No Longer Alternative: The Rapidly Approaching Future of Local Payment Methods

Customer retention requires a well-balanced blend of gilt-edged experience and customization. While merchants cannot control offline challenges like supply chain disruption or last-mile delivery issues, they can (and must) shape the digital environment and ensure a seamless checkout process. 

Merchants serving a global audience need an added layer of personalization, tailoring their payment method offering to consumers in each market. Because, as surprising as this might be for US-based businesses, global consumers rarely prefer to use credit and debit cards to pay online. 

In Asia, consumers typically prefer mobile e-wallets. Various bank transfer methods are popular across Europe. And in Latin America, many consumers rely on cash to pay for online shopping. These local payment methods (or LPMs) have been previously referred to by the industry as alternative payment methods (APMs), but the reality is that they are — globally speaking — no longer the alternative. These LPMs facilitate the needs of different geographies, cultures, and domestic economies across the globe. 

Yet despite the fact that most consumers across the globe rely on LPMs, we’re still seeing a lack of adoption of these payment methods by online merchants in the US and UK. But, as we dive further into the digital age, it is a matter of when, not if, the trend will need to shift. Let’s explore the unique factors driving consumer behavior, payment preferences, and how merchants can best position themselves for the future of commerce. 

What Influences Consumer Behavior?

A recent study from PPRO found that 42% of US consumers will stop a purchase if their preferred payment method isn’t available. Consumer preferences are inherently tied to the local environments of individuals. Their access to resources, economic status, geography, age, and cultural identifiers all influence how they want to shop and the methods they prefer to use to take part in commerce. Thus, merchants must take these factors into account when designing any checkout experience. For example, PPRO’s recent survey reveals 78% of consumers agree the most important factor in choosing a payment method for shoppers is trust in the security of their data and money.  

Transparency and trust are highly valued in the payment process, but there are other elements in play that vary. Half of US consumers value the speed of checkout most in choosing a payment method. Further, 52% of consumers will stop a purchase if the checkout process is too complicated. Making the payment process frictionless could be a game-changer for many retailers, as the average rates of cart abandonment range between a whopping 60% and 80%.

As an example, a shopper in China may come across a new US clothing line from which they wish to purchase. They are accustomed to rapid transactions enabled by the wildly popular mobile e-wallets like Alipay or WeChat Pay. Typically, in a few swipes on their mobile device, their order will be on its way, and they can go on with their day. But if the merchant only offers traditional card payments, the transaction could be in jeopardy. This Chinese shopper will likely not have an international branded credit card. By not offering multiple ways to pay and catering to a global audience, online merchants are missing out on a vast audience. 

According to research by the United Nations Conference on Trade and Development, the US is the main driver of the growth in cross-border e-commerce. UNCTAD calculates that the US sends $102 billion worth of e-commerce sales abroad every year, the most of any nation it surveyed.

Global Payment Adoption

The rest of the world is much farther along in the adoption of LPMs than the US, as US consumers are largely still card-centric. However, local payment methods such as bank transfers, e-wallets, cash-based digital payments, and local cards are the dominant payment methods globally, used in more than 70% of global e-commerce transactions. For example, in Asia, 46% of online transactions take place by e-wallet, while cash and card payments only comprise 37% of transaction volume. 

Currently, only 18% of US consumers have used local payment methods when purchasing online goods, but this figure jumps to 28% for millennials. These figures highlight the massive growth potential for local payment methods and the opportunity for merchants to expand their businesses. 

Local payment methods can offer consumers more flexibility in e-commerce and increase the ease and speed of payments via the use of mobile payments, QR codes, and other methods that are more seamless, as opposed to typing in a lengthy card number for every purchase. And American consumers are starting to catch on: The US is already seeing increased adoption of mobile e-wallets like Apple Pay and Google Pay, as 44% of shoppers use them on a routine basis.

A Look to the Future 

While the US may be slower than the rest of the world in the adoption of local payments, many recent determinants will help change this quickly. While merchants will not be ditching card terminals anytime soon, they should take notice of the growing adoption of digital payments. 

The pandemic could serve as the inflection point away from traditional payments towards digital methods. Because of social distancing, many Baby Boomers and Generation X have been forced to embrace e-commerce along with contactless payments or e-wallets. Younger demographics are proven to be early adopters of new payment methods, and their usage will steadily increase over time. 

Sooner rather than later, LPMs will not be a nice-to-have commercial feature, but a necessity. 

Steve Villegas is VP, Head of Payment Partnerships, North America, PPRO.