Jaime González Gasque
Where do alternative payment methods fit into the future of digital payments?
Yuval Ziv, President at Nuvei, talks about the importance of alternative payment methods and the importance of payment companies providing these tailored solutions to their clients.
Just over a decade ago, we witnessed a revolution in payments processing. New players have disrupted the market with innovative technology, promising merchants the ability to accept digital payments globally, with one integration. Innovation in payment processing effectively focused on enabling merchants to quickly accept payments, often following a ‘one size fits all’ approach through off-the-shelf solutions.
As customer expectations, merchant needs, and payment technology evolved, we now find ourselves on the cusp of another transformation. Accepting digital payments globally has gone from being a key differentiator to table stakes; and, today, a few payment providers, including Nuvei, can solve this crucial merchant need. However, this is not all that payment providers can do.
Payments as a revenue driver
Payment departments were often seen as a reactive cost center rather than a strategic key business growth driver, but this perception started to shift. Businesses realised that payments are a key customer touch point. So, as they strive to better connect with clients, increase sales and retain their loyalty, payment experiences became integral to overall customer journeys. Suddenly, becoming proactive when it came to payments brought more value.
Increased conversions drive revenue. Even a 1% increase in payments accepted translates to a 1% revenue increase – and this can have significant impact on any business. Where once the focus was on acceptance, business owners are now looking to strategically optimise payments to drive conversions and increase revenue.
Strategic payment optimisation: two pillars
Payment processing is complex, making the task of turning payments into a profit centre no mean feat. Therefore, the payment provider role has evolved from a ‘service provider’ to a ‘strategic partner’. Merchants are starting to work in partnership with their payment providers to help them drive customisation and optimise performance.
Customisation is about choice. Each business is unique so it’s paramount that their payment flow is suited to their requirements. The unique nature of a business can be influenced by the business model (recurring billing, processing microtransactions, etc.) but also by regulation in countries they operate in. All these intricacies point to sophisticated needs when it comes to offering optimal customer-centric payment experiences as they require customisation.
Customisation also drives innovation. One merchant’s challenges are not unique and, no matter how fragmented the payments ecosystem is, the common goal is to provide secure, frictionless, and fast payments. Through productization, payment providers adapt and learn from challenges experienced by a merchant in one vertical and create innovative solutions that can be applied to others.
So, where does this leave the simplistic ‘one size fits all’ approach once popular? Firmly in the past. Merchant needs are far from being ‘one size’ so their payment solutions shouldn’t be either. It comes back to profitability – payment providers who hold back from customising to meet their merchant’s needs deprive them from gaining incremental revenue.
Performance optimisation is about more than being able to accept payments. It’s about automating the payment process to improve acceptance rates by smart routing transactions via the most suitable provider – every time. It’s about giving customers the flexibility of partial payment or recovering otherwise declined transactions by offering alternative payment methods. Crucially, it’s about efficient fraud and compliance management, ensuring low risk levels for businesses and their customers.
As digital payment experiences increased, companies had to access more data points, showing everything from customer payment preferences to conversion rates. Payment providers suddenly became better placed to take a proactive, human approach, advising merchants on ways to optimise their payment strategy.
The rise of Alternative Payment Methods (APMs)
One of the biggest trends to shape the global payments industry is alternative payment methods. APMs emphasise on the importance of customisation to help merchants drive revenue through payments by stating that it empowers consumer preference. Payment method choices are often based on customers preference and location.
What has fuelled the rise in APMs globally?
Domestic schemes: born out of a desire for governments to gain independence from global card networks, domestic schemes are a key APM driver. Pix, rolled out by the Banco Central do Brasil in November 2020, was built for efficiency and financial inclusion. It now has 107.5 million registered accounts, more than half of the country's population. According to central bank data, Pix payments volume is already equivalent to 80% of debit and credit card transactions.
Open banking: underpinning much of the innovation today, including the rise of real-time payments, open banking provides a secure and frictionless alternative to card payments. It enables anyone with a bank account and a mobile phone to make a payment and provides merchants with additional benefits such as lower processing fees and reduced chargebacks.
Cryptocurrencies: while still nascent and not widely adopted, cryptocurrencies are slowly gaining traction, as major brands like Microsoft, Home Depot, and even Starbucks2 are leading the charge on acceptance.
Buy Now Pay Later (BNPL): the flexibility and convenience of BNPL has enjoyed initial success, particularly in the retail sector and with younger shoppers. BNPL adoption is expected to grow steadily, with a CAGR of 24.5% during 2022-20283.
Digital wallets: consumers are increasingly digitally connected, and payments are increasingly digital. A report by Mordor Intelligence estimated that between 2021-2025 the adoption of digital wallet apps, such as GooglePay and ApplePay, will increase by a compound annual growth rate of 26.9%4.
Growth in these methods has helped shape consumer attitudes toward using alternatives when paying for goods and services. But what makes APMs tricky for merchants? - a lack of uniformity when it comes to accepting and processing alternative payment methods globally.
In the Netherlands, most consumers use iDeal but in Brazil, it’s Pix or Boleto, and some of those methods are based on offline dynamics. The US is largely dominated by ACH, RTP and cards – but cards can also be complicated because they are not created equal. So, merchants wishing to operate in multiple regions require relationships with domestic players.
If merchants can’t accept payments using methods their customers know and trust in countries they operate in or wish to expand to, those transactions are lost. In simpler words, payment localisation makes good business sense, and it is paramount for payment partners to connect into multiple APMs globally.
Processing multiple alternative payment methods also comes with additional layers of complexity, especially when looking at:
Reconciliation: businesses must reconcile millions of transactions, all in different currencies and with different settlement times, often hindered by delays, refunds, or chargebacks.
Conversion: increasing conversions remains a priority for any business. Automatically choosing the right payment method based on the circumstances or preventing cart abandonment with decline recovery or partial approval features can have significant benefits around conversion. Not to mention blending these all in with payouts, recurring billing, or one-click payments if required.
Fraud management: businesses need to be able to rely on real-time fraud detection and scoring, so that fraudulent transactions can be prevented, regardless of the payment method used for the transaction.
Once again, a ‘one size fits all’ approach is suboptimal when it comes to helping merchants navigate the complexities of processing and accepting alternative payment methods. Thus, for merchants to truly optimise their payment strategy and ensure revenue growth, customised payment solutions are necessary.
A bright future ahead
We see APMs continuing to play a key role in the evolution of global payment processing. We are constantly working to add new payment method connections into our platform, and currently offer connections to more than 550 APMs.
As the payment ecosystem continues to evolve to better suit business and consumer needs, we also see the relationship deepening between merchants and their payment providers.
And, as these partnerships become more prominent, human relationships become central to them. Despite the ever-evolving technology in customer service, businesses don’t want automated services or chatbots but rather value human support. They want to work with people who understand their business, its challenges, and help come up with pertinent solutions. They a customised solution and someone attending to their needs – a real payment expert who they can rely on to help accelerate their business.
Editor: Irina Ionescu | Voice of the industry