Taking the "alternative" out of "alternative payments"

For years, credit cards and debit cards have dominated the online payments space, but now alternative payments are challenging their dominance -- so much so that soon it will seem silly to call them “alternative.”

By 2021, over half of online transactions will be made using alternative payments, according to WorldPay’s 2017 Global Payment Report. The report goes on to say, “Of all the alternative payment methods gaining eCommerce market share, Bank Transfers are proving the most interesting both in terms of their growth and technological evolution … In fact, they are forecast to be the second most popular payment method globally by 2021, with an eCommerce market share of 16.5%.”

So what’s driving the adoption of alternative payment methods, and specifically online banking payments (or bank transfers, as WorldPay calls them)? Below are four key factors contributing to their growth:

Trust

At Trustly, we conducted a survey on The State of Online Banking with research firm NEPA that revealed consumer attitudes towards banks and online banking payments. Across the board, Europeans showed high trust in their banks and the ability of their banks to carry out safe payments. 

This concept of trust is fundamental to be willing to use any payment method. When shoppers are suspicious of a foreign site, they can be hesitant to make a payment, especially considering the growing fraud associated with credit card payments. However, allowing them to pay from their local bank, which they have high trust in, can increase conversion.

Security

The same Trustly survey also found that many Europeans (68% of Spaniards, 66% of Italians, 61% of French, 55% of Germans, 55% of Dutch, 51% of Swedes) agree that they’d be more likely to shop from international websites if they didn’t have to give out credit or debit card numbers to unknown foreign merchants. They go on to agree that they’d be more likely to shop on foreign sites if online banking was offered more often as a payment method (59% of Spaniards, 59% of Italians, 55% of Dutch, 47% of French, 44% of Germans, 35% of Swedes).

Given the recent PSD2 legislation, all online payments are now subject to two-factor authentication. With online banking payments, strong two-factor authentication is essential, so the risk of fraud is virtually zero. When this payment method is offered, consumers feel safer shopping abroad because they don’t risk compromising their card details. 

Convenience 

The convenience of online banking payments is increasing, and not surprisingly this is driven by technology -- specifically technological advances in digital authentication methods. In Sweden, for example, Mobile BankID is a secure app that lets consumers authenticate themselves with just a few taps and is widely used by banks and government organizations alike. Because of its ease of use, nearly 90% of all of Trustly’s mobile payments in Sweden are authenticated and verified by Mobile BankID. 

In fact, prior to one of Sweden’s major banks supporting Mobile BankID as a method of authentication for weekend payments, Trustly saw a 59.8% conversion rate. After adding support for Mobile BankID, conversion rates jumped to 85.4%. 

As digital authentication methods become more mainstream in other markets beyond Sweden, we predict online banking payments will grow in popularity due to the increased convenience. 

On top of that, when paying with cards, consumers need to enter a long string of numbers; with online bank payments, they only need their log-in credentials to their online bank, which most know top of mind. And in contrast to e-wallets like PayPal, online bank payments don’t require registering a separate account, just access to your online bank.

Cross-border e-commerce

E-commerce in Europe is thriving, and as consumers hunt for cheaper options, specific brands and more unique items, they are increasingly turning abroad. In fact, of the 260 million Europeans who shop online, 186 million do so from foreign websites, according to E-Commerce in Europe 2017, a report produced by European postal service PostNord. 

But according to Trustly’s The State of Online Banking study, consumers would be even more likely to shop online from foreign sites if refunds were quicker and easier to make. Online banking payment providers can drastically reduce the headaches associated with returns for online retailers by simplifying administration, which ultimately equals quicker refunds for shoppers. 

These four factors are influential in their own right, but when combined, they suggest a strong shift in preference towards online banking payments. For many online businesses, offering payments by credit card only won’t cut it for much longer.

About Meredith Popolo

Meredith Popolo is the senior content strategist at Trustly, where she reports on trending topics in FinTech. Prior to Trustly, she wrote about consumer technology for PCMag.com and about adtech for Google.

About Trustly

Trustly is a Swedish FinTech company that makes online banking payments fast, simple and secure. Today, it covers 29 European countries and its B2B payment solutions attract global merchants in four main segments: e­-commerce, travel, financial services and online gaming. As of November 2017, the company processed more than €10 billion worth of payments since its inception and today it processes more than 4 million monthly transactions.