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3 questions to ask when considering a new alternative payment method

Lessons learned from our panel with American Express, CMSPI, and Dean Sheaffer, LLC at MAG’s Mid-Year Conference.

Rehman Baig  ·  VP, Card Network and Acquiring Relations, Adyen
March 31, 2021
 ·  4 minutes
Man debating over a computer

At the start of the COVID-19 pandemic, much was said about when we’d be able to return to “normal.” One year later and I think it’s safe to say, we’re all very aware that most facets of life have been fundamentally transformed.

Top of mind for those of us in the payments community? Payment methods. There’s no doubt that the “ecommerce-style” payments landscape that emerged in 2020 is here to stay. And with it, an increasing number of alternative payment methods (APMs), including bank transfers,Buy Now, Pay Later(BNPL), crypto, andmobile wallets.

Three devices that show different alternative payment methods

The future is bright for APMs

Digital and mobile wallets are expected to account for52.2% of ecommerce transactionsby2023

BNPL programs are predicted to hit$680B in global transaction volumeby 2025

Over1/3 of US consumers have used BNPLbefore

As a merchant, you might be wondering if all that means you should immediately dive into integrating the latest APMs. But as my recent session with experts from American Express and specialized payment consultancies at Merchant Advisory Group’s Mid-Year Conference revealed, the answer is taking a slower, more deliberate approach is usually best.

Here’s a recap of our panel discussion, The Future of Alternative Payment Methods, and three insights to help guide your next evaluation of a new APM.

Lesson #1: Understand what you’re trying to achieve before adding a new APM

A mobile phone displaying multiple payment options

On the surface, trying out a whole bunch of APMs in a “test and learn” approach can seem like the right decision. But in practice, this is quite likely to backfire. That’s because adding a new APM brings a resulting cost in addition to the benefits.

To prevent unnecessary churn, expense, or impact on customer experience, ask yourself two key questions as you consider your options: How would a new APM affect your settlement timing, reporting, and reconciliation? And what happens if there’s a partial return?

When considering a new APM, don’t fall for “shiny object” syndrome – you need to be deliberate about what APMs you want to implement.

Most importantly, ask yourself what specific business goal you’re trying to achieve by adding a new APM. Is it to meet the demands of your current customer base, open a new one, drive higher frequency or larger spend, or position your brand in a certain way?

Last, but not least, don’t forget you also need to consider the nitty gritty implications mentioned above, such as settlement and reporting flows.

Lesson #2: Don’t forget that customer experience still comes first

Women shopping on a computer

You might think the more, the merrier when it comes to APMs. The truth is, adding a new APM does not automatically improve your customer experience. If not thought out and executed properly, the result could be just the opposite. (Like a checkout page with 15 different “Buy” buttons on it.)

Before adding a new APM, consider how it will impact the customer experience. Keep in mind that the definition of a good customer experience differs by demographic. And remember that if something does go wrong, a customer will most likely blame you – not the APM provider.

Take BNPL for example. Industry specialist and executive consultant Dean Sheaffer shared a personal story of his trip to a dental office that had recently incorporated a BNPL scheme. An irate customer had racked up huge amounts of interest from missed payments, but since the billing person there did not appear to understand the exact terms of the BNPL program, the customer walked off vowing they would not be patronizing this particular dental office again.

When it comes to customer experience, the responsibility lies with the brand to communicate transparently with customers about using APMs.

Noting his experience with bank transfer payments in Europe, JJ Kieley, Vice President of the Payments Consulting Group at American Express, pointed out that merchants should also consider how to make their customers comfortable with using a new APM.

Lesson #3: Create a formalized scorecard to help you decide whether to implement a specific APM

The APM landscape in 2021 is a crowded one, and there are many more options to come. This means there is no general “right” or “wrong” answer as to whether your business would benefit from a specific APM.

The best tool you can use to guide your way is a formalized scorecard informed by the overarching question: What am I trying to accomplish and what resources will it take to bring this APM online for my business?

Kieley notes that for an APM to pass the sniff test, it must be:

  • At least as good as the payments solutions you are currently offering.
  • Easy for customers to learn how to use, otherwise they won’t try it.
  • Equally easy for employees to use, since they’ll be educating customers.

“It is key that you look at this weighted scorecard. Alternative payments are here to stay… but not all of them, so you need to pick your battles.”

Alistair MatthewsonSVP, Director of North America Consultancy at CMSPI

Bonus lesson: Choosing the right provider matters

Just like how there’s no “cookie cutter” answer to whether you would benefit from a specific APM, the same applies to your choice of APM provider.

For Shaeffer, this is his most important takeaway for merchants: Figure out what question you’re trying to answer for your particular business, then, find a provider that’s going to collaborate with you to help you discover the answer to that question.

Before diving into the latest APMs, take a moment to ensure you’re maximizing what you already have.

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