The verdict is in: Local Payment Methods (LPMs), also known as Alternative Payment Methods (APMs), are disrupting cards’ long-held dominance over the payment landscape. Having previously been considered as an added extra to a merchant’s checkout, now Local Payment Methods are a necessity for those hoping to optimize conversions locally, and across borders. And in some jurisdictions, they are now the ultimate way to pay.
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What are Local Payment methods & why do you need them?
While international card schemes are recognized around the world as the more traditional way to pay, Local Payment Methods cover a variety of new payment types which have been adopted worldwide.
Examples of different Local Payment Methods include:
- Bank Transfers: Here, the consumer pays directly from their bank account. Examples include: iDEAL (Netherlands), and Pay now (previously known as SOFORT – originated in Germany, but now also used in Austria, Belgium and Switzerland).
- Direct Debits: These enable consumers to set up automatic recurring payments for ongoing expenses, such as subscriptions and bills. Examples include: SEPA Direct Debit.
- Local Card Schemes: Just like global schemes, these domestic card schemes process local transactions for merchants in the region. Examples include: Bancontact (Belgium), Cartes Bancaires (France), and Aura (Brazil).
- eWallet or Digital Wallet: An app on a consumer’s mobile phone enables them to store payment information for one or more payment options. Examples include: Alipay and WeChat Pay (China), and Google Pay/Apple Pay (worldwide).
- Prepaid card: When a consumer uses a prepaid card or a voucher to make their payment. Examples include: Paysafecard (across Europe).
- Cash-based payments: This method enables consumers to make a purchase online and pay in cash to a local brick-and-mortar store, using the barcode on the invoice. Examples include: OXXO (Mexico) and boleto bancário (Brazil).
- Instalments/invoice payments: These methods enable the customer to pay after the goods are delivered (buy now, pay later) or to pay in instalments This option generally includes interest, which will be added to the shopper’s payment amount. Examples include: Klarna: Pay later and Klarna: Slice it.
Why offer Local Payment Methods?
Offering Local Payment Methods at the checkout provides a local checkout experience for shoppers worldwide. This leads to optimized conversions for the merchants by ‘going local’.
This is because, in many countries, the payments culture is changing – local payment methods are now preferred and prioritized over traditional methods, since they tend to be more convenient, more secure, and more localized towards that particular market.
For example, due to the dominance of WeChat Pay, UnionPay and Alipay, 776.08 million people in China are now using mobile payment (as recorded in March 2020).
Meanwhile, in the Netherlands, 56% of consumers favour iDEAL when paying online – this enables them to buy online using real-time transfers from their bank account; and bank transfers are Poland’s most-used payment method, accounting for 48% of all eCommerce transactions.
In Latin America, however, 85% of transactions are cash-based, since only 39% of the population has a bank account. To accommodate this, there have been several mobile money services introduced at authorized locations, enabling customers to pay for online purchases in cash. One example of this is Boleto bancário, a Brazilian cash-based payment method that enables the customer to pay in cash at a variety of locations after the merchant site has generated the billing details as a print-optimized document.
How can we mitigate fraud risk?
Real-time bank transfers and eWallets reduce fraud, by providing an extra layer of security in the payment flow, between the checkout page and the page in which a consumer inputs their payment method details (for example, their card number).
Not only does this lead to increased sales and happier customers, but it saves merchants time, resources, and money as a result.
How do you know which Local Payment Methods to offer?
With an abundance of Local Payment Methods available, merchants need to know which ones to add to their checkouts, and which might not be necessary.
To decide this, merchants need to understand their customer base. This means identifying where they’re located and the preferred payment method in each key country and industry (since, for example, a retail merchant will require different payment methods to a gaming merchant). However, this process requires constant assessment to ensure they are aware of any new trends or preferences, both for those countries they currently serve and for new territories into which they plan to expand.
Why is this important?
Research shows that when customers are presented with their preferred payment method, they are much more likely to complete the transaction.
As a result, providing the preferred payment method at the checkout can result in higher approval and conversion rates.
If you think about it, if 56% of people in the Netherlands prefer to pay with iDEAL, then by not providing that payment method you are effectively creating extra friction for 56% of Dutch customers. They may think twice about whether they trust your site, or which payment method to use instead.
Providing the answers
At Credorax, we help build a solution to grow your eCommerce offering in markets across the world. We understand that every merchant has different priorities, depending on their customer base.
That’s why we offer consultancy services and tailor our solution to suit you, offering over 150 payment methods to equip your checkout with whatever method you need to remain local, wherever you go.
To find out more about the best way to operate across geographic borders contact us