Cards and Alternative Payment Methods
Merging Strategies and Solving Challenges

Alternative payments methods are predicted to surpass credit cards’ market share by 2017, growing up to 59%. For European providers, accommodating alternative payments will no longer act as a strategic differentiator between carriers, but rather as a key element in providing the payment mix that influences consumer behavior in their online journey to conversion.

Despite predictions that APMs will achieve dominance over card payments in upcoming years, it’s worth noting that they are not taking the market from cards. In fact, APMs are more likely to inspire trust especially in those markets where card penetration is low, but where Visa or MasterCard never held significant market shares to begin with.

Due to alternative payment methods, merchants can receive sales that had otherwise been lost. Banks offering Visa for instance have already defined their risk appetite therefore many transactions are declined by issuer/acquirer systems. In the past, they would have remained lost revenue, however APMs offer the possibility of servicing customers through other products that are not as restrictive as traditional Visa/MasterCard schemes.

Europe vs APAC

Let's plunge a bit deeper into the issue. Behaviors across the world show different attitudes towards the most popular payment methods. Main trends go as far as fully oppose each other. However, the striking contrast is not a matter of personal taste, but rather a geopolitics issue. Between the already “fragmented West” and the more exotic East, there lies a mix of custom, tradition and cultural preferences.

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Fragmented West

Countries in West Europe have differently embraced payment methods, mainly influenced by historical changes and existing local solutions that accumulated much of market share. While the average card penetration in West Europe overall is 72%, breakdown of this number is a reflective of distinct behavior at segregated level.

For instance, in Germany, Netherlands and Poland bank transfers are the most widespread payment method, with an average of 40%. However while in Germany debit cards remain a modest option with way below 10%, in Poland they actually rank second.

Most would classify debit cards as the payment of choice for European countries and countries like UK, Portugal and Sweden back up the assumption with 40% of online transaction in average being completed in this manner.

But if you are a resident of Italy or Netherlands, debit cards are likely to be your least preferred payment methods, as opposed to credit cards or bank transfers. Interestingly enough, e-wallets tend to remain the second best for the majority of West European countries, accounting for near 20% of total transactions.

Merchant Tip: Creating A Scalable Payment Mix

Latest statistics clearly encourage adopting local payment methods – whether those are card or APMs. Challenges however are numerous, like: New technical integrations

  • More relationships to maintain
  • Increasing staff
  • Customizing product to support local languages and currencies
  • Navigating and always being up to speed with local rules and regulations;
and these challenges can be extended to controlling risk and adapting to different patterns of customer behavior.

The downside of this is pretty clear – when you open an account for Visa for instance, there are several providers to choose from – ranging from international banks such as Barclays, AIB to local acquirers. Should the relationship be damaged with a particular provider, there are always other options for getting new Visa accounts.

APMs are different in this regard – there is only one Paypal, one Netteler, one Paysafecard. Although their risk thresholds are more permissive, you might still find yourself violating and surpassing thresholds. When this happens and Netteler terminates the merchant account, chances for you to reopen it are pretty slim, therefore you might find yourself in the position of not being able to offer this payment option anymore. Needless to say, this impacts the-day-to-day business and sales volumes can drop even significantly in the event that you had a well-established client base that used this option frequently or even exclusively. 

When planning to penetrate emerging markets, it is imperative that you have a strong payment provider that can assist you with most of the items above and help you through the learning curve. A strategy that accommodates this payment mix is one that requires more integrations, customized for each APM. Not only do you have to integrate more, but also analyze risk differently. The risk module is therefore harder to control, so you need a gateway which assesses risk from the beginning. APMs have different risk scanning than traditional payment types, so you need to make sure you are safeguarded as you will have accounts frozen with little chance to re-open them if chargebacks and complaints exceed certain limits.