Did you know a lack of payment methods is one of the main reasons buyers abandon their shopping cart?
With more consumers purchasing online now than ever, not having the right payment methods can seriously impact conversion rates. In today’s modern age, payment methods have effectively turned into conversion funnels themselves. Thanks to alternative payment methods (APM) and cheaper cross border payments, eCommerce companies can now target completely new markets and demographics.
The rise of alternative payment methods
An alternative payment method is essentially any payment method that does not run on a global card scheme network such as Visa and Mastercard. This could include payment methods that work through bank transfers, virtual wallets, or even cryptocurrencies.
As eCommerce and digital payments take over the retail shopping industry, new forms of payments keep materialising every year. In 2021, there are hundreds of payment methods, including bank transfers, invoices, direct debit, digital wallets, and cryptocurrencies, to name a few.
Customers mostly prefer one or two payment methods, which is why it’s important to understand that the best payment experience isn’t about offering as many payment methods as possible - it’s about offering the correct payment methods.
Due to the rise of online fraud and “digital” shopping habits, alternative payment methods have become more popular, making up a larger proportion of all global eCommerce payments in 2020. Consumer demand for alternative options is increasing: for example, with the Covid pandemic an increasing number of customers opted to buy with Buy Now Pay Later (BNPL), an APM that allows consumers to order multiple pieces of clothing online and only pay for those they decide to keep.
Here are some of the most popular alternative payment methods:
BNPL: Klarna, Affirm
Buy Now Pay Later is on the rise thanks to companies such as Klarna, Affirm, and Afterpay. With these providers, consumers can purchase items and then split the cost across several months, without any interest and no hidden fees. They can also delay the payment by 30 days, which gives the customer more time to pay for an item (most BNPL providers offer their service for consumer goods such as exercise equipment, clothing items, and furniture).
These BNPL providers assume the credit risk, which makes it a risk-free payment method for the merchant. According to Klarna, BNPL increases conversions by 44% and helps build a more long-lasting relationship with the customer. Thanks to apps like Affirm and Klarna, people have more choices and freedom to buy whatever they want whenever they want, resulting in more purchases.
E-wallets are “digital wallets” that can be used as debit or credit cards for online purchases. Examples include Google Pay, Amazon Pay, Apple Pay, and Paypal. Google Pay is a popular payment method that is free to use for debit cards - although there is a 2.9% fee for credit cards. This APM is useful for merchants who are integrated into the Google ecosystem and are looking for enhanced security.
The same can be said for Apple Pay, which uses NFC technology and enables instant transactions. Amazon Pay allows users to pay directly from their Amazon account. All these solutions allow consumers to pay without leaving their preferred ecosystem, which helps increase conversion rates and therefore increase sales.
In addition to these digital payment solutions, there are also important local solutions unique to every country. For example, in Germany, contactless payments are on the rise thanks to Girocard. Girocard, an online payment system based on online banking, enables contactless payments and recently hit 5.5 billion transactions in 2020, with a growth rate of 21.7%.
This is similar to iDeal in the Netherlands, which allows customers to make p2p transactions from their banks and enables seamless checkouts. In Asian countries, offering AliPay or WeChat Pay is a must-have in order to serve these customers.
Why eCommerce stores should have a localised payment strategy
According to a payment study by ECC Koln, 74.6% of customers acknowledge that the payment process is essential to the shopping experience with over 50% saying they had cancelled a purchase due to lack of an acceptable payment method.
Customers want to have the option to pick the payment method that works best for them. That’s why offering the three most popular payment methods can drastically increase conversion rates. However, it’s important to take into consideration the preferred payment method of each country: 32% of Germans like Paypal, making it quite a popular payment method. This is not the case in Spain, where only 6% use Paypal. Understanding and researching the needs of the country an eCommerce is selling to is essential in order to cater appropriately to that customer base.
Not only that, but more people are switching to paying with their phones and value a convenient checkout method. The numbers prove it: the Baymard institute did a survey on reasons for abandonment during checkout. A complex checkout process and not having enough payment methods are cited in the top 10 reasons. As we can see, offering the most popular payment methods helps increase conversion rates.
How to pick the right payment methods
As we mentioned above, what’s essential is to focus on offering the right payment methods rather than as many as possible. This means that eCommerce companies first need to research the most popular payment method in the market or country they are targeting. For example, in Asia consumers prefer purchasing with their mobile phone rather than a computer. In Germany, consumers prefer paying by invoice rather than a credit card. This is different from the UK, where debit and credit cards are most popular. Not only should eCommerce companies segment by location but it’s also important to segment by age and gender: younger generations may prefer using Apple Pay or a BNPL option, while older generations may prefer a bank transfer or credit card.
The next step is to pick a reliable payment provider. The best option is to pick a payment provider that can offer multiple payment methods, so there’s no need to partner with multiple payment service providers (PSPs) and track each integration. FinXP, for example, offers access to over 350 payment methods to merchants. This means that everything is managed through one contract, one platform, and one point of contact.
Once the payment methods are set up, it’s important to analyse and track the performance of each payment method. Each one should be tested and experimented on in order to determine which is most cost-effective, secure, and can be best personalised to the customer.
Make the checkout process seamless
In order to maximise checkout conversion rates, the checkout process itself needs to be streamlined as well. Here are a few ideas and tips to put this in action:
Use a secure payment method: many shoppers are more aware of data privacy now than before. Make sure to use a payment provider that is regulated and doesn’t store customers’ personal details.
Make it mobile-friendly: many eCommerce companies have a separate site for mobile and desktop. This can cause a lot of confusion for customers and may drive them off the website. The best approach is to build a desktop website that is mobile responsive.
Offer a guest checkout: registration is slow and time-consuming and often requires a commitment that shoppers are not willing to make. By offering guest checkout, eCommerce companies get more sales and higher conversion rates.
Keep the payment process on one page: keep the last payment page as simple as possible and don’t add unnecessary navigation links that might drive the shopper away from purchasing.
Keep the forms simple: don’t clutter the payment page with fields and consider integrating with tools that can auto-fill personal information. The less time customers spend filling in form fields, the more likely they are to complete the purchase.
Offering the right payment methods to customers may not sound like a big step, but the data shows that offering the correct payment methods increases conversions. By partnering with a PSP like FinXP, eCommerce companies can learn about their target market’s preferred payment methods and offer the most popular ones to their customers.
Not only will payments be more personalised, but the payment experience will be smoother, helping increase conversion rates.
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