A slew of alternative payment methods are emerging to challenge the infrastructure of traditional payments; where this new road will lead and will be the victors remains to be seen, writes Carl Strempel, CEO and co-founder of Imburse.
The payments industry has been undergoing a major shift in recent times. Digitalisation and changes in behaviour brought about by the adoption of mobile devices and the internet have resulted in a significant move away from cash as a preferred payment method. This trend has been dramatically accelerated by the global COVID-19 19 pandemic. Increasingly tech-savvy customers have started looking towards more user-friendly solutions to better service their needs, and as a result, the market has been flooded with innovative alternative payment methods (APM).
The escalation of digital solutions
Alternative payment methods are those that are not made via the traditional means of cash, debit or credit cards supported by the major card schemes (think Visa, Mastercard and Amex). These alternative methods include mobile payments, e-wallets, bank transfers, cryptocurrencies, prepaid cards, vouchers, and a number of deferred payment options that have become increasingly popular of late.
The adoption of e-commerce, an increase in cross-border trade, and the opening up of the banking system over the past decade have resulted in a slew of new payment methods being developed. These new payment methods not only aim to better serve customer needs but also dramatically reduce friction for merchants looking to maximise sales opportunities. As a result, the market has seen a dramatic surge in alternative payment choices. Truthfully though the majority of these remain hyper localised, locked within specific geographies, banking or mobile networks – some little more than a shiny interface sitting on top of an existing card or banking network.
Overcoming challenges in vendor adoption
Currently, there are over 450 alternative payment methods in use globally, and this number is only set to grow as new digital networks and technologies (such as blockchain and the EPI-IC pan European payment solution project) emerge to challenge the fundamental infrastructure on which many of today’s most popular payment methods are built. Where exactly it will end and who will emerge as the major victors in the pursuit of simpler digital payment solutions is yet to be seen. In the meantime, corporates who need to keep existing payments flowing, whilst innovating to stay abreast of the constant change, are facing particularly interesting challenges.
Ignoring the rise of alternative payment options on both the customer and supply chain side is a risky choice. As customers are growing increasingly used to paying with their preferred local payment methods there is a growing expectation that all suppliers can accept them. Where customers are not presented with their preferred payment choice, sales are regularly abandoned. For sellers, this has served as a wake-up call. Just as accepting card payments helped merchants keep customer numbers high in the 1980s, alternative payments, like buy now pay later or the acceptance of digital or crypto currencies, are defining themselves as a differentiator for sellers. They also present an opportunity to innovate on existing corporate pay-out processes that have remained largely untouched for decades. Imagine receiving your corporate expense claims pushed directly to your favourite wallet or international suppliers settled instantly and transparently via their preferred local payment method.
The need for organizational flexibility when approaching payments
The challenge is primarily one of adoption. Unfortunately, many new services come with costly and time-consuming integration and reconciliation issues that often require complex changes to existing business processes and IT systems. While payments remain strategically important, they are becoming increasingly commoditised, and often new technologies are only feasible to adopt once the market share and value of the alternative proposition have been adequately proven. This leads to an abundance of missed opportunities both in terms of customer engagement and innovation, potentially proving costly in the long run as more nimble organisations react quickly to changing market conditions.
The one thing that is clear is that change in the payments space is here to stay. Perhaps it is time for organisations of all sizes to reconsider their approach to payments and seek flexible technology solutions that enable faster adoption of payment innovations.