5 ways Local Payment Methods (LPMs) Outcompete Card-Based Payments

Ecommerce is changing. Specifically, the way we pay for things is undergoing a transformational shift. Usage of Local Payment Methods (LPMs) is expected to grow 65% by 2028, with card-based payments’ share of ecommerce checkout volume shrinking by 11% during the same forecast period, according to research commissioned by Boku.

The reason for this shift is simple: the incumbent card-based payment system is what digital merchants reached for when ecommerce first took off. It then became entrenched as the industry standard because it worked and there were few better alternatives. But now there are.

For an insight into how the payments landscape is changing today, we can look back to mid-century American architect and futurist Buckminster Fuller for a useful analogy.

Fuller came up with the parable of the piano top life raft to demonstrate his theory that, most of the time, businesses reach for what is expedient, rather than what is right.  

The piano top parable goes like this: imagine you’re shipwrecked, adrift in icy water, at the mercy of the tide. Among the flotsam and jetsam, the ship’s grand piano floats by. You grab onto it, and it keeps you afloat. From that moment on, because the piano top saved your life, it becomes your go-to life raft. If it worked once, why wouldn’t it work again?  

The card-based payment system that has dominated ecommerce is like the piano top life raft. It worked once, so the use of it became standardised, even though it was ill-equipped to do the job effectively. But now, a range of LPMs – such as Account to Account payments, digital wallets, direct carrier billing, and Buy Now, Pay Later - are flooding onto the scene, presenting digital merchants with a huge opportunity to select the ‘life raft’ that actually works best for their business.

But the shift to LPMs is not just about survival, as in Fuller’s parable. It is about growth. LPMs can help digital merchants to improve on the status quo, bringing down costs and opening up to new markets by adding greater convenience for customers around the world.  

Today’s LPMs provide a streamlined, purpose-built approach to online payments, offering both operational and strategic advantages. Here’s how LPMs outperform card-based payments, providing merchants with a chance to reimagine their payment strategies:

5 ways LPMs outperform card-based payments.

1. Increased Efficiency
   The LPM operating model is designed for digital transactions, eliminating the cumbersome, multi-step process of card payments. LPMs streamline the payment journey, reflecting the speed and expectations of today’s digital-first consumers.
   
   
2. Superior Security
   Enhanced security capabilities—like biometrics and device fingerprinting—make LPM transactions more secure, which protects both the merchant and the customer. Decline rates go down, authorisation rates go up, and fraud is tackled without inconvenience to the well-intentioned customer.
   
   
3. Reduced Costs
   LPMs sidestep the need for interchange fees entirely, which makes them significantly more cost-effective for merchants.
   
   
4. Greater Innovation
   LPMs enable merchants to benefit from real-time features like instant payments, which open new avenues for innovation, such as providing instant refunds—improving customer satisfaction and supporting smoother post-transaction experiences.
   
   
5. Simpler Compliance
   LPMs operate within a lighter regulatory framework than card-based payments, making compliance less burdensome and allowing merchants to focus on customer experience. 

The next era of digital payments: from uncharted waters to smooth sailing

The transition to LPMs brings both opportunities and challenges for digital merchants. While they offer greater agility, the sheer variety of LPMs means it’s critical for merchants to choose wisely, focusing on those that align with their markets and customer bases. 

With digital merchants entering uncharted waters, the key is to avoid the temptation of reaching for another piano top life raft.  Instead, merchants should look to collaborate more closely with payment service providers, sharing insights so that they can make the most of LPMs, and ensure smooth sailing in the next era of digital payments.