What are alternative payment methods (APMs)?

Are your customers dropping off at the checkout page? That might be because you do not offer their preferred payment method. To stay competitive and meet evolving customer needs, merchants must offer a variety of online payment methods that cater to users’ preferences, or risk losing them at the payment stage.

In addition to offering simple credit card checkout, merchants should also include alternative, locally preferred payment methods. But what are alternative payment methods (APMs)? How are they different from country to country? What are the advantages of offering multiple kinds of payment methods at checkout? In this edition of Payments 101, we explore alternative payment methods.

What are alternative payment methods (APMs)?

Alternative payment methods (APMs) are non-traditional online payment options, the “traditional” payment options being conventional credit and debit card transactions. APMs offer consumers more convenience, security, and flexibility when making purchases online.

This is because shoppers develop preferences for certain payment methods depending on their geographic location, their current financial situation, or the types of devices they use.

Types of alternative payment methods

Merchants offer alternative payment methods to increase checkout conversion, reduce cart abandonment, lower processing costs, and support global and local payment preferences.

Some of the most popular alternative payment methods include:

Digital wallets

Also known as e-wallets or mobile wallets, these services store users' card information securely and allow them to make transactions using their smartphones, smartwatches, or other devices. Popular digital wallets include PayPal, Apple Pay, Google Pay, and Samsung Pay.

Buy Now, Pay Later (BNPL)

Buy Now, Pay Later has become one of the most popular payment methods in recent years. At its core, BNPL is a financing option that allows customers to make a purchase and pay at a later date or to pay in installments over time, often without interest or fees. Some popular BNPL providers are Klarna, Afterpay, and Affirm.

Direct debit or bank transfers

A popular way to pay in Europe, direct debit or bank transfers enable customers to transfer funds directly from their bank accounts to the merchant's account, either immediately or as an invoice. ACH transfers are popular in the US, SEPA transfers are big in Europe, and Faster Payments is the preferred bank transfer method in the UK.

Local payment methods

There are certain payment methods that only exist in or are preferred by customers in specific markets, countries, or regions. Customers in the Netherlands, for instance, will probably prefer to pay by iDEAL. Pix is very popular in Brazil, and Alipay is the dominant payment method in China. Prepaid cards and vouchers remain a popular way to pay for items online without having to connect to a bank account. Customers can purchase these cards or vouchers with a predefined value and use them for online transactions. Examples of popular prepaid cards for online shopping include Paysafecard, Neosurf, and Flexepin.

How do alternative payment methods work?

In practice, alternative payment methods replace manual card entry with bank, wallet, or provider-based authentication flows.

While the user experience can vary by payment type, most alternative payment methods follow a similar flow at checkout. Instead of entering card details, customers authenticate and authorize payments using a wallet, bank account, or third-party provider, with funds settled to the merchant through a payment service provider (PSP) or payment orchestration platform.

At a high level, this is how APMs work:

1. Customer selects an alternative payment method at checkout

During checkout, the shopper chooses their preferred APM, such as a digital wallet, BNPL option, bank transfer, or local payment method. The available options are often tailored by country, device, or currency.

2. Customer is redirected or authenticated

Depending on the payment method, the customer may be:

• Redirected to their banking app or wallet (e.g., iDEAL, PayPal, Pix)
• Authenticated using biometrics or two-factor authentication
• Approved instantly by a BNPL provider

3. Payment authorization and confirmation

The APM provider verifies the payment details, confirms available funds or credit, and authorizes the transaction. Unlike card payments, many APMs rely on real-time bank authorization or pre-funded balances, reducing fraud risk.

4. Settlement to the merchant

Funds are settled to the merchant either:

• In real time (common with instant bank transfers)
• On a delayed basis (typical for BNPL or certain wallets)

Settlement timelines and fees vary by payment method, region, and provider.

5. Payment orchestration and reconciliation (merchant side)

For merchants offering multiple APMs across markets, payment orchestration platforms enable:

• Route transactions to the optimal provider
• Manage multiple integrations through a single layer
• Handle reconciliation, reporting, and optimization across payment methods

As alternative payment methods are often region-specific and regulated differently, successful implementation requires both technical integration and local market expertise, particularly for merchants operating internationally.

Payments insight: Merchants often focus on adding more payment methods, but the biggest gains come from showing the right payment methods to the right customers. At scale, optimization matters more than volume.

What are the advantages of alternative payment methods?

Offering multiple ways to pay online has many benefits, both for your user experience and for your bottom line.

