Time to say goodbye to cash? How fintech is shaking up payments

Cash is king… or is it?

The idea of cash being the preferred payment method of consumers and merchants could be a distant memory of the past. It wasn’t until the last decade that non-cash payment methods were widely accepted across Europe, but in the finance world, things move fast.

It is expected that by 2025, cashless payments adoption will reach over 80%. The pandemic and a boom in ecommerce have increased the popularity of digital payments. Europe is at the forefront of payments innovation, in large part propelled by the regulatory environment and implementation of Payments Service Directive 2 (PSD 2). PSD 2 mandated more consumer-friendly payment solutions with the introduction of Open Banking and increased security for payments.

Alternative payment methods are defined as payment methods that aren’t cash or credit card payments – they are gaining popularity in Europe and internationally. You likely have noticed an alternative payment method at checkout or might be already using them. Examples of alternative payment methods are electronic wallets, buy-now-pay-later (BNPL), and crypto payments. Merchants should ensure that they support their customers’ preferred payment methods to optimise their customer’s experience and increase conversion.

According to TrueLayer, two-thirds of ecommerce purchases will be made using ‘alternative’ payment methods by 2026 as credit and debit card payments are slowly falling in popularity. In 2021, credit and debit cards made up 41% of all ecommerce payments in Europe – but things are changing.

Given the rapidly evolving nature of the payments industry, and the fact this has major consequences for startups, we wanted to outline a few alternative payment methods that are emerging in popularity across Europe. Given the diversity of cultures across the European region, it is also important to highlight that the adoption of different payment methods varies across different regions of the continent. Over the next few years, we should expect to see a reshuffling in the market share of alternative payment methods.

Buy-Now-Pay-Later (BNPL)

BNPL is a type of financing that is offered to customers at the point of sale that allows them to repay in future instalments with zero or low interest over a short time horizon. Some notable European BNPL companies are Alma (France), Klarna (across Europe), divido (across Europe), scalapay (across Europe), and Twisto (focused on central and eastern Europe). With the rise in popularity of BNPL payments, other European consumer fintechs have also launched their own BNPL payments products including Revolut, Monzo, and Curve.

Lots of funding has been pumped into BNPL which has led to rapid expansion and popularity amongst both customers and merchants. In 2021, BNPL accounted for 8.1% of European e-commerce spending and nearly 2% of regional POS (point of sale) transactional value. Customers have a higher likelihood to convert when options are available – which reduces the perceived financial burden and makes the purchasing decision more straightforward. BNPL is popular among Gen Zs and Millennials who prefer to be more flexible with their finances. Retailers that offered BNPL enjoy a 50-200% increase in units per transaction.

There are concerns around BNPL causing consumers to accumulate unmanageable amounts of debt. BNPL is relatively accessible to most customers through a soft credit check. However, if customers default or make late payments, they may be reported to credit reference agencies. The EU government are in discussions to increase regulatory requirements for BNPL providers to increase consumer protection. In July 2022, the EU’s Committee on the Internal Market and Consumer Protection (IMCO) approved amendments that will likely require BNPL companies to increase their transparency. BNPL providers need to be careful their product isn’t contributing to harmful patterns of debt and so need to keep ethics at the forefront when desinging their solution.

Electronic wallets

Electronic wallets enable customers to load money into their accounts that they can use for purchases. Electronic wallets can be used offline and online. Customers load their electronic wallets through various methods including bank transfers and cash. Examples of electronic wallets are Alipay and Paypal.

According to Sticpay, the dominance of e-wallets is expected to grow and they anticipate that 30% of e-commerce transactions in Europe will be facilitated through e-wallets by 2024. Paypal holds its dominance in the electronic wallets market as one of the oldest and most reputable brands in the space. In Europe, the UK leads in the usage of Paypal in Europe with Germany and France behind the UK.

Crypto payments

Consumers are becoming increasingly interested in crypto. In a Gemini report, 41% of respondents internationally said that they are crypto-curious with Europeans being the most curious compared to other regions. To follow where consumers are heading, B2C companies are starting to make moves into web3 including creating NFTs and accepting crypto payments although cryptocurrencies are notoriously volatile.

Various European companies have started to accept cryptocurrencies across different sectors from fashion to airlines. FARFETCH announced that they will start to accept cryptocurrencies and partnered with Lunu to facilitate crypto transactions. The full rollout of cryptocurrency acceptance follows a successful trial of cryptocurrency payments at FARFETCH Group companies’ retail stores including Browns locations in London and Off-White flagships in Paris, London, and Milan. Other companies that have also announced that they are accepting crypto payments include Gucci, Vueling, Balenciaga, Microsoft, Starbucks, AirBaltic (the first airline to accept Bitcoin in 2014), LOT Polish Airlines, and GetYourGuide.

Mobile wallets

Mobile wallets store customers’ payments methods and funds on their mobile devices whereby customers can make payments through their mobile wallets. Examples of mobile wallets include Alipay, Apple Pay, Google Pay, and Samsung Pay. Mobile wallets can be used electronically or at point-of-sale (most notably through contactless payments). Research from Payvision shows that 3% of consumers were using Apple, Google, or Samsung Pay as their preferred payment method.

Local bank transfers and direct from account payments

Bank transfers are typically facilitated on the tech that the bank builds themselves but more recently have been powered by Open Banking technology. Open Banking was rolled out in 2018 following the implementation of PSD2. Local bank transfers powered by local banks are only available for domestic customers whereas Open Banking is available in the UK and EU-wide.

Examples of bank transfers solutions include:

For merchants, bank transfers charge lower fees than payments made through credit cards and funds settle faster. Another benefit for merchants is that customers cannot make chargebacks on bank transfers; typically chargebacks can lead to significant losses for merchants due to customers attempting to commit fraud.

So, what does this all mean for European startups?

The future of payments, and the constantly evolving way consumers purchase, are important for any startup. Founders and businesses need to keep connected with their customers to ensure they are offering the most preferred way to pay – and implement it effectively. Doing so can enhance customer loyalty, boost revenue, and reflect that the company is continually investing in future-proof solutions.