A one-size-fits-all approach to payouts is no longer efficient. In a fast-paced digital economy, transactions happen in milliseconds and everyone prefers convenience. A survey conducted on large U.S. merchants showed that 73% knew that not accepting alternative payout methods (APMs) could negatively impact their sales.
A one-size-fits-all approach to payouts is no longer efficient. In a fast-paced digital economy, transactions happen in milliseconds and everyone prefers convenience. A survey conducted on large U.S. merchants showed that 73% knew that not accepting alternative payout methods (APMs) could negatively impact their sales.
This shift is happening not only in e-commerce but also in global payouts and payments as the world increasingly shifts toward sustaining the popular gig economy.
APMs offer a dynamic solution to the diverse needs of businesses and individuals in an interconnected world. 85% of U.S. merchants plan to accept new APMs, such as digital wallets, account-to-account (A2A) bank transfers, Real-time payments, mobile wallets, direct debit, and buy now pay later (BNPL) options, within the next one to three years.
The Market for Alternative Payments
The market for alternative payments is expected to surpass $15 trillion by 2027. This marks a remarkable compound annual growth rate of 16.3% from 2017 to 2027.
The rise of the digital revolution has brought significant changes in the way we conduct transactions, giving rise to an era where flexibility and customization are of utmost importance.
Because APMs deviate from the rigid structures of traditional payment methods, they cater to the evolving demands of the market and provide tailored solutions. Globally, the volume of APM payments alone reached $19 trillion in 2022.
APMs facilitate transactions for the unbanked, offer instant transfers, and accommodate localized payment preferences. As such, they have become an integral part of the modern financial landscape.
The Growth Trajectory of APMs Globally
The use of alternative payment methods has expanded beyond just digital channels and is now even transforming payment behaviors in physical stores worldwide. Currently, PayPal dominates the APM market with 59% market share followed by MyBank and Sofort by Klarna.
Top Alternative Payment Methods
While the exact number of APMs globally is hard to know exactly, several key players dominate various markets:
Advantages and Disadvantages of APMs
Trends Shaping the Future of APMs
The rise of mobile payments shows the growing preference for using smartphones or tablets for transactions, and a shift towards digital-first commerce.
Popular in e-commerce, BNPL services offer consumers flexibility in payment, aligning with modern preferences for immediate gratification and financial flexibility.
Businesses operating across borders tailor their payment options to align with regional preferences and regulatory frameworks. They recognize the importance of localized strategies in global markets.
As APMs gain traction, the focus on robust security protocols intensifies. Better security measures ensure the trust and confidence of consumers in emerging payment methods.
The Benefits of Using APMs
In 2021, 76% of adults globally have either a bank or mobile account, which is a significant increase from 2011, when only 51% of adults had such accounts. This rise in account ownership has primarily occurred in developing countries and has been attributed to the contribution of payout solutions to financial access. As a result, the world is becoming more financially inclusive.
One of the most significant advantages of APMs is their ability to extend financial services to populations that traditional banking systems have underserved. For the unbanked or underbanked, APMs provide a lifeline, offering access to financial services that were previously out of reach.
Around 13% of adults in the United States are considered "underbanked," which means that even though they have a bank account, they still rely on expensive financial services such as check cashing and payday loans. Additionally, another 6% of adults are "unbanked," which means they do not have a bank account at all and rely entirely on these services.
APMs shine by offering instant or near-instant transfers and offering a variety of payment options. Whether it's purchasing products, or paying employees, suppliers, or freelancers, the convenience and speed of APMs streamline operations and improve efficiency.
Like merchants, the gig economy and payment systems are undergoing a significant shift. Forcing customers to use a default payment method can create negative sentiment toward a brand (75%) and may lead to abandonment (74%).
Customers are more likely to make purchases (71%) and view the brand positively (62%) if they are given a choice of payment options. Merchants have seen an increase in mobile conversions (63%) and revenue (70%) by just implementing digital wallets.
Companies across all sectors are restructuring their payout strategies to attract and retain freelancers, gig workers, content creators, project-based workers, and other part-time employees. APMs are becoming more popular as they provide a more convenient way to process payouts and increase payment efficiency.
The increased availability of alternative payment methods can improve workers' financial health by enabling them to better plan their budgets, cover immediate expenses, or save for future needs.
