The current landscape of payments includes many more choices than just cash, debit and credit. It’s important to familiarise yourself with alternative payment methods. So, what are alternative payment methods? “Alternative payment methods” is an umbrella term which includes any payment method that allows you to transfer funds without needing to use cash or card.

You might use at least one alternative payment method already, like a digital wallet. According to the 2021 Global Payments Report, alternative payment methods have already superseded credit cards as the most popular payment method for online and in-person checkout. That figure is expected to grow considerably by mid-decade, when it’s projected that more than 40% of in-person transactions and nearly 60% of online purchases will be made with alternative payment methods.

Retailers and businesses need to accept these payment options in order to keep up with customer demand. But to accept these alternative payment methods, you need to first understand what they are and how they work. This is what you need to know about alternative payment methods.

What's in this article?

• What are alternative payment methods?
  
  • History of alternative payment methods
    
• Types of alternative payment methods
  
• Popular alternative payment methods around the world
  
• How to factor alternative payment methods into your payment strategy
  
• How to accept alternative payment methods with Stripe
  
• Benefits of accepting alternative payment methods
  

What are alternative payment methods?

In a nutshell, an alternative payment method is any option that isn’t cash, debit card or credit card – anything that’s not one of the traditional payment options.

More specifically, an alternative payment method is a cashless, cardless way of transferring funds. These are typically technology-driven solutions that allow people to access, send and spend their money without having to carry around cash or cards.

History of alternative payment methods

Alternative payment methods have always existed, even long before the technology that we now rely on to access and spend our capital. Bartering is an early form of alternative payment, for example. The earliest coins were also a form of alternative payment, as they were often hyper-localised and had value only in a specific region or with a particular merchant.

Over time, as money became standardised – first in the form of national currencies and then credit – access to it also became standardised, relegated to the traditional payment methods that we know today. But as the Internet grew, alternative payment methods grew with it. Services like PayPal offered people a new way to digitally interact with their bank account and make payments to others directly, without the need for cash or a card. Smartphones expanded this significantly, to the point that mobile payment apps are expected to facilitate the transfer of nearly $1 trillion in 2022, according to Insider Intelligence.

Types of alternative payment methods

Here are the alternative payment methods that businesses are most likely to encounter:

• Digital wallets
  The most common type of alternative payment method that businesses and retailers will interact with are digital wallets. Digital wallets facilitate the transfer of money without requiring physical cash or a card, using near-field communication (NFC) technology, which allows individuals to tap their phone to a terminal to initiate a transfer. People can store digital cash or card information in these digital wallets and use them to complete transactions. Services like Apple Pay, Google Pay and PayPal fall into this camp.

• Bank transfers
  Another popular option for an alternative payment method is Automated Clearing House (ACH) payments and other types of bank transfers. These allow customers to transfer money from their bank account to a business in order to complete a transaction. It works in a similar way to a debit card but does not require a physical card to move funds from point A to point B.

• Cryptocurrency
  Another alternative payment method that has grown increasingly popular in the last decade – though not necessarily for the purpose of making payments – is cryptocurrency. This is a digital currency typically mined through complex computational equations, which can be stored or transferred in a hardware wallet (sometimes called cold storage) or on an exchange or Internet-connected service known as a hot wallet. Cryptocurrency transfers can be complex and carry high fees, which is part of the reason why they have not gained major traction as transaction currency.

• Buy now, pay later
  Another alternative payment method that has grown significantly in recent years is buy now, pay later (BNPL) solutions or payment instalments. This option allows customers to purchase an item without making the full payment at the time of purchase. Typically, customers are given the option to make multiple, smaller payments to complete the transaction in order to purchase the item. Increasingly, it is a popular choice for customers as it offers an interest-free way to spread out the cost of a payment, extending a credit-like option even to those who do not have credit cards.

Popular alternative payment methods around the world

While a business is likely to encounter region-specific alternative payment methods, it’s worth noting that there are many popular alternative payment methods that are used globally. If you’re doing business overseas or want to attract international customers, you need to be aware of popular alternative payment methods in order to reach a larger audience.

Arguably the most popular alternative payment method is Alipay. The digital wallet operated by Alibaba Group has 1.3 billion users, making it the most-used digital wallet in the world. If a business is courting the Chinese market, accepting Alipay is essential.

WeChat Pay is another extremely popular China-based digital wallet. It is operated by Tencent, a large Chinese technology and entertainment company, and has hundreds of millions of users. WeChat Pay is a popular solution for transferring money on a peer-to-peer basis, but can also be used to make purchases at many businesses.

Another important alternative payment method is PayPal, which is accepted internationally and allows for the transfer of money in more than 200 countries. While Venmo (which is owned by PayPal) or Zelle may be very popular options in the US, they do not operate in other countries.

How to factor alternative payment methods into your payment strategy

Businesses must offer alternative payment methods to stay relevant with customers today. These options are growing in popularity. If anything, businesses should expect that customers will want to use alternative payment methods more and more while treating traditional payment methods as a secondary option.

In order to account for this shift, businesses need to work with a payment processor that supports alternative payment methods and accepts transactions from popular services like digital and mobile wallets, bank transfer services, cryptocurrency and more.

Stripe offers all of these solutions for businesses. Stripe can process traditional credit card and debit card transactions from major card issuers, as well as accept payments from popular mobile wallets such as Alipay and Apple Pay. It supports ACH and bank transfer solutions, buy now, pay later options like Affirm and Klarna, and even cryptocurrency.

How to accept alternative payment methods with Stripe

As alternative payment methods continue to grow in popularity, new options are sure to emerge. Luckily, setting up a new alternative payment method with Stripe is simple, so you can stay current while focusing your time and energy elsewhere.

In order to activate a new payment method, simply open the Payments settings in the Dashboard, select the payment method that you would like to add and request access. Once you’ve verified your merchant information and are approved, the payment option status will change from “pending” to “eligible”. At this point, you can change the status to “live” in order to accept the payment method.

Benefits of accepting alternative payment methods

There are many benefits for businesses that choose to accept alternative payment methods. Primary among them is the ability to drive more sales by accepting a higher number of solutions that allow customers to make purchases and complete transactions. In making it possible to accept popular payment methods from around the world, alternative payment methods can help a business expand their market to new regions. Additionally, alternative payment methods can extend options to customers with little credit history by offering buy now, pay later solutions, while limiting friction at checkout, allowing for faster and more seamless transactions.

Alternative payment methods can also save a business money by helping them avoid expensive credit card transaction fees. In offering these methods, a business encourages customers to use them in place of credit cards, resulting in fewer fees.

In many cases, alternative payment methods offer additional security that benefits businesses as well as customers. Digital wallets, for example, reduce the risk of fraud by requiring customers to confirm their identity before completing a transaction. Some, like Apple Pay, create a virtual card so that a cardholder’s real card information never even reaches the business. In the event of a security breach, this helps lower the risk of fraud.