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Cash, it used to be said, is king. Then along came card, between them, these methods have reigned supreme over payments landscape in the 21st Century.
But now, as consumers search for greater convenience, local payment methods (LPMs) are rising through the ranks to rival cash and card in the global transaction landscape. Per recent research, card-based payments will account for only 41% of global e-commerce payment value by 2028.
While much of this shift can be attributed to relatively unbanked regions such as parts of Africa and Asia, even traditionally card-dominated regions like Europe and North America are shifting away from cards and reshaping the global payments landscape.
Why are LPMs on the rise?
The single biggest reason for the rise of LPMs, which includes things like bank transfers, direct carrier billing, and e-wallets, is that they offer convenience to consumers. This is the case both in highly banked regions and those with traditionally unbanked populations, driven by the increasing ubiquity of the digital economy.
Ecommerce businesses that have spent a lot of time and resource adapting to card-based payments may find having to now accommodate LPMs frustrating.
But the payments industry, which includes both ecommerce merchants and their payment platform vendors, must go where the consumer leads. Conversion rates for ecommerce transactions rise by 30% when merchants offer three payment options as opposed to one, so there is a convincing commercial imperative propelling the adoption of LPMs on a broader scale.
And LPMs are also designed specifically for digital payments and can therefore be a more cost-effective route to the expansion of ecommerce into new markets and therefore a driver of economic growth globally.
But this potential can only be realised if LPMs are implemented successfully, both on the vendor side and within ecommerce businesses.
Three key characteristics of successful LPM networks:
Many network vendors offer a wide variety of LPMs, but differences in connection methods can impact performance and so the network quality is just as important as the quantity of LPMs on offer. Merchants with subscription models, for example, are likely to seek out vendors that support recurring payments. Multi-factor authentication, essential for reducing chargebacks, will also be key to the successful implementation of LPM networks. Successful LPM networks must therefore focus not just on quantity of options, but quality of provision.
Network depth
The depth of networks will also have an impact – as the involvement of more intermediaries with each transaction brings with it an increased risk of failure or settlement delay. To meet customer expectations for convenient payments and to support ecommerce businesses during the shift to LPMs, vendors must account for the impact of legacy platforms on service quality.
Tokenisation
Tokenisation replaces sensitive data, like credit card numbers, with tokens. It is crucial for LPMs, particularly with recurring payments, as it affects data protection, fraud liability, and customer service quality. LPM vendors must look to add tokenisation capabilities to their networks and ensure they align with security and service goals.
LPMs becoming essential to differentiation and scalability
Payments are undergoing rapid and significant changes, requiring vendors and digital merchants to adapt. Worldwide, consumers are gravitating towards LPMs and challenging the dominance of card-based payments. LPMs offer the potential to speed up settlements, improve cost efficiency, and expand into new markets and regions.
As global reliance on card-based payments decreases, LPMs will become essential for differentiation and scalability in ecommerce, and merchants will adapt what they look for vendors to provide – meaning payment providers will have to evolve themselves.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Kathiravan Rajendran Associate Director of Marketing Operations at Macro Global
25 November
Vitaliy Shtyrkin Chief Product Officer at B2BINPAY
22 November
Kunal Jhunjhunwala Founder at airpay payment services
Shiv Nanda Content Strategist at https://www.financialexpress.com/
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