Today the alternative payments market accounts for €165 billion of global eCommerce transactions around the world, and is set to rise exponentially by 2015.
The rise of alternative payments has been phenomenal, to the extent that these types of payment now account for 22% of global transactional value. But what are the parameters for a payment method to be classed as 'alternative'?
WorldPay's 2012 Alternative Payments report considers an alternative payment (AP) to be "any payment that falls outside the sphere of credit card, debit card, or cash payments". It is estimated there are currently over 230 AP schemes operating globally, including real-time bank transfer, offline credit transfer, direct debits, eWallets, paper-based payments and mobile payments.
But which of these six AP types do consumers prefer to pay with? The answer to this question is largely determined by the culture and geography of the consumer. It is not uncommon for one alternative payment type to be used by the majority of consumers in one country, only for that method to be unrecognised in another. In today's share of AP usage, eWallets account for the highest percentage (36%), followed by paper-based (22%) and offline credit systems (20%).
In more mature eCommerce economies, such as the UK and the US, plastic payment dominates. This is largely because they were the first nations to embrace credit and debit card, and not only is the infrastructure in place to accept such forms of payment, everyone has one in their wallet (or purse). This familiarity and confidence in plastic as a payment type has made it popular for online purchasing.
Across large parts of Europe, the more established card-based economy's lack of awareness of AP has hindered its adoption. As Benjamin Ensor and Elena Giovannini state in Forrester's Which New Payments Do Europeans Use report: "although there are many new payment systems in Europe, many Europeans don't even know that alternative payment systems exist".
Similarly to the US, the UK is a prime example - far from being considered a pioneer in AP, WorldPay's report shows that AP accounts for just 11% of eCommerce transactions in the UK, which is down to the high proliferation in card usage. Interestingly, the UK is considered to be an eCommerce frontrunner, with online revenues equalling €142 billion (the rest of Europe is only slightly higher with €157 billion in sales). The low percentage of AP transactions can be attributed to Western countries being 'set in their ways' in terms of card usage. PayPal is the dominant force in UK AP usage, accounting for just less than 50% of the market.
On the other side of the European coin are Germany and the Netherlands. Germany is the global leader in AP adoption, with 66% of its €45 billion eCommerce market paid for by AP. The majority of these transactions lie within bank-managed offline credit transfers - indicative of a market in which online credit card penetration is relatively low. PayPal and real-time bank transfers are also popular payment types with around 10% of AP usage, indicating that eCommerce merchants should look to include a broad spectrum of these payment types to appeal to the German market.
With a similar AP outlook to Germany, alternatives make-up 66% of eCommerce payment types in the Netherlands (although the market is relatively small at €7 billion). Of this 66%, the vast majority are attributed to iDEAL, a native real-time bank payment method launched in 2005, and its success may be aligned with the fact that 89% of the Dutch shoppers are aware of the service (according to iDEAL research in 2010).
The stratospheric rise in developing online economies is the driver for a high proliferation of AP usage in the AsiaPac region. With countries in this area benefiting from a recent rise in economic power, AP has prospered, as consumers in countries like China are not restricted by the 'legacy systems' of plastic cards in the UK and US. Rather, Chinese and Indian consumers have been able to take up real-time bank transfers, which dominate the AsiaPac eCommerce landscape.
37% of China's online spend is made using alternatives, equating to €20 billion in revenue, and is dominated by the ubiquitous and widely accepted Alipay (a 60% market share). Meanwhile, schemes from China UnionPay are also expected to come to the fore in the near future, looking to capitalise on their offline payments strength in the online space. China UnionPay has already overtaken Visa as one of the world's largest schemes. According to Retail Banking Research there were eight billion payments card in circulation in 2010, of which 29.2% carry the UnionPay brand, compared to 28.6% for Visa.
The opportunity for merchants to use AP to gain competitive advantage is huge. While implementing AP schemes requires time and investment, the ability to make it easy for consumers to purchase using their preferred method is essential to capture maximum profit. The Global Online Shopper Report, commissioned by WorldPay, found that 61% of online shoppers have greater faith in a website that offers them a choice of payment methods. Cultural preferences dictate the payment types required when selling to different regions but rather than offering every payment type possible, merchants need to understand the demographic of their customers and offer the most relevant payment options.