Alternative Payment Methods Increase Conversion But How Secure Are They?
Sofort, Giropay and Paypal are all popular payment methods that have a notable impact on conversion when offered alongside credit and debit card payments. However, Alternative Payment Methods (APM’s) have a higher fraud rate in the DACH region than card transactions, which means merchants need to be particularly vigilant.
What Are Alternative Payment Methods?
Alternative Payments Methods (APMs) incorporate a range of schemes including bank transfers, direct debits, eWallets, vouchers, prepaid cards and mobile-based schemes. Globally there are an estimated 230+ types of APM, with popular schemes including AstroPay, GE Money, iDEAL, Ikano, PayPal, Giropay, Paysafecard and SOFORT Banking to name but a few.
Without a doubt accepting APMs is an effective way to take advantage of cross-border trade by providing customers with their preferred payment methods. This increases conversion and reduces cart abandonment, and some merchants especially in the DACH region where credit card payments are not as widely used, report that APMs are used more than any other payment method by their customers.
Fraud Risks With APMs
There are several risks that merchants, CFOs and eCommerce directors should be aware of. They include:
#1: The risk that the APM is compromised: a criminal gains access to an account and makes purchases using the payment card associated with that account. Some APMs do not require any further card verification once the user is logged in.
#2: Direct debits set up through APMs: In countries where direct debits are more commonly used than payment cards, even for one off payments, there is increased risk of fraud when direct debits are linked to APMs. This presents an opportunity to a fraudster who may take advantage of lax set up arrangements and the onus on the account holder to monitor their bank account.
According to research from the Centre for Economics and Business Research (CEBR), it can be an average of four months before a bank account holder notices an anomaly on their account, by which time goods will have been received by the fraudster and the merchant may have to accept a chargeback.
#3: Time between transaction and payment: There is also the issue of the time it takes for a transaction to be complete and payment received from the APM. This is of particular relevance to merchants selling digital products where non-settlement is possible if funds are not available. In some cases a customer might revoke or cancel a transaction with their bank, following authorisation from the APM. The merchant may have already dispatched digital goods before receiving payment from the APM.
It should also be noted that digital goods are often excluded from Seller Protection policies, for example with PayPal. This means that if a customer makes a false chargeback claim, the merchant has no recourse for material loss through the APM.
Advice For Merchants
Alternative Payment Methods can have a very positive impact on online sales and cart abandonment rates. In the first instance we would recommend that you consult a payment service provider who has APM expertise, regional knowledge, experience working in your vertical and a proactive approach to fraud solutions. Alongside this PSP you can explore the most suitable APMs for your organisation.
Additionally, fraud prevention solutions that include customer profiling and real-time monitoring of fraud, can be utilised to detect and prevent fraud originating from APMs: reducing chargebacks, managing domestic and cross-border transactions and maximising revenues for the merchant.
If you have any questions about APMs, and how to minimise your fraud exposure, contact our team who can help your business find a way to use APMs to your advantage, and reduce your fraud risk. +44 (0)80 827 13756