Payment gateways forge a path to financial flexibility

Alternative finance (alt-fi) has steadily grown as a viable payment method in the e-commerce ecosystem. According to a report from Cambridge Judge Business School, in 2020, online global alt-fi volume amounted to $114 billion. When looking at the market as a whole in 2022, the valuation of alt-fi digital assets reaches $1.05 trillion. 

Emerging outside traditional banks and capital markets; alt-fi platforms connect businesses directly with consumers. Heavily tech-driven, alt-fi affords a variety of payment-making choices, from cryptocurrency, online crowdfunding, consumer lending, and other digital 'shadow banking' mechanisms. Digital wallets, crypto, and Buy Now Pay Later systems form the foundations of alt-fi.

Payment gateways and alternative finance collaboration

As consumer demands for alternative finance grow, payment gateways have innovated their services to accommodate digital asset types, adjusting protocols and data analysis to securely facilitate a relationship between alt-fi customers and e-commerce merchants. For the latter, payment gateways in alt-fi can positively impact scale-up opportunities and growth so long as risk management is successfully implemented.

As usage gains momentum, a better understanding and use of data stands to optimise decision-making, risk management, and record-keeping within alt-fi services and consumer activity. Effectively managed transaction data can promote transparency and moderate security risks for all parties. 

This would prove difficult without close collaboration with gateway providers, who are experts in managing transaction data. A closer working relationship helps identify risk types, geographical factors, and purchase dynamics. As this understanding develops, alt-fi services, policy-makers, and gateway providers can enforce more stringent payment standards and risk acceptances in conjunction with developing legal frameworks. Doing so consistently and without major issues demonstrates the legitimacy of alt-fi services and ultimately helps build consumer trust.

Hurdles to overcome

Trust

The benefits of alt-fi offerings are clear, however, the advantages are marred with a lack of awareness and understanding by layman consumers, negatively affecting consumer use and trust. 

The ascendency of alt-fi hasn’t always been smooth, so gateways increased involvement works to increase trust for the technology - a process needed by alt-fi to increase adoption.

Payment gateways intrinsically advance alt-fi security based on long-standing and proven frameworks and anti-fraud systems. To service merchants effectively, gateway services must be able to keep risk to a minimum, regardless of payment type. We implement sophisticated Know Your Customer (KYC) protocols, maintain a transparent and symbiotic relationship with global financial institutions, and design proprietary data systems that analyse and flag transaction issues such as fraud or incorrect chargebacks. There is no set industry standard here, but payment gateways excel in negating transaction issues.

Alt-fi can use the gateway sector as a way to stake its legitimacy claim as equal to trad-fi systems, opening the opportunity for increased trust and sector growth, which work cyclically.

Technology, data, and regulation

The demand from consumers to be able to purchase merchant goods using alternative finance methods means gateway innovation and support for alt-fi will only increase. The boom of e-commerce in recent years, particularly in light of the Covid pandemic, has put a priority on technological innovation and rollout capable of securely dealing with voluminous and diverse digital payments. 

Alt-fi’s relatively short history proves a key advantage for an adaptive market position. For trad-fi to adapt, a massive overhaul of legacy systems, hardware, and employee skilling is required. Alt-fi companies have fewer legacy systems in place, and so can adapt faster than their traditional counterparts. This means alt-fi services can adhere to consumer demands faster and more accurately, so long as these changes do not damage the gateway provider frameworks that help facilitate global usage.

In this case, the application of emerging technology benefits all partners. Alt-fi customers can make transactions faster, cheaper, and more efficient; payment gateways can provide alt-fi accessibility to merchants and their customers.

Undeniably, technology created for alt-fi is creating a positive impact on financial services across the board. Blockchain is increasingly tested in trad-fi settlements, reconciliation, and clearances. As consumers further understand the legitimacy of alt-fi technology, they can gain a better understanding of the positive ways alt-fi is benefitting the financial landscape. In this regard, the convergence of alt-fi and trad-fi is mutually beneficial.

Untapped regions

Outside of flexibility, efficiency and security, alt-fi benefits through its decentralised position. Payment gateways consistently explore untapped regions to expand their global network of merchants, allowing them to reach larger customer bases. In turn, these customer bases have a broader choice of e-commerce products and services. 

Some of these developing financial systems may struggle with cross-border payments or rely more on cash. Because alt-fi relies on independent blockchain frameworks, it is not directly affected by trad-fi instabilities, creating a fairer payment landscape regardless of economic or political dynamics. As alt-fi expands, we expect its impact on the financial accessibility of developing regions to be the most profound. Naturally, use cases in less ‘stable’ economies will demonstrate legitimacy to developed economies also. In many ways, this is the crux of alt-fi and payment gateway facilitation; a more accessible and fair financial system for all.