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What are Alternative and Frictionless Payments?

When was the last time you paid for something with cash? Chances are, you don’t remember. 

Merchant businesses seek to possess this technology in-house for their consumers, too. Nowadays, we are all so tuned to paying with mobile wallets and cards that we rarely carry any cash. Savvy business owners across the globe will not want to miss out on the opportunity to close a sale because they only offered a terminal inside their business location to get paid. We need to help them stay in tune knowing that card payments are getting outdated as the adoption of digital payments rises. Alternative and frictionless payments completely transformed the way we shop.

Studies by Statista show that the total transaction value via digital payments is expected to reach US$8.50 trillion by the end of 2022 and grow to US$13.91 trillion by 2026. We must understand that the term digital payments is super-wide and consists of several payment methods. In this blog, we discuss the two primary components of digital payments, namely alternative and frictionless payments, that are changing the world of eCommerce and retail transactions as we know.  

What is an Alternative Payment?

Alternative payments primarily rely on modern-day technologies instead of cash and any major international credit card brands. These payment methods depend on internet-based devices/networks for transferring funds. Alternative payment methods (APMs) eliminate the need for cash and physical credit/debit cards, offering more convenient payment choices to consumers and merchants. 

According to a forecast by the Discover Global Network, the global transaction volume for eCommerce and in-store payments via alternative payment methods will exceed US$10 trillion by the end of 2025.

As a partner that sells payments, learning how the merchant businesses accept transactions stands as a game changer to help their consumers have a positive experience. Consumers want to pay via mobile apps and mobile wallets are quickly gaining popularity for the following reasons:

  • COVID-19: Digital contactless payments prevent the further spread of COVID-19. A recent survey by Visa showed that nearly 50% of the consumers and business owners in 8 countries believe that offering contactless alternative payments is one of the most crucial safety measures during the pandemic.
  • Lower Barriers to Entry: Reliable payment processors help merchants go live with the latest payment technologies within weeks. They also offer favorable terms to help these merchants get started without a massive upfront cost.
  • Convenience: Consumers prefer the convenience of digital wallet apps like Samsung Pay and Apple Pay.
  • Increased Security: Modern-day alternative payment options offer multi-factor authentication and encryption to prevent fraud. 
  • Lower Processing Costs: The processing costs of these digital payment systems compete head-on with card systems. Combining other factors on this list, these alternative payments clearly offer a better bang for the buck than the conventional card payment options.

 

What are the Different Types of Alternative Payments?

  • Online Banking: Online banking, aka net banking, is a popular way for consumers to pay for products/services on the internet. It is also one of the most affordable ways with low processing costs.
  • Digital Wallets: Digital wallets like Google Pay, Apple Pay, Venmo, etc., offer faster transactions.
  • ACH Direct Debits: ACH direct debit is the cheapest way to send money online. With a reliable ACH payment processor, you can leverage complementary payment technologies like SMS payments, Email Invoicing, Recurring Billing, and more. 
  • Bank Transfers: Bank transfer, aka wire transfer, is the best way to send money across international borders at a fixed cost for now, but stay tuned for new technologies coming.
  • Cryptocurrencies: Few stores accept contactless payments via cryptocurrencies too. However, they are volatile asset classes, so you should invest in cryptocurrencies cautiously.

 

What are Frictionless Payments?

The term “frictionless payments” is often used in conjunction with other similar terms like “instant payments,” “faster payments,” “real-time payments,” and “digital payments.” They all point in the same direction, even though they might have a few differences. The idea behind frictionless payments is to minimize the number of obstacles for consumers during payment. 

Let’s understand this with an example.

Case 1: Old Conventional Payment Method – Grocery Shopping with Credit Card 

  1. You walk into a grocery store to shop and add some items to your cart.
  2. You wait for 10 minutes in line at the checkout counter.
  3. The cashier checks all your items and adds them to a carry bag.
  4. You hand over your credit card for payment.
  5. The cashier asks you to enter your 4-digit card pin.
  6. The cashier generates the bill.
  7. You collect the bill and walk out of the store with your shopping bag.

Estimated time taken for billing: 15 minutes

Case 2: New Frictionless Payment Method – Self-Checkout and Wearable Technology

  1. You walk into a grocery store to shop and add some items to your cart.
  2. You go to the self-checkout counter and place all your items in the tray equipped with the barcode scanner.
  3. You place your wearable tag/watch on the tap-to-pay RFID (Radio Frequency Identification) or NFC (Near-Field Communication Scanner) to pay automatically.
  4. The point-of-sale terminal automatically generates the bill.
  5. You collect the bill and walk out of the store with your shopping bag.

Estimated time taken for billing: 2 minutes

 

As you can see, you spent significantly less time in billing in the second case. Moreover, the entire billing process required no additional support from a cashier. Also, you did not touch any unwanted surfaces since you did not have to enter your pin or hand over your card/cash to another person. Some key benefits of frictionless payment methods include:

  • Enhanced Checkout Experience: Frictionless payments often require no additional human intervention to generate, verify, and check bills. 
  • Contactless Payment: Modern-day NFC-enabled contactless cards and mobile apps such as Apple Pay and Google Pay support contactless payments for a quicker checkout.
  • Reduced Cart Abandonment: A study by the Baymard Institute shows that a slower or more complicated checkout process in online shopping resulted in up to 20% cart abandonment. This statistic is presumably even higher in offline shopping experiences with long wait queues. 
  • Excellent Security: The best mobile apps and digital wallets keep payment information safe with several layers of encryption to prevent misuse and fraud.

 

What is the Use of Frictionless Payments?

  • Retail Shopping: Most modern apparel and grocery stores now accept digital payments. consumers can scan a QR code to pay for their purchase or use the NFC payment technology with a phone/wearable.
  • Cab-Payment: Modern mobility-as-a-service providers like Uber have app-specific wallet applications that consumers can use to pay for rides. They can load money onto such wallets using credit/debit cards or internet banking for automatic payments after a ride ends. Alternatively, some cab drivers carry QR codes and contactless card machines to accept payments. 
  • Online Shopping: eCommerce giants like Amazon have their custom digital wallets. Consumers can load money onto Amazon Pay to automatically pay for items with a seamless one-click checkout experience. Moreover, merchants now offer a hosted payment portal or integrating iFrame in the current website helps them streamline the shopping and payment experience. 
  • Restaurants and Dining: Restaurants are increasing efficiency for their wait and cooking staff with on-the-table modern card machines to offer menu items and take payment. Service providers like restaurants and spas now have QR codes on tables or at the hostess/check-out stands for consumers to pay their bills. Merchants can now set up parameters within the QR technology for consumers to see the menu offerings and register as a contact for future email campaigns. 

Concluding Thoughts

With these modern payment methods, most merchants will save time and attract more customers. However, it is easy to go overboard with modern technologies. Merchants should ideally assess their business and speak to reliable, tech-savvy payment processors to understand their options before investing a lot of time and money. They should perform a cost-benefit analysis and evaluate the different alternative payments they can leverage. Learn more about the most innovative payment solutions. If you want to implement the latest payment technologies for your business, speak to one of our experts on a short call.

 

Date originally published: June 16, 2022 
By By ICG Digital

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