Understanding alternative (bill) payment methods

Apple first introduced Apple Pay on September 9, 2014, promoting it as “a new category of service that will transform mobile payments with an easy, secure and private way to pay.” Seven years later, nearly 100 million Americans are expected to make in-store payments using mobile devices in 2021, following nearly 30 percent year-over-year growth in 2020 as many consumers used mobile wallets at the point of sale for the first time to avoid touching cash or cards. This rapid growth is forecast to continue; in fact, Juniper Research estimates that digital wallet spend will exceed $10 trillion globally by 2025.

The ACI Speedpay Pulse report confirms that physical wallets are out, and mobile wallets are in, with more than 25 percent of consumers saying they expect to use mobile wallets somewhat or much more frequently in the next 12 months. Our study also highlights a growing appetite to pay bills with mobile wallets or other alternative payment methods, such as PayPal, showing that more than half of Generation Z and Millennials would consider using one of these methods to make a bill payment. For billers that want to capitalize on these trends, read on to learn more about the benefits of accepting alternative payment methods, as well as how they differ from other forms of payment.

What is an alternative payment method?

Alternative payment methods (APMs) — typically cashless and cardless transactions of funds — have been around for a long time in the form of bank transfers, direct withdrawals, prepaid cards, etc. But over time, the definition has expanded to encompass newer technology such as cryptocurrencies, mobile payments and digital wallets — the latter two acting as major catalysts for shifts in the bill payments industry.

Today, APM options such as Apple Pay, Google Pay, PayPal, Venmo and Zelle, among others, offer consumers easier ways to pay for everything, including bills. 

Why should billers care?

APMs have the potential to make everyday life easier for consumers, while cutting down costs that come with traditional transactions — and they are becoming more popular as mobile wallets become a more central part of many consumers’ lives. Nearly 40 percent of Gen Z and Millennials store non-payment items like digital tickets or loyalty cards in a mobile wallet like Apple Pay and Google Pay. And leading colleges and universities are leveraging mobile wallets to provide digital IDs to staff and students, with Oklahoma Wesleyan University reporting over 80 percent uptake among students. In addition to providing a contactless form of ID, the mobile wallet provides the university with a new way to engage with students.

Other alternative payment methods, such as PayPal, have an even longer history, evolving from an innovative way to pay for items purchased at online auctions to a platform offering expanded financial services to over 400 million accounts. These services include everything from cryptocurrency trading to installment or “buy now, pay later” (BNPL) options. Savvy billers have recognized this trend, and are partnering with ACI Worldwide to provide alternative payment options to meet customers’ evolving needs.

While alternative payment methods provide convenience for the consumer, they are handled differently than other methods, such as debit and credit cards. The dispute process is not the same, complicating things for many billers. Plus, dispute handing varies for each APM, creating even more back-office challenges.  

How can billers get started?

APMs can make a positive difference to business operations and increase customer satisfaction by providing a more seamless and convenient payments option for all parties involved. Here are a few guidelines to consider:

• Understand customer demands: By paying attention to market research data like ACI Speedpay Pulse, billers can develop a more vivid picture of what customers want in terms of payment options. From there, they can develop a thorough offering to meet customers’ expectations.

• Offer continuous education: With each new payment method, customers should have access to informational resources on why they should use it and how it works.

• Consider operational impacts: Be aware of the differences in how each alternative payment method handles returns and disputes and how this may affect your reconciliation process.

• Find a trustworthy partner: A critical part of the puzzle is partnering with a solutions provider (like ACI) that can help billers offer customers convenient, alternative ways to pay, while providing billers with an equally seamless back-office experience regardless of payment method.

Overall, APMs represent a major part of the future of bill pay in the U.S.  To learn more about opportunities for billers to drive mobile wallet adoption, download the latest ACI Speedpay Pulse Trend Report.