Alternative Payments on the Rise

Alternative payment methods are steadily reshaping the payments landscape as merchants and consumers look beyond traditional credit and debit cards. Accelerated by digital transformation and the rapid growth of ecommerce, innovations such as buy now, pay later (BNPL) and open banking payments are gaining traction, particularly across Europe. While cards remain the dominant payment method, the shift toward lower-cost, more flexible alternatives is creating new opportunities for fintechs, merchants, and financial institutions alike.

Driven by digital transformation, changing consumer and merchant preferences are creating growth in alternative payments at the expense of traditional plastic card use. Sifted’s interview with Till Wirth and Jack Wilson of Open Banking provider TrueLayer takes a look at 4 critical elements highlighting the shift to alternative options from traditional card payments:

1. All alternative payment methods are growing in Europe: While alternative payment methods have been growing steadily, their adoption has been accelerated by the pandemic, further boosting ecommerce and therefore online payments.
2. Cards are expensive for merchants — and customers: For Wilson, one of the biggest reasons for the rise of alternative payment methods is that they’re more cost effective.  “There’s certainly a move by merchants to accept different types of payment because it’s cheaper for them,” he tells Sifted. “Merchants are paying anything up to 3% of transactions and they also have the costs of chargebacks and other contingent costs of accepting cards.”
3. BNPL is booming: One of the biggest contributors to the rise of alternative payment methods is BNPL, which is used to fund £4 out of every £100 spent in the UK. Wirth attributes its popularity to the ease of getting credit, without relying on the big players. 
4. Open banking payments are on the rise: Policymakers in Europe and the UK brought in open banking — where banks open up and share their data with third parties to provide additional services — in 2015 and payments have been a key driver of its adoption.

While the figures presented in the interview show that alternative payments still trail the scope of traditional payments, there is clear growth and scale opportunities to continue innovation and disruption.

The continued growth of alternative payment methods reflects changing expectations around cost, convenience, and digital experiences. As BNPL, open banking payments, and account-to-account transfers continue to mature, they are likely to capture a larger share of consumer transactions. Although traditional card payments remain dominant, the momentum behind alternative payment methods suggests that innovation and competition will continue to reshape the future of payments.

Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group