The Small Business Owner’s Guide To Alternative Payment Methods
While they may not be the norm quite yet, all roads are headed to alternative payment methods, such as digital wallets, global-friendly apps for currency exchange, and (maybe) even Bitcoin. When it comes to setting up shop, whether that’s a brick-and-mortar store with a full point of sale (POS) system or your eCommerce store, understanding alternative payment methods can help you in a few different ways.
From speeding up the checkout process to garnering extra trust from customers and reducing your own risk of fraud in your business, alternative payment methods have a plethora of benefits and don’t require too much fancy footwork to get set up. Let’s explore some of the biggest trends, such as digital wallets, bank transfers, and a few more you may not have heard of just yet.
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What’s All The Buzz About Alternative Payments Anyway?
Let’s be real, making something more convenient for your customers may not always be enough motivation in itself to change the status quo if you don’t know the return on that energy. However, making the payment process more convenient or comfortable for your customers isn’t just good customer care; it directly impacts your bottom line!
The truth is that only about half of Americans carry more than twenty bucks on them at any given time. While most American wallets are lined with more than one or two credit cards, there’s something else you need to consider, and that’s their very real fear of sharing precious information with you.
Reducing Cart Abandonment
This trepidation about sharing credit card information accounts for 17% of cart abandonment, and a whopping 23% of cart abandonment is because customers thought the checkout process was too long or complicated (Baynard Institute). Considering 41 different studies have shown an average of 69.57% cart abandonment, whittling down the major reasons why customers leave is a worthwhile focus.
And that’s where alternative payment methods can come to the rescue. Because when a customer pays with, for example, Apple Pay, they don’t have to fill in all of the fields, such as their name, address, credit card number, expiration, MCC code, and all of that, typically needed at your payment window. They just choose their wallet as the payment method and get straight to the fun part: buying the product they were excited about in the first place.
Improve Your Checkout Process & Options
Any way we can reduce a customer from feeling overwhelmed, frustrated, or suspicious in the checkout is very valuable, indeed! If you already have a site, it might be a good idea to go through your checkout flow yourself with a set of different eyes. Do you require registration to purchase? Have limited forms of payment accepted? It might be time to simplify and improve that checkout process! It doesn’t have to be difficult, however, and you do have quite a few options.
And for those of you with a brick-and-mortar store, yes, alternative payment methods can help you get your customers moving faster while offering even more ways they can access funds to pay you — and that’s a good move overall. Let’s take a look at the types of alternative payment methods and then we’ll look at some specific examples.
Types Of Alternative Payment Methods
Aside from cash, check, and a credit card, there are now several different methods your customers may want to use to pay you, so let’s look at what these might be.
- Digital Wallet-Based Payments: Whether your customer is buying online or at the checkout, a digital wallet allows your customer to safely store their tokenized credit card information, which nicely reduces your risk of chargebacks and fraud as well.
- Mobile Wallets: A mobile wallet is a type of digital wallet. It is the “tap to pay” method for in-person payments at a store terminal. Most digital wallets are also mobile wallets, but it helps to make the distinction when it comes to choosing what you may need for your particular type of business.
- Bank Transfers: Moving funds directly from one bank account to another is becoming a more popular option thanks to the ease of a payment app and the younger generation’s propensity for it. Bank transfers can help you save on processing costs; they are also very safe and provide convenience to your customers, too.
These cover the lion’s share of alternative payment options that you’ll likely be seriously considering, but that’s not to say your options stop there. We’ll even take a look at cryptocurrency below, as there are signs Bitcoin may be sticking around longer than many expected.
The good news is that it’s never been easier to add new options into your payment flow for your online store or at the checkout. Let’s take a look at the options your customers probably already have.
8 Alternative Payment Methods You Need To Know About
Whether or not the names in our list below are familiar to you, we may have some surprises for you as far as what’s changed at the checkout.
Keeping in mind the statistics I shared in the intro to this post, PayPal has the stats to prove its name alone massively improves conversion. PayPal Checkout has proven to be 82% better than all other payment types combined at converting to finalized sales in the checkout flow. How can PayPal claim its better? An online panel examined the shopping behavior of 1 million US customers on 20 large merchant sites. They measured the conversion from the point where the customer selects the payment type to completion. Having an 82% higher actual closing sale is a pretty significant number we can’t argue with!
Adding PayPal to your checkout can be a smart choice because, for your customer, it’s one less place they are sharing credit card data. For many customers, this fear is enough to freeze the deal. That said, there are definitely some things to consider before only offering that PayPal button on your site or at your checkout. Check out our post that walks you through setting up a PayPal Business Account but not before you’ve perused our PayPal Review for all the details.
