Emerging economies are said to be a main contributor to this trend – but have Alternatives taken off in Europe? Phil McGriskin, Chief Product Officer,
WorldPay, examines the cultural and geographic preferences for payment types that merchants need to be aware of when selling in European markets.
Alternative payments (AP) cover any type of payment that isn’t the ‘norm’ – this is defined by WorldPay’s 2012 Alternative Payments report as “any payment that falls outside the sphere of credit card, debit card, or cash payments”. Using this definition, the term refers to a huge number of methods – from offline credit transfers, to eWallets and mobile payments. The uptake of these payments is set to rise significantly over the next couple of years, particularly as merchants enter markets with increasingly diverse payment ecosystems.
Globally, eWallets account for the highest percentage (36%) of alternative payments (AP) usage, followed by paper-based (22%) and offline credit systems (20%). Yet worldwide averages are not an indicator of the AP landscape in specific countries. Choice of alternative payments varies according to consumer, and as a consequence by geography and by culture. Even if two countries are in the same region, the alternative payments preferences can vary significantly between the two.
Across large parts of Europe there is currently a lack of awareness of AP, with most consumers opting to use cards, the most established payment method. Indeed, Benjamin Ensor and Elena Giovannini suggest in Forrester’s Which New Payments Do Europeans Use report that, “although there are many new payment systems in Europe, many Europeans don’t even know that alternative payment systems exist”.
This is certainly the case for the UK, which can consider itself to be a mature eCommerce economy. Plastic payment was embraced by the UK more speedily than the rest of Europe. Clearly, awareness and familiarity are key – consumers have knowledge of credit and debit cards, it’s easy to use them because there is an infrastructure already in place, and most already have a card in their wallet or purse. When eCommerce became more popular, these forms of payments were the natural choice. Only 11% of eCommerce transactions are by carried out by AP methods in the UK. Within this 11%, PayPal – an established alternative payments method – accounts for approximately half of the market.
Although not prevalent in the UK, there is growing AP adoption elsewhere in Europe, with Germany and the Netherlands leading the way. 66% of Germany’s €45 billion eCommerce market is paid for by AP. The majority of these transactions lie within bank-managed offline credit transfers, indicative of a market in which online credit card penetration is relatively low. Even though the Girocard debit card is popular in the country, for example, it was not designed with online use in mind. Second to these transfers are PayPal and real-time bank transfers, which make up 10% of AP usage. It is clear that alternative payments are favoured over more established payment methods.
Similarly, the Netherlands’ market is dominated by alternative payments, constituting 66% of eCommerce transactions. The vast majority of these transactions – though within a comparatively small market value of €7 billion – are completed by a native real-time bank payment method called iDEAL, started in 2005. Awareness of this particular alternative payment type seems to be integral to its high adoption rate, as 89% of the Dutch shoppers are aware of the service (according to iDEAL research in 2010).
The overall growth of eWallets will continue to be led by established giants such as PayPal and AliPay but the card schemes are also expanding their offerings with the introduction of V.me by Visa Europe and Paypass by Mastercard. As more consumers become familiar with using eWallets and these become the natural choice for online purchases, we expect to see a period of sustained and aggressive growth for this payment type. In fact, we expect eWallets to account for 43% of all AP usage by 2015.
These high adoption rates indicate that awareness of AP is key to uptake – and demonstrate that there is potential for higher AP adoption across Europe in the future. In fact, there is a great opportunity for merchants to gain a competitive advantage by offering more alternative payment methods.
According to Global Online Shopper Report, commissioned by WorldPay, 61% of online shoppers have greater confidence in a website that offers them a choice of payment methods. Given that AP is likely to become more popular, it makes sense to ensure that merchants make it easy for consumers to purchase using their preferred method in order to maximise potential profit.
Cultural payment preferences may change as new types become available in the coming years, and it is essential that merchants don’t miss the boat.
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