‘Payment will never be static.’
It was Austrian economist Carl Menger who first popularised this idea way back in the 19th Century. Menger theorised that consumers would always gravitate towards the most convenient form of payment.
And so it has proved. Today, consumers are moving away from cash and card-based payments towards local payment methods (LPMs). And they are doing so at an exponential speed.
Recent research lays bare the scale of the change at hand. Boku research shows that card-based payments are expected to account for just 41% of global eCommerce payment value by 2028. That’s down from 50% in 2022. And shoppers – 60% of them – will abandon their carts if they don’t see their preferred payment option.
The trend is driving the growth of LPMs. Typically, the preserve of regions with limited access to credit or debit card services, there is now momentum away from card-based payments in regions where they currently dominate. That includes North America and Europe.
So, with the face of payments changing so rapidly, how can merchants respond?
Six big tips for digital merchants:
Digital merchants, having spent so much time adapting to card-based payment schemes, may feel the frustration of having to accommodate more nuanced, sometimes country-specific LPMs. However, there are undeniable commercial reasons to facilitate the change.
Firstly, research from ACI Worldwide suggests merchants can increase conversion rates by 30% by increasing the available payment options from one to three. Secondly, many LPMs were designed specifically for digital payments. They can be more cost-effective to accept and open up newer markets.
So this change should be viewed as an opportunity rather than an obstacle. But how can merchants choose the best route forward?
1. Follow the leader
While the vast majority of digital merchants don’t have the same resources as the likes of Amazon, they can learn from their approach to LPMs. The big eCommerce beasts research this topic in-depth and constantly refine their payment flows in accordance with the impact on conversion. Digital merchants should analyse the approach of market leaders to identify where to go next.
2. Quality, not quantity
There are many vendors with various local payment methods, but not all networks are equal. Connection methods can vary, affecting results. Some merchants need bespoke API versions, and those with subscription models must ensure vendors support recurring payments. Multi-factor authentication, crucial for reducing chargebacks, isn’t universally offered. So digital merchants must dig into the quality of the options available, not just the vendor that offers the most LPMs.
3. Evaluate network depth
Merchants also need to be prepared to question vendors about network depth. For example, linking up to as many payment methods as possible could require going through intermediaries – introducing more potential points of failure. Some vendors may also have grown by acquisition and thus deal with a complex array of legacy platforms. This can have a knock-on impact on service quality, reporting, settlement, and more – so digital merchants should do their research on network depth.
4. Appreciate tokenisation
Tokenisation is the process of replacing sensitive data – such as credit card numbers – with a token. It’s a key consideration when it comes to LPMs, especially with recurring payments. Tokenisation has a big impact on data protection, fraud liability, and quality of customer service. Merchants should dig deep into this subject, assessing vendors based on their existing tokenisation capabilities, as well as their plans for ongoing enhancements.
5. Get clarity on settlement timescales
Accelerated settlement is one of the chief benefits of LPMs. However, many vendors don’t always pass this benefit on to the merchant, especially if there are multiple intermediaries to deal with. Merchants should be aware of the number of payment licenses and bank accounts vendors operate, as this can often be a good indicator of the speed of settlement they can offer.
6. Understand the customer success ethos
Building a vendor relationship is just the start. Merchants must embrace continuous improvement and demand the same from vendors. They should ask vendors about their customer success approach, performance and checkout optimisation, and user acquisition support to ensure ongoing enhancement of local payment processes.
In summary
It’s a time of rapid and undeniable change in eCommerce, and digital merchants must adapt. Around the world, LPMs are eating into the dominance of card-based payments and introducing a new era of flexibility and choice. But they also present an opportunity to accelerate settlements, increase cost efficiencies, and open up new geographies and markets.
While it might feel like an imposition to adapt the payment methods you accept again, recent research is clear that digital merchants can benefit from broadening the options they’ll accept. As the world diversifies from the hegemony of card-based payments, LPMs will become a critical differentiator as well as an operational accelerant for eCommerce merchants.
To learn more about the changing face of payments and how merchants can ride the wave to success, download our latest whitepaper report here.
Boku helps people pay the way they want to by building a global network of localised payment solutions including digital wallets, direct carrier billing, and account-to-account / real-time payments schemes. Boku’s global payments network now includes over 300 local payment methods worldwide, reaching over 7.5 billion consumer payment accounts in more than 70 countries. Boku works with the world’s largest merchants including Amazon, Google, Spotify, Meta, Microsoft, Netflix, Spotify, Tencent and Sky, helping them to grow their businesses in every corner of the globe.
Boku Inc. was incorporated in 2008 and is headquartered in London, UK, with offices in the US, India, Brazil, China, Estonia, France, Germany, Indonesia, Japan, Singapore, Spain, Taiwan and Vietnam.
To learn more about Boku, please visit our website at https://www.boku.com/
