Technology, a new generation of shoppers and developing online economies driving the demand for alternative payment

WorldPay, the global leader in payment processing, risk and alternative payments has launched Optimising your Alternative Payments, an in-depth global whitepaper and interactive heatmap of the alternative payments landscape, and the varying cultural preferences of payment types by geography.

The alternative payments (AP) market is growing at a phenomenal rate. Today, it accounts for EUR 165 billion of global e-commerce transactions around the world – 22% of the total transactional value. It is estimated that there are currently over 230 AP schemes operating globally including: real-time bank transfer, offline credit transfer, direct debits, e-wallets, paper-based payments and mobile payments.

The AP market is expected to grow 13% by 2015 and within e-commerce, spend via alternative payments will outstrip that of card payment schemes. Growth rates of payment types vary; for example, e-wallets currently lead the way with 36% of the market and this is expected to rise to 43%. Real-time bank transfers only make-up 12% of the AP types today but this figure is expected to rise to 20% in the next three years.

In the UK and US, card payments dominate (11% and17% respectively). It is only due to the scale of the e-commerce market in the US, that AP transactions comprise EUR 46.6 billion of online spend. In other regions, APs have a stronger share of the payments market.

Key regional findings from Optimising your Alternative payments whitepaper:

• Germany – Germany is a leading AP market globally. Currently 66% of e-commerce purchases (EUR 45 billion) are made via alternative payment types. Online credit card penetration is low while managed offline credit transfers are popular. Elektronisches Lastschrift Verfahren (ELV), a form of direct debit payment, makes up a huge 28% of the market
• India – Internet bank payments are the preferred choice when paying online. Prepaid cards and cash payments are also popular but mobile payments are gaining prominence due to the large number of mobile phone users in this region
• China – Alipay dominates in China with 60% of the market share. Cash on delivery is also a popular form of payment (20%). China UnionPay credit cards are also important for retailers entering the Chinese market. As a card scheme, it is already bigger than MasterCard and forecast to be bigger than Visa this time next year
• Austria – Mobile payments are popular with Paybox supporting over five million users
• Netherlands – Whilst the eCommerce market is relatively underdeveloped, two thirds of payments are made using alternatives (66%) – the vast majority using iDEAL, a native real-time bank transfer

Phil McGriskin, Chief Product Officer, WorldPay, comments: “Cultural payment preferences have always existed but until fairly recently, online purchasing options were dominated by global card schemes. With the advances in technology, a new generation of shoppers and developing online economies, alternative payments are growing in popularity. This presents an opportunity in the e-commerce space for merchants to gain a competitive advantage by offering customers the option to pay using their preferred payment type. Merchants need to identify where their target customers are located and offer the relevant payment options to cater to cultural preferences. This will ultimately drive revenue for merchants, especially in new and developing economies.”

The fraud risk of AP to date is typically lower, although not zero. However, significant attacks on banks and eWallets have taken place and different threats exist by payment type. The relative lack of data within AP compared to card payment schemes can also make it more difficult to identify, track and defend against fraud.

McGriskin concludes: “Whilst fraud risks may appear lower amongst alternative payment types, as they increase in popularity, fraudsters will look at ways to exploit these channels. Merchants need to understand the different risks each payment type is vulnerable to. The ability to set different fraud rules dependent on payment type should therefore be a priority, and it’s important that merchants engage a payment processor who understands the AP market and is able to advise them on the most appropriate strategy.”

As part of WorldPay’s aim to become the largest provider of APs globally, they acquired Envoy Services, a global payment service that offers single point access to popular local payment and collection services worldwide. WorldPay has now fully integrated Envoy Services’ capabilities into its offering, giving their customers access to over 200 local payment methods.