Payment processing

Understanding Alternative Payments & Processing

A cash-only business is unlikely to survive in this day and age, especially as more consumers turn to online stores to do their shopping. And more retailers are moving online as well—and it is pretty difficult to accept cash if you want to run an online store. That’s why you have already started to put payment processing in place in your organization.

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One thing you probably keep hearing about is “alternative payments.” The term crops up a lot when you’re talking to people about payment processing—but it’s not often that the term is defined. If you’ve been puzzled, keep reading to better understand alternative payments and processing.

What Are They?

“Alternative payments” are virtually anything other than credit card payments. Some people refer to this as “alternative payment methods,” although the two terms mean the same thing.

Why is anything except credit considered an “alternative” option? Credit cards are almost universal in their acceptance, especially in the realm of e-commerce. That is because credit cards are global, whereas other payments tend to be more local in scope: They’re usually offered or operated by banks.

A Bit of Confusion

You might still be a bit hazy or confused about what, exactly, counts as an alternative payment. That’s because there isn’t clear agreement on what “alternative” is.

While many people consider alternative methods to be anything other than a credit card, others define “alternative” as anything other than cash. Given that cash does not require any special processing, this definition also makes sense: Any merchant can set up shop and accept cash payments, and virtually no merchant is going to say, “Sorry, we don’t take cash”—it’s the universally accepted payment!

In that case, even credit cards could be considered “alternative,” given that not every merchant accepts them—and not every customer uses them. However, some people argue that “alternative” is shifting, as more people use credit cards and fewer use cash.

What Methods Are There?

The most common alternative payment is debit. Many retail stores take debit, and many more online retailers are adopting debit payments as another option they offer their customers. Some processing providers and money transfer services allow consumers to connect their debit card to their online accounts, as well as their credit card(s).

Other methods include payment by points, where the customer participates in a loyalty program, collects points and then “cashes” them in for discounts or free items. These programs can be offered by the merchant, or by a credit card company or bank, which then reimburses the merchant. Some people consider methods such as pre-paid cards and mobile billing alternative methods, while others will include bank transfers as well.

How Does Processing Work?

For many alternative payments, processing is very similar to credit card processing. Debit card payments are processed in almost the exact same way: A request is sent from the merchant to the card issuer for approval of the transaction, and the money is then transferred.

Some online payment methods require the customer to add funds to their accounts before they can use them, which usually means connecting a bank account or credit card. Loyalty programs obviously require a customer to build points and then redeem them; that can be done at the time of transaction or applied to the purchase after the fact, depending on the system.

Pay-later options allow the customer to pay after the transaction is complete. Some of these options allow the customers to delay payment either until they are invoiced or the product or service is delivered. Hotels often offer options for you to pay online at the time of booking—or later, after your stay. Some options turn the payment into a structured loan, which the customer then pays in installments.


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James Newman

James brings over 30 years of experience in the telecommunications and merchant services industry to his role as Client Relations Specialist for BNA Smart Payment Systems. With a focus on sales, marketing and client services, the last 10 years have been spent with BNA. He has completed over 2,000 hours of professional business training, including professional sales, solution selling, conflict resolution, appraisal workshop, strategic marketing, and financial analysis. Outside of work, James is almost constantly reading fiction. In direct contradiction to this rather silent interest, he took up the guitar six years ago and regularly, happily, and shamelessly destroys the peace and quiet of his family home.

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