To transform payout methods, businesses must cover a variety of needs. APMs are not just about convenience. They're also about respecting and adapting to local payment habits and preferences. The popularity of payment gateways varies significantly depending on the region and country. Therefore, it's crucial to offer region-specific payment options to meet the expectations of team members.
Once enabled, local payment methods will have specific requirements for specific countries and currencies. Adding region-specific alternative payment methods (APMs) that users recognize and trust can help expand a global team.
By offering payment methods that resonate with gig workers in different regions, businesses can enhance team satisfaction and loyalty, ultimately driving growth and success for the company.
Geographic and Regional Preferences for APMs
Digital payments using e-wallets in Southeast Asia accounted for $22 billion in 2019, and are expected to grow more than fivefold and reach $114 billion by 2025. Digital wallets have proven to be a natural breeding ground for super apps in Southeast Asia due to the convenience they provide.
In the Asia-Pacific region, platforms like Alipay, WeChat Pay, and Paytm dominate the market. Mobile wallets' convenience and versatility have revolutionized how people conduct transactions, making cashless payments the norm rather than the exception.
Latin Americans were more likely than respondents from other countries to feel comfortable leaving their homes without physical wallets and the most optimistic about mobile wallets replacing cash entirely within the next decade.
From peer-to-peer payments to e-commerce transactions, cash remains king in many parts of Latin America, driving the adoption of cash-based APMs.
Latin Americans prefer tangible currency and localized solutions. Analysis revealed that Peruvians were the most frequent users of mobile wallets, with 67% using them for everyday purchases. They were followed by Argentinians (66%), Brazilians (65%), Mexicans and Colombians (63%), and Chileans (56%).
Africa is frequently cited as a leader in the future of banking. In the past two decades, millions of Africans have accessed banking services without physically visiting a bank branch. Africa is leading the way in digital banking innovation, as new services and players continue to disrupt the market. Currently, only 48% of Africa's population uses banking services.
Many regions have skipped the traditional banking system altogether and adopted mobile banking to offer better access to banking services for the unbanked population.
Africa's journey towards financial inclusion has been propelled by mobile money services like M-Pesa, which allow users to send, receive, and store money using their mobile phones. With limited access to traditional banking infrastructure, mobile money has emerged as a game-changer, empowering millions of Africans to participate in the formal economy.
When it comes to European consumers, digital wallets and cards are the most preferred online payment methods, with digital wallets being slightly more popular (44% vs 42%).
As the e-commerce market shifted toward more digital-oriented payment options, a similar shift is happening with payments and payout methods. B2B payments are setting up to be the next big shift in European payout solutions.
Prepaid cards and local bank transfer methods are favored, reflecting the region's preference for security and reliability. While digital wallets are gaining traction, especially among younger consumers, prepaid cards and bank transfers remain popular choices for both online and offline transactions.
A report was conducted to help the European Central Bank (ECB) gain a better understanding of Europeans’ digital payment preferences. The objective was to use this information to design potential features for a digital euro. The report revealed that most participants were open to trying some of the digital wallet features presented to them.
Younger people showed more willingness to adopt or at least try out a digital wallet, while older respondents were slightly more hesitant. However, the uptake of the digital wallet also appeared to depend on how it was introduced and the role local commercial banks played in the process.
When and Why to Choose an Alternative to APMs
While APMs offer numerous benefits, they may not always be the best option for every scenario. Factors like scalability, regulatory compliance, and security concerns must be carefully weighed before integrating APMs into payout strategies, particularly for large enterprises with global footprints
When considering expanding payment processes to offer APMs, it’s important to find the right partner. MassPay addresses the four critical pillars of payouts: Reach, Integration, Compliance, and Orchestration, setting a new benchmark for global payout orchestration.
Take Your Business Global With MassPay
The rise of APMs represents a paradigm shift in the way we think about payouts and financial transactions. By offering accessibility, convenience, and customization, APMs empower businesses and individuals to thrive in an increasingly interconnected world.
Success in leveraging APMs requires a deep understanding of regional preferences, regulatory landscapes, and the unique needs of target markets. Businesses need a partner who can improve and help them navigate the multi-faceted environment of global payouts and APMs.
By embracing flexibility and informed decision-making, businesses can harness the full potential of APMs and drive growth in the digital economy. Contact MassPay to unlock your business's potential.