2. Square Cash
If you operate a one-person business, the Square Cash App might be an option to consider. This app allows people and businesses to send or request cash with an email or by using a “cashtag” — a unique identifier for the purchase. You can use the app to request funds, but the app itself is not set up to send reminders, so you’ll have to send them by text or email. Not to be confused with Square’s full platform, the Square Cash App is headed up against the likes of PayPal and Venmo, as it links a bank account or debit card only. Check out our full Square Cash App Review to find out if this option might be right for your business.
Venmo is another type of cash app, and it’s one of the most popular cash apps out there, especially for younger users. The key difference to leverage here is the social networking element within the app. While it may seem a little off-putting for some of us to think about broadcasting our latest purchases for friends and family to see, it’s part of the charm. If you’d like to start accepting Venmo, you’ll need a business account, developer expertise to integrate the code into your web store or app, or an NFC/contactless reader for in-store purchases. Take a look at our in-depth Venmo review to learn about all the pros and cons of this alternative payment method.
Do you want to expand global sales to China and beyond? If so, Alipay should probably be on your radar. Boasting 1 billion users, Alipay is a third-party online payment service provider with a digital wallet. Accepting payment with Alipay would provide a familiar name to the Chinese market, though the company is expanding services to other countries as well. So how do you get it? Some merchant service providers, such as Stripe and Worldpay, offer integration with Alipay.
5. Apple Pay
Apple Pay may not have been the first digital wallet, but it was the first to make them popular. Apple Pay is a digital wallet that allows customers to store many forms of payment, including debit cards, credit cards, prepaid cards, and Apple Cash (loaded from a bank account). Apple Pay is a convenience for your customers because they can tap to pay, so you’ll need a contactless reader at your checkout. There are several payment service providers Apple calls out directly as having demonstrated the ability to support Apple Pay, two of which are Square and Stripe, which we like for their rich feature-sets. As far as eCommerce, Apple Pay has a list of suggested platforms, including BigCommerce, Shopify, WooCommerce, GoDaddy, and more.
6. Google Pay
Like a full-featured digital wallet, your customers can store all their credit cards, debit cards, cash, and loyalty cards in Google Pay. Both Apple Pay and Google Pay require the same hardware for in-person payments, so you’ll be all set when you get that contactless credit card reader at your checkout. Just like other digital wallets, Google Pay securely stores credit card information and passes it to your shop through tokenization. That means you never have to worry about storing credit card information on your system, which dramatically reduces your risk of fraudulent charges and chargeback claims. Many processors and shopping cart software solutions offer a Google Pay integration, including Stripe and Square.
Utilizing the Automated Clearing House (ACH) for your business can provide a lot of benefits for you and your customers. You can use ACH in a lot of different ways, depending on what is most beneficial for your business:
- Subscription products and services
- Recurring online payments
- eCommerce payment options
- Electronic invoicing
Many payment service providers offer ACH options, but not all do, so contact your processor and see what options you have available.
Zelle is a US-based money transfer service. The biggest draw for Zelle is that it can take as little as a few minutes for money to show up in your business’s bank account after a purchase! How so fast? Well, Zelle is controlled by each individual member bank, and because of that, there is a higher degree of vetting that happens. Because banks have greater confidence within this trusted network, funds get released at relatively lightning-fast speeds.
If you have a small business checking or savings account, you can likely use Zelle. To learn more about Zelle and how to sign up for your business, check out our full post, Zelle For Business, to find out more.
Bitcoin is undoubtedly the odd-man-out in this list, as it’s truly a unique type of currency, being entirely virtual and all. While opinions and attitudes about Bitcoin tend to vary widely at this point, there are some clear signals that cryptocurrency is here to stay. PayPal has partnered with three major Bitcoin processors, and it now allows merchants to accept Bitcoin payments. Other major retailers, such as Whole Foods, Crate and Barrel, and Nordstrom (Fortune), now accept Bitcoin from their customers, too. So what does this mean for your business? It looks like Bitcoin is here to stay and poised to grow as a global currency, which means more customers will get comfortable with the idea, and adaption is likely going to accelerate. Check out our How To Accept Bitcoin post as we explore the ins and outs of Bitcoin and how to find reputable Bitcoin processors.
Are Any Of These Alternative Payments Right For Me & My Business?
When it comes to answering this question, thinking about your customer base is probably the best first step in narrowing your focus to start. Of the payment methods that we covered above, some are already widely adapted (Google Pay), and some are good to tuck away when you start to grow and serve global markets (AliPay) or want to stay ahead of payment trends (e.g., Bitcoin). As a small business, finding a payment processor that understands your business model and offers alternative payment methods is critical. However, if you have a lower monthly volume, a traditional merchant account may be a bit harder to come by. Third-party processors such as Square and Stripe both offer a wide range of integrations and developer support as well as in-person credit card readers so that you can offer your customers more ways to pay.
For more resources, check out Best Shopping Carts for Global eCommerce, and The Best Small Business Credit Card Processing Companies.