The rise of alternative payments
From virtual mobile wallets to peer-to-peer money transfer apps, there are an increasingly diverse number of ways to pay, beyond the old medium of cash. And the geographic scope of such alternatives stretches from contactless mobile for buying coffee in a US Starbucks or movie tickets in Indonesia, to blockchain-based currency transfers in Africa.
The benefits of alternative payments include convenience, speed, safety, and simplifying the payment experience. The new wave of alternative payment options, driven by improving technology, is continuing the trend started by credit and debit cards to move consumers on from cash – writes Radi Abd El Haj – CEO & Executive Director, RS2 software.
Several forces account for the rise of these diverse alternative payments. The rise of the app and smartphone ecosystem has enabled tools like peer-to-peer (P2P) transfers to be easily managed on a mobile, such as allowing friends to quickly exchange funds; Venmo, a market leader in P2P, processed $4 billion of such payments in the second quarter of 2016 alone.
Social media and ecommerce platforms are the second enabling shift. In China, Alipay has built payments infrastructures that let users do everything from shop online and pay utility bills to make person-to-person transfers, while Tencent’s WeChat Pay has become one of the most popular payments tools in China and is building its presence in European retail. As these platforms occupy more and more of people’s online time and spending, they become payments giants in themselves.
Other emerging alternative payments include virtual ‘prepaid’ cards like Astropay, and ‘buy now, pay later’ services from the likes of Klarna and PayPal. At the more radical end, blockchain and virtual currencies can do away with mainstream financial instructure entirely although they remain on the consumer fringe.
As alternative payments proliferate, companies need to move quickly to ensure a frictionless customer experience. Just as accepting card payments helped merchants keep customer numbers high, alternative payments, like contactless mobile, may become a differentiator for merchants – and could involve lower transaction costs.
The credit and debit card business will be strengthened by some aspects of the alternative payments revolution. Many products, like Google Wallet and Apple Pay, are in effect ways of storing credit and debit cards digitally, so these tools enhance the use of cards by allowing people to pay without having the plastic on them. And there are some constraints on the adoption of alternative payments: the rise of mobile malware means many users will still prefer cards. But by providing more choices for consumers and merchants, alternative payments could put pressure on cards in terms of fees and security.
Much will depend on consumer norms and behaviours in a given market. Some populations have a strong preference for one form of payments than another. In the Netherlands, the bank transfer solution iDeal, which routes an online payment back through a person’s bank, through a pop-up authorisation window, dominates e-commerce, over cards (other bank transfer-centric e-commerce markets are Germany, Norway and Poland). But cards are more dominant in the likes of the UK, France and Italy. And the scale and efficiency of the card business is still hard to beat. Visa, MasterCard and American Express have virtually 100% reliability, 365 days a year.
Rather, alternative payment methods, combined with cards, give consumers an ever-wider range of payment choices and further help promote the shift away from cash.