There’s nothing ‘alternative’ about alternative payments

According to Worldpay’s 2012 report, 11 per cent of all e-commerce in the UK is from alternative payments. Globally, the alternative payments market is expected to grow 13 per cent by 2015. This level of growth suggests two things. First, that alternative payments are anything but “alternative”.

They are providing a route to a valuable stream of consumers who simply want more choice about how they pay for goods and services. And second, alternative payments break down geographic barriers.

The significant growth already seen in this sector – which includes brands such as PayPal, Google Checkout, Amazon payments, Pay Later and Ukash – also dispels another myth about alternative payments: they are not just for the unbanked and the lower socio-economic sectors of consumers. In fact, analysis has demonstrated that the majority of consumers choosing to use alternative payment channels have reasonable incomes and bank accounts.

Ukash customers tell us they choose our alternative payment for a variety of reasons, including the fact that it is easy to use and safe and secure without needing to complete any forms or share bank details.

In particular, Ukash appeals to the “digitally nervous” who don’t want to share personal information and to the “digitally excluded” – consumers who don’t have a credit card or bank account. But don’t mistake them for non-spenders! These are just consumers who may be away from their home country and don’t have access to other payment methods, or they may just want more control on their spending.

Tap into the youth market

The digitally excluded also include the immensely lucrative under-18’s market. They have huge buying power, but are restricted in how they can spend because they don’t have access to credit or debit cards. Prepaid options such as vouchers or prepaid cards purchased or topped-up in store using cash open up a whole new range of buying options for these valuable new consumers. Prepaid options also ensure parents stay in control without having to hand over their own card details for their teenagers’ online purchases.

The personal data security of payment methods that don’t require credit or bank details can also add a powerful sales proposition for brands that want to reach third-age groups. “Silver surfers” are certainly growing in numbers, as the older generations get more and more comfortable with using the internet. But there is still considerable reticence to giving personal financial details online and this immediately excludes a valuable sector of buyers for many brands.

Open for business

The importance of alternative payment channels is probably illustrated most succinctly by PayPoint.net’s MD, Michael Norton. He says:  “If you had a high street store, you wouldn’t put a sign up saying you don’t accept cash. The same principle should apply for online retailers to allow everyone to shop on their websites. From the merchant’s perspective, it’s completely safe, since cash clears instantly. We estimate that the potential size of the market for online cash payment could be up to £2bn.”

By making it easy to use cash online without any need to register, retailers can offer local alternative payment methods that will increase conversion rates, enabling them to drive online sales growth.  Prepaid cards and online cash payment also gives brands the opportunity to develop in new countries or regions where alternative payments are already well used by consumers – removing a barrier to acceptance.

And online cash taps into the profitable low value purchase segment of the consumer marketplace. In a recent Populus survey commissioned by Ukash, 81 per cent of respondents said they opt for cash on purchases of £10 or less. With many items available on retail sites at this price point, particularly where shipping isn’t required, alternative payments such as Ukash are an excellent solution for incremental sales opportunities.

Overcoming barriers to sale

Furthermore, this frictionless way to facilitate payment overcomes one of the key barriers for consumers online – registration and security checks. In another Populus survey commissioned by Ukash, it was found that 39 per cent of customers abandoned their shopping carts when asked for personal information. We think this reveals a real blindspot among e-commerce brands when it comes to reaching consumers who do not feel comfortable putting their credit or bank card details online, or simply don’t have access to banking or credit facilities.

Having the right security measures in place is, of course, vital. But these can become a barrier to sales, if not managed well. Our Populus research found that almost half of online shoppers felt frustrated by security questions asked when transacting on the internet, although they said they did understand why they were asked these questions.

The alternative is to offer customers the choice to pay “by cash”. There has been a huge and continuing rise in the number of online cash consumers – those who use cash in a local convenience store to top-up a prepaid card or purchase a voucher that can be spent online. But there is still enormous scope for e-retailers to be tapping into this rapidly expanding market by accepting payment methods which are accessible to cash-only consumers.

Online cash payments are shaking up the notion that traditional financial services such as bank accounts and credit cards are essential for buying online. And we firmly believe the number of online cash consumers will continue to snowball as more and more retailers wake up to demand.