THE BLOG

Think Alternative to Future-proof Your Payment Strategy

20/03/2014 11:47 GMT | Updated 20/05/2014 10:59 BST

The global e-commerce economy is growing at a rapid pace, and with this growth, we're seeing significant changes in the way merchants and consumers are choosing to do business. Whereas to date cards have been king, new research reveals that within the next four years, we'll start to see alternative payment methods make up the majority of online purchases.

Customers are already embracing alternative methods to pay for goods and services - alternative payments accounted for 43% of e-commerce purchases in 2012. Now, alternative payment methods are forecast to grow significantly faster than total e-commerce and will represent more shopper spend than cards by 2017.

Recent WorldPay research findings show that alternative payment methods will make up the majority (59%) of online purchases by 2017, as card payments (including credit and debit cards) decline, from 57% in 2012 to 41% in 2017.

So what does this mean for merchants? The simple answer is that to future-proof their business, merchants need to ensure they offer customers a range of payment means. But what alternative payment methods they should consider varies hugely, dependent on their customer demographic and where in the world they are located. With more than 300 alternative payment schemes currently in operation across the world, it's even more important to understand the market.

Here are some of the key findings from the research report that reveal the payment methods making headway around the globe.

E-wallets come to the fore

The research predicts that e-wallets will become the most popular payment type worldwide within the next four years, with US$1,656 billion estimated to be processed in 2017 (up from $295 billion in 2012). This will see e-wallets gain a 41% share of global payments.

E-wallet schemes already lead the alternative payments sector worldwide - PayPal has a 57% market share of all alternative payment schemes, followed by Alipay (the market leader in China) at 20%.

E-wallets made up 44% of e-commerce payments in China in 2012, demonstrating the appetite China has for alternative payments. This is also reflected across the Asia-Pacific region, where e-wallets comprised one quarter (23%) and alternative payments nearly two thirds (63%) of all e-commerce transactions.

More mature markets such as the US and UK are also starting to see increasing acceptance of e-wallets and new products from traditional card providers, such as V.me by Visa. In fact, card-based e-wallets are expected to account for 25% of the global card market by 2017.

The rise of mobile

While mobile has been on the radar as an area with huge potential for the payments sector for some time, it's only recently that technology has advanced enough to make mobile a truly feasible option for online shopping.

Direct carrier billing has become an important payment mechanism with the rise of smartphones and app stores, and aligns well with the purchase of digital goods and in-app payments. The process is quick and simple and enables the shopper to remain relatively anonymous, only needing to provide their phone number to complete payment.

The number of mobile wallet solutions has also increased in the last 12 months. As mobile devices have become more sophisticated, specialised mobile payment solutions have emerged from independent companies and established players alike. For example, Zapp allows customers to pay for goods in a shop or online on their mobile via a code sent to their device or which they scan from a paper bill or a payment machine. E-wallets such as PayPal and V.me by Visa also focus on mobile usability, and other services, including Boku, M-Pesa and Zong, allow transactions to be processed through a mobile phone bill. (This is particularly important in emerging economies where many customers don't have bank accounts and thus rely on mobile devices to make payments.)

It's predicted that mobile payments will make up 3% of the e-commerce payments market by 2017 - a turnover of $117 billion, up from $18 billion in 2012.

Cash on delivery in decline

Cash on delivery will decline to just 2% of global e-commerce payments by 2017, from 5% in 2012. In 2012 it made up just 1% of payments in North America, and 5% and 8% in Europe and Latin America respectively.

Cash still rules in the Middle East and Africa, where nearly half (48%) of payments were made via COD in 2012, but 5% of e-commerce transactions were made with e-wallets, which shows promise for further uptake of alternative payments in this region.

Get ready for the future

Given the increasingly globalised nature of e-commerce, a payment strategy that focuses on the needs of customers around the world is essential to maximise transaction acceptance and expand global reach.

Emerging economies, such as the BRIC countries and the next layer of emerging markets, are seeing particularly fast growth of alternative payments. This means the complexity of the payment landscape will increase further.

Merchants will need to ensure they understand diverging regional and sector trends in preferred methods of payment. As always, to make the most of all channels, it's crucial to work with a payment provider with specialist knowledge of the complicated alternative payment landscape.