Introduction
“Cash or card?” is the question people often get asked when they pay for their purchases in a shop. Over the internet, the choice is wider and buyers have many ways to pay, such as bank transfers and digital wallets.
In the early days of ecommerce, alternative payment methods (or APMs) like digital wallets existed only for local or specific types of payment. Today, APMs are fast becoming mainstream and have already overtaken more traditional methods like cards in many markets across Europe.
This report focuses on digital or online retail person-to-business payments (P2B) – payments made by consumers to pay for online purchases. Other than cards, there are the following prominent categories of alternative payment methods:
Bank payments
Payments from the buyer’s to the seller's bank account (this report covers both traditional bank transfers but also new, digital forms such as open banking payments).
Digital wallets
These work in the same way as bank accounts, but are generally issued by non-banks and are funded by loading money using a card or bank transfer.
Buy now pay later (BNPL)
The buyer has the convenience of making instalment payments for their purchases at a later date and on convenient terms that can be charged to cards or bank accounts over time.
While digital payments have been steadily growing, the pandemic has accelerated this trend. The European ecommerce market is estimated at $465 billion in 2021, 30% more than before the pandemic struck.
Alternative payment methods are increasingly challenging the dominance of cards for share of the ecommerce market.
“Cards are estimated to represent around 41% of ecommerce payments. By 2026 this is expected to fall to 33%
Even within the cards universe, a recent trend is the emergence of domestic or national payment schemes that are challenging the global card brands for share of domestic card payments.
Though some domestic card schemes such as Dankort in Denmark have been around for some time, others such as India’s Rupay, Turkey’s Troy, and Egypt’s Meeza have been developed over the last few years and have experienced significant growth.
Our analysis shows that all alternative payment method categories are expected to grow in the next four years, but the highest growth in market share is expected from BNPL services at 70% growth between 2021 and 2026.
Global ‘big tech’ companies are also moving away from cards and towards APMs. Amazon announced in November that it would stop accepting Visa credit cards issued in the UK because of rising fees. While the retailer has since come to an agreement with Visa, it has pushed the debate around card fees for merchants into the mainstream.
Meanwhile in the United States, Amazon has partnered with Affirm, a leading BNPL provider, to enable Amazon consumers to split purchase payments of $50 or more into equal instalments without any charges or late fees.
The growth of APMs is being driven by a number of trends. Global smartphone adoption (which has 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 has led to fast adoption of mobile-first payment methods.
Meanwhile, advances in payment technology like APIs have made it easier for merchants to offer alternative payment methods and have improved the experience for consumers.
Open banking APIs for example have created a pan-European network for faster bank payments that can be embedded at checkout – you can read more about open banking payments later in this report.