Alternative payment methods (also referred to as local payment methods) are no longer a prospect of the future in the payments industry — they are now a necessity for both attracting and retaining customers.
Today, over a third of consumers make purchasing decisions based on the acceptance (or lack thereof) of digital payments, according to the Global Alternative Payment Methods 2022 report.
Whether you are a merchant, a fintech, a marketplace/platform, or any other business with a robust online presence, it is critical to offer your customers the alternative payment methods they desire.
Yet, many businesses try to activate alternative payment methods without first considering the resources and developmental support needed for such a task.
The key to not only activating but optimizing alternative payment methods lies in careful planning and building a reliable and unified payment stack.
Benefits of Activating Alternative Payment Methods
An alternative payment method is any type of payment that does not fall into the traditional card or cash categories. This can include payment methods such as:
- Digital wallets
- Mobile payments
- Online bank transfers
- Local payments
- Buy Now, Pay Later (installment loans)
Activating alternative payment methods (APMs) can have a tremendously positive impact on your payment system’s flexibility and global reach.
The many advantages of enabling APMs include:
- Boosted Revenue: APMs have the potential to enable a business to side-step the fees charged by traditional bank intermediaries that handle card-based transactions. As a result, a business can keep more of its hard-earned revenue while simultaneously boosting sales by offering a wider range of payment methods to customers.
- Enhanced Checkouts: For e-commerce and digital-first businesses especially, seamless checkouts are essential for creating an excellent customer experience. APMs provide your customers with a greater payments suite, increasing the chance that you close a sale. Plus, APMs help to create a faster checkout process overall, as customers can use the most convenient payment method.
- Increased Conversion: Merchants can reduce cart abandonment rates by offering the selection of payment methods preferred by consumers. Especially in markets where credit cards are not king offering the right local payment method is critical for the consumer to complete checkout.
- Greater Operational Efficiency: In a strategic payments stack, the right mix of payment methods, aligned to the needs of a given customer segment and region, can all be taken into account and the most important mix of methods can be offered while removing those that don’t actually help drive additional revenue.
5 Key Considerations Before Activating Alternative Payment Methods
Before you begin activating alternative payment methods in your payment system, there are several important considerations to think about first.
Here are the five key factors to consider before activating APMs:
1. Researching APMs & Developing a Localized Payment Strategy
Alternative payment methods are an essential component of any localized payment strategy.
As such, when developing your localized payment strategy, it is highly important to research which APMs are most popular or common in a specific geographic area.
For instance, the payment platform PayPal has become an increasingly popular APM around the globe but especially in Germany. An incredible 51% of Germans report using PayPal for in-store payments, while an even more impressive 92% of Germans use PayPal for online payments.
Across the pond, 82% of U.S. consumers report using PayPal for online payments. However, the U.S. does not yet experience a prevalent use of PayPal for in-store payments.
PayPal is just one of the many APMs that has grown massively in popularity worldwide — the key for businesses hoping to expand internationally is to know which APMs are popular and where.
Keeping this in mind when activating APMs is crucial, as you may want to prioritize enabling the most relevant APMs first. Doing so requires you to first develop a localized payment strategy by researching the APMs with the most influence in any given region.
2. Building the Right Integrations
Depending on what type of payment strategy you have adopted, you may be responsible for the developmental tasks associated with alternative payment methods — primarily, gateway integrations.
If you own and manage your payment infrastructure entirely in-house, then you must ensure you have the right payment gateway integrations for activating and accepting APMs. The more APMs you activate, the more integrations you will need and the more complex your payment infrastructure will become.
Alternatively, you can opt for a solution that handles integration development for you, such as a payment orchestration platform (more on that below).
Regardless of which payment solution you are leveraging, encompassing the ability to integrate many payment gateways is vital to activating APMs.
3. Optimizing Transactions
Poor transaction approval rates can greatly affect business.
In 2020, the global economy faced $118.5 billion (USD) in failed payment costs, with 60% of organizations losing customers due to failed transactions.
When working to activate APMs, one critically important consideration is how to optimize APM transaction approvals and ensure top-notch transactional speed. Many factors can impact the speed and approval of a transaction, including:
- Downtime: Downtime refers to when payments fail, leading to the halting of order processing within an online shop or website. The more third parties (such as multiple payment gateways) that are involved in a payment process, the more likely a business is to experience downtime.
- False Declines: False declines occur when a customer’s payment is incorrectly declined by a card issuer. APMs can be a major help with this issue, as having multiple payment options to choose from is key if a customer continually encounters a false decline with another method.
- Outdated Integrations: Payment integrations can require ongoing maintenance to keep functional, especially as payment service providers continue to evolve their business models. As such, it is crucial to keep any APM payment integrations you have up to date.
To optimize transaction speed and approval rates as much as possible when activating new APMs, an integrated payment solution that can unify a payment stack is a necessity.
4. Dealing with Compliance & Regulatory Burdens
For businesses working to expand into new regions around the world — and activating the APMs to do so — knowing what compliance and regulatory burdens you may face is imperative.
Every country a business conducts business in will have different standards and regulations when it comes to accepting various payment methods. These regulations can vary even further depending on which specific APM you are offering to customers.
Along with compliance and regulatory burdens, it is also crucial to consider what types of fraud tools to integrate alongside APMs. Not every country regulates APMs but that doesn’t eliminate the need for payment security.
Maintaining a secure payment system that is safeguarded against fraud can take significant development effort. Thus, when activating APMs, it is wise to first assess the compliance and security hurdles you may encounter for each APM you wish to enable.
5. Enhancing Your Payment Stack with Payments Orchestration
The fifth and final consideration when activating APMs is how to optimize an entire payment stack.
Payments Orchestration is an approach to payments that relies on a unified tech layer to orchestrate all the necessary payment integrations and includes everything from routing payments to managing compliance.
With the right orchestration platform, businesses can activate APMs with greater ease while also simplifying their payment integrations and alleviating the burden of regulatory compliance from their internal development teams.
Ideally, businesses should seek out an agnostic payment orchestration platform. Agnostic payment orchestration simply means the platform is not tied to any one specific financial institution or payment service provider. In turn, agnostic platforms give businesses greater overall access to the payment services they need, regardless of who provides the service.
By implementing payment orchestration as part of an APM activation strategy, the entire process can be streamlined, making it easier for businesses to start offering APMs on demand.
Spreedly Activates APMs with Ease
With payment solutions built for merchants, merchant aggregators, and fintechs, the Spreedly API has the capabilities you need to not only activate alternative payment methods but ensure they are optimized to boost transactional efficiency and revenue.
Our PCI-compliant platform has processed more than $45 billion in digital commerce transactions, with more than 100 payment services and fraud tools available through our payments ecosystem.
Get in touch with our sales team today to find out more about how Spreedly can help you activate APMs.