2020 saw cash usage decline among consumers of all ages, while digital wallet usage increased nearly 24% year over year.
This tells us that while cash and cards still reign supreme, alternative payments are gaining ground and retailers who invest in them will have the edge over their competitors.
In this article, we’ll walk you through some of the more popular alternative payment methods and explain how you, as a retail business owner, can benefit from their adoption.
What are the alternative payment methods?
Alternative Payment Methods (APMs) are a number of ways to make purchases digitally, such as with a mobile payment app, digital wallet, or alternative currency. Cash and major credit cards are not considered alternative payment methods.
Every time you make a purchase using a mobile payment app, cryptocurrency, or money order, you are using a different payment method. Additionally, peer-to-peer payments, electronic checks, and direct transfers from bank accounts are also considered alternative payment methods.
Sounds like a lot, right? Well, don’t worry: diversifying the way customers can pay for your goods or services can be beneficial, but not all of these methods are common enough to invest in your business. We’ll cover the top three APMs for retailers, but first, let’s see why they should be important to retailers.
Why are alternative payment methods important for merchants?
To understand why APMs are important to retailers, let’s take a look at why they are important to consumers.
Consumers value convenience and choice, and they are motivated to use APMs for a variety of reasons. Gartner asked U.S. consumers to rank the top three factors that would influence them to switch to a new payment method (full content available to customers). The main reasons they chose were:
To secure payments
To obtain a financial reward for using a new payment method
To avoid fees or charges associated with using a current payment method
Providing a range of payment options at checkout allows your customers to shop the way they prefer, increasing their loyalty to your business and giving you an edge over competitors who only offer modes traditional payment methods.
Next, we’ll cover three alternative payment methods that are growing in popularity and that you as a retailer should consider investing in right now.
3 alternative payment methods merchants might consider adopting
1. Digital wallets and mobile payments
A digital wallet (sometimes referred to as an electronic wallet) is an application that allows users to make electronic transfers, either in the form of peer-to-peer payments or a direct transaction with a third-party seller. PayPal is an example of a digital wallet app.
Mobile wallets are slightly different; they are considered digital wallets but with the added functionality of being able to make contactless payments in store. GooglePay, Apple Pay, Samsung Pay, and Android Pay are all examples of mobile wallets.
Consumers can use Apple Pay to make purchases with their smartphones (Source)
Mobile payments and digital wallets may be the most ubiquitous alternative payment method today. In fact, in a recent Software Advice survey, we surveyed over 700 store owners and managers and found that 67% of respondents have implemented digital wallet or mobile payment methods before or during 2021.
In an age when 85% of the American population owns a smartphone, accepting mobile payments in your retail business only makes sense. Plus, it’s an investment that pays off: When asked, nearly a third of retail owners cite mobile payments as having the greatest impact on sales growth.
Fortunately for retailers, many POS (point of sale) systems are already optimized to accept mobile payments. If you’re ready to invest in mobile payments, speak with your point-of-sale software provider to see if this feature is available with your current system.
2. Alternative currencies
Alternative currencies are a form of bidding that can be used as a substitute for legal fiat currency. Organizations and individuals can create alternative currencies, and they are not regulated by banks or national governments in the same way as traditional currencies.
Cryptocurrencies such as Bitcoin and Ethereum fall into this category, as well as rewards program points which can be redeemed for goods (such as Starbucks Stars or Amazon Coins).
Cryptocurrencies generally have lower transaction fees than credit cards, and like cash, transactions made with cryptocurrency are final (which protects merchants from fraudulent chargebacks). Also, if you have an ecommerce store, accepting cryptocurrency is a big business decision because you can access a new customer base. For example, you can easily accept payments from customers in other countries.
These are just a few of the reasons why many retailers (50%) are already using or deploying cryptocurrency technology and are reaping the benefits.
If you want to cash out cryptocurrencies, we recommend that you use online payment software to convert Bitcoin and other cryptocurrencies into your local currency upon receipt. This is because the value of cryptocurrencies fluctuates and the immediate conversion of the payment will help you avoid losing money.
An invoice for a purchase made with Ethereum in BitPay (Source)
Tools like Coinbase Commerce and BitPay can help you set up your ecommerce store so that you can accept cryptocurrency as a payment method.
3. Retail financing options
Traditionally, financing options have been reserved for large expenses such as the purchase of a house, car or household appliances. But today, the financing of small retail purchases is becoming more and more common.
Retail financing allows customers to make purchases with lines of credit that exist outside of traditional credit cards. This means consumers can pay for the products in installments through a third-party finance app, an approach that can help those who might not otherwise be able to pay the full cost of the purchase up front.
As you can imagine, allowing customers to pay for their purchases in installments can result in a higher conversion rate. Klarna, an installment payment app, claims that companies that have adopted their platform have seen a 45% increase in average order value and a 30% increase in conversion.
Many retail businesses are already reaping the benefits of offering financing options. For example, our investigation found that 40% of retailers are currently deploying or buy now, pay later options for customers.
An example of payment with AfterPay (Source)
Online payment apps can integrate with your e-commerce store and make it easier to offer financing options to your customers. You can find a tool that does this by browsing our online payment software directory and looking for tools with fundraising features.
Even if your business does not have an eCommerce store, there are still tools that can integrate with your point of sale system to provide financing. Sunbit is just one example of a company that offers a buy-it-now and pay-for-store option.
If you’re not set up for ecommerce, you should be. Check out this article on why every store should have an online component, and read our tips to get started:
Capture more sales with the right software
Accepting new payment methods from your customers is an easy way to generate more business and improve your customer experience, and at this time refusing to do so could cause you to lose out to your competitors who do. .
The good news is that alternative payment solutions aren’t that far away. All you have to do is assess your current retail software stack. Think about the missing features and ask your vendors if any upgrades are available. If you need more help, speak to one of our Retail Software Consultants and they’ll recommend five top-rated systems that work best for your unique criteria:free.
Here’s a recap of the specific types of tools we mentioned and how you can use them:
- Retail Point of Sale (POS): These systems process retail transactions, but also include inventory management, sales reporting, and analytics functionality. Today, there are many point of sale tools designed to accept mobile wallet payments. Chat with your provider to see what kind of alternative payment method features are offered with your point of sale system.
- Online payment software: From funding to cryptocurrency, these tools can help upgrade the payment process for your ecommerce store. With online payment software, you can run a gift card program, start a loyalty program, and set up customers with subscriptions.
Methodology of the survey
The Software Advice Retail SMB Comeback Survey 2021 was conducted in June 2021. We surveyed 703 retail owners and managers. Respondents were selected for full-time employment in small and medium-sized retailers. We have formulated the questions so that each respondent understands the meaning and the topic.
Note: The apps selected in this article are examples to show functionality in context and are not intended as endorsements or recommendations. They were obtained from sources believed to be reliable at the time of publication.