By TrueLayer

Cards have been successful in driving global commerce over the last century, but they weren’t designed for digital. The experience of paying by card online is often poor and security is weak — yet costs to businesses remains high.  

In 2021, credit and debit cards made up 41% of all ecommerce payments in the UK and Europe, but this number is falling. By 2026, two thirds of ecommerce purchases will be made using ‘alternative’ payment methods (APMs). 

In this article, we’ll look at three reasons why APMs are becoming much more common in the online checkout experience:

1. Bank transfer, wallet and buy now pay later payments are growing much faster than cards

More online shoppers are switching from card payments to alternatives. In just four years’ time, two thirds of ecommerce purchases in the UK and Europe will be made by bank transfer (19%), digital wallet (31%) or through buy now pay later (14%). 

The growth of these alternative payments is being driven by several factors. Global smartphone adoption (which increased from 3.7 billion users in 2016 to 6.3 billion in 2021) has made it easier for consumers to authenticate payments with their face ID or fingerprint, and pay in-app. This, in turn, has led to fast adoption of mobile-first payment methods.

2. Offering the right alternative payment methods can help you reach new customers

Letting customers choose how they want to pay — and offering the right alternatives to cards — drives sales.

Research shows that online shoppers are more likely to buy from a retailer and less likely to abandon their basket if the right payment options are available. Providing more payment choices also speeds up the purchase process, especially on mobile.

3. Open banking is driving the growth of card alternatives 

Open banking payments are likely to become the dominant method of bank transfer payment in ecommerce in the next five years. They will also act as underlying rails for other alternative payment methods, like BNPL or wallets. Open banking payments offer a number of advantages: 

• Consumers pay straight from their bank account — and in many markets they authenticate with their face ID or fingerprint.
• Funds settle with the merchant instantly or near-instantly, helping them manage cash flow and enabling them to ship goods immediately.
• Coverage is pan-European because EU banks are required to have APIs available (in contrast to schemes that only work domestically, such as iDEAL in the Netherlands).
• They can be embedded into checkout via a secure, regulated API. This generally means that the payment starts and ends in the merchant’s app or website, increasing convenience for consumers.

The findings in this article are from the report: Beyond cards: the rise of alternative payments.