There has been a lot of discussion within the payments industry about the importance of offering Alternative Payment Methods (APMs) and Local Payment Methods (LPMs). Since the terms are sometimes used interchangeably, there can be some confusion about the difference. In an effort to reduce confusion here is how Spreedly defines them:
Alternative Payment Methods (APMs) is a catch-all phrase that includes:
- Digital Wallets
- Buy Now Pay Later
- Account to account, or banking payments, including Open Banking
- Cash voucher payments
The term “alternative payment methods” suggests there is an agreed-upon, or “correct” point of view as to what standard payment methods are, but this is simply not the case, and can be construed as lacking understanding of your intended market.
Using the term Local Payment Method (LPM) instills in the conversation and mindset an approach based on the merchant and customer locale, giving equal weighting and credibility to the regional approach to online payments. Engaging with customers in different regions requires an understanding of what payment methods are trusted, and how the consumer interacts with online payments, as they may be significantly different from your experience and preference. You should be aware that many of these local payment methods have a lower cost to the Merchant, a big factor in payment method availability.
For example, iDeal, a bank redirect and account-to-account payment method in the Netherlands (www.ideal.nl) accounts for over 55% of all online transactions, so it would be a folly for a merchant to enter the NL market without this payment method. In Mexico, approximately 30% of the adult population is unbanked, so how can they be brought into the world of online purchases?
Through an LPM such as OXXO, where the purchase results in a voucher that can be taken to a participating brick and mortar store to be paid for with cash. Brazil has pushed forward with PIX, a countrywide and mandated initiative for instant payments for account-to-account transfers, and is already leading to a shift in the Brazilian market of online payments.
Some of these payment methods may be very unfamiliar to someone in the US or UK. If your payment strategy doesn’t include consideration for how locals want to make purchases, your expansion will likely be hindered by your lack of payment methods.
In a recent conversation with Pete Kovacs, senior product manager, with HBO Max, he provided some important insights into the critical importance of understanding the market you are expanding into. He speaks about launching payments in new markets, considerations for payments in a subscription-based business, and methods for measuring the success of new payments programs – all while keeping the needs of your local customers in mind.
So how do you make all of this happen? A payments orchestration layer can facilitate your management of LPMs and provide a broader set of global payment options that will best suit your business model and the regions of which you operate. Through our single point of integration, Spreedly provides this capability, along with a wealth of knowledge, to help you succeed rapidly and effectively.