bitcoin can be used to purchase products.
• Buy Now, Pay Later. Buy now, pay later, or BNPL, is now a major player in the payment software development revolution. While it originally began as a way to allow customers to buy products instantly and pay for them over time in a few regular installments, BNPL services today are looking to set develop their own payment gateways and co-marketing opportunities with retailers.

 

These are just a few of the alternative payments making a mark on the FinTech ecosystem, and disruptive technologies like these have largely been driven by the advent of open banking. With new, more inclusive finance laws popping up around the world, the applications and diversification of alternative payments is only set to rise.

 

The foundational role of alternative payments

Alternative payment systems bring users frictionless commerce and a better overall experience for customers, and this makes them increasingly popular. Yet what makes all this possible for BNPL and other digital payments is embedded finance, which is banking-like services provided by nonbanks. For example, when someone makes a cashless payment within a food delivery app, this empowers the customer to get financial services within the app and in-context. But alternative payments methods, on the whole, have also been shown to bring benefits to the nonbanks developing these APIs, such as:

 

1. New sources of revenue. In-app alternative payments allow for nonbanks to get the best of both worlds by allowing them to revenue share while also not needing to take on the financial liability.
2. Boosted CLV and other key metrics. Revenue gets a further increase through accelerated growth in things like Customer Lifetime Value (CLV), customer retention and Average Order Value (AOV).
3. Slash credit card processing fees. Overall, alternative payments and their digital payment services reduce overall credit card fees and help businesses save. When fees can range from 1.5% to 3.5% for swiped cards and keyed-in transactions, this can start to drain on would-be profit margins.
4. Gives a competitive edge. More than anything, alternative payments give businesses a cost-effective way to build product offerings, vertically scale their platform, and make them distinct from the competition.

 

These advantages and others have led advanced alternative payment models to encompass nearly all financial services, starting with ecommerce but now spreading into wealth management, banking and even insurance. These are all services that once required long waits and tons of paperwork but are now simplified and hassle-free in the span of a decade. This transformation, in large part, owes much of its existence to the availability of Bank Identification Number (BIN) sponsorships and Banking as a Service (BaaS). As discussed in this episode of Shine podcast, BIN sponsors and BaaS essentially take care of the hard part – form filling, multiple certifications and payment fees – and allow for today’s speed to market for alternative payment options.

 

Integrating alternative payments for FinTech success

The global appetite for Financial technology solutions emphasizing transparent and frictionless payment experiences is what’s driving the modern-day race within much of the FinTech ecosystem. That means staying ahead of the trends is crucial, but the key approach to securing this resilience in payment software development is always through a user-centric approach.

Now is the perfect time for both FinTech startups and traditional players to begin reimagining the payments landscape. As blockchain technologies, installment payments and more are skyrocketing to new heights, Star understands what’s needed, from ideation through launch, to guarantee that your next end-to-end product development does the same.