Reduce cart abandonment and increase conversions

Integrating alternative and local payment methods helps reduce cart abandonment and, therefore, also increase checkout conversions, because you’re ensuring that your customers will be able to pay with a payment method that works best for them. It has been reported that adding a variety of payment methods can boost conversion rates by as much as 30%.

Cheaper than conventional credit card payments

Another advantage of integrating local alternative payment methods is that they are often cheaper to process than credit cards, allowing you to lower the cost per order and improve margins. In fact, we have seen that enabling and processing payments through alternative payment methods can reduce payment processing costs by up to 10%.

Certain payment methods incur different fees depending on the processor, even if their flat rate stays the same. Usually payment methods that are strong in a certain market have the lowest rates since they have multiple funding sources.

In Germany, using a girocard or SEPA direct debit is among the cheapest and most commonly used payment methods. Bank transfers can also be a more cost-effective payment method in local markets, especially for enterprise merchants that could benefit from a fixed fee price.

Improve customer satisfaction

Finally, adding alternative payment methods to your checkout options can improve customer satisfaction and, in turn, lead to increased customer lifetime value, as customers will appreciate that you are catering to their preferences.

Local APMs can also give you an advantage in cross-border payments, attracting customers in regions where credit and debit cards are less common. This is a great way of differentiating your business from competitors and increasing your global presence.

Design the right alternative payment method strategy

Choosing which alternative payment methods to offer is only the first step. As merchants expand across markets, managing multiple payment methods and providers introduces additional complexity.

Payrails provides a payment orchestration and configuration layer that helps merchants control how alternative payment methods are set up, routed, and managed across PSPs, without rebuilding integrations as requirements evolve.

Talk to our team to explore a scalable approach to alternative payment methods.

FAQs on alternative payment methods

Which alternative payment methods should merchants offer?

There is no universal set of alternative payment methods that works for every merchant. The optimal mix depends on customer location, business model, transaction value, and growth strategy.

In practice, merchants should prioritize alternative payment methods based on three core principles:

• Customer preference by market: Focus first on the payment methods customers already trust and use locally, such as iDEAL in the Netherlands, Pix in Brazil, or ACH in the US.
• Conversion impact: Not all APMs contribute equally. A small number of well-chosen payment methods often outperform a long, unoptimized list at checkout.
• Operational complexity: Each additional payment method introduces settlement, reconciliation, and reporting requirements that must be managed at scale.

For growing and enterprise merchants, payment orchestration helps balance these trade-offs by enabling teams to add, test, and optimize APMs without increasing technical or operational overhead.

What is the difference between alternative payment methods and local payment methods?

Alternative payment methods (APMs) refer broadly to any non-card payment option, including digital wallets, BNPL, bank transfers, and prepaid solutions.

Local payment methods are a subset of APMs that are popular or exclusive to specific countries or regions, such as iDEAL, Pix, or Boleto.

In other words, all local payment methods are APMs, but not all APMs are local.

Are alternative payment methods safe for merchants?

Yes. Many alternative payment methods are considered as safe as, or safer than, card payments as they often rely on bank-level authentication, pre-funded balances, or real-time authorization.

Because customers authenticate directly with their bank or wallet provider, APMs can reduce exposure to certain types of fraud and chargebacks. However, risk profiles vary by payment method and region, which is why merchants should evaluate APMs individually rather than treating them as a single category.

How many payment methods should a checkout have?

More payment methods do not automatically lead to higher conversion.

Most high-performing checkouts focus on a curated set of payment methods that are relevant to the customer’s location and device, rather than offering every possible option.

As a rule of thumb:

• Offer the top 2–3 preferred methods per market
• Continuously measure performance and adjust
• Avoid overwhelming customers with unnecessary choices

Dynamic payment method presentation is often more effective than static lists.

Do alternative payment methods increase conversion rates?

Alternative payment methods can significantly improve conversion rates when they align with customer preferences. Shoppers are more likely to complete a purchase when they see a payment method they already trust and use regularly.

Conversion uplift depends on factors such as geography, industry, and checkout design, but merchants consistently see lower abandonment when local and alternative payment methods are available.

Are alternative payment methods suitable for enterprise merchants?

Yes, but enterprise adoption requires more than adding new checkout buttons.

At scale, managing alternative payment methods introduces complexity around settlement timelines, reconciliation, reporting, and provider performance. This is why many enterprise merchants use payment orchestration to manage APMs centrally, optimize routing, and maintain visibility across regions and providers.