How local payment methods can help lower operational costs – and drive revenue

Alternative payment methods (APMs) that shoppers can use for purchases across borders and in many currencies are a boon to both customers and businesses. But local payment methods (LPMs) are also growing in popularity – and they offer ways for businesses to help lower operational costs, accelerate regional expansion, and drive revenue.

In a nutshell, LPMs are alternative payment methods that are only available for use in a specific country or region. In some cases, central banks offer country-specific payment options, with the bank’s strong brand attracting users. In other cases, private companies partner to customize solutions that match the payment preferences of local markets.

It's important to understand that local payment methods can take many forms, such as digital wallets like Venmo (United States) or AliPay (China), bank transfers like iDEAL (Netherlands) or Blik (Poland) – or even vouchers like Boleto bancário (Brazil). Also, some local payment methods can cover an entire region, such as the single euro payments area (SEPA), which includes all of the countries in the European Union as well as other countries with strong EU ties such as Norway and the United Kingdom.

And in many cases, LPMs can help reduce operational costs, such as transaction and conversion fees. But the common denominator for LPMs is that important word: local. Your decisions about which LPMs to offer depend heavily on where your customers are and where you’d like to grow the business.

How widespread are LPMs?

Alternative payment methods of all kinds have helped accelerate global e-commerce, given their ability to reduce friction and improve speed and ease of use during checkout. The global, B2C, cross-border, e-commerce market is expected to reach a value of $7.9 trillion by 2030, up from $785 billion in 2021 – a sign that the borders that used to separate e-commerce regions are dissolving.¹

This is an attractive and sizable market for many businesses, but it’s also a market with an increasing number of unique local payment methods – likely too many for a single business to accept. In this case, more options aren’t necessarily a good thing. Businesses may want to focus on accepting the LPMs that customers most frequently choose, such as local digital wallets.

Why offer local payment methods?

Naturally, businesses want to attract a greater share of customers – but when businesses reach out to global customers, they need to understand payment customs and complexities that affect how people like to shop and pay. Only then can businesses choose the correct LPMs for their target markets.

People choose their favorite LPMs for various reasons, such as ease of use, trusted brand, and security. In one survey, 43% of respondents said they consider security and trust to be the most important factors when shopping on an e-commerce site.²

If businesses try to offer every LPM in every market, customers can become confused and frustrated – especially when shopping on mobile devices and trying to choose among dozens of payment buttons. Globally, the top two essential features for customers surveyed while shopping online are that all payment methods are clearly visible (55%) and their preferred payment methods are available (51%).³

How can LPMs help drive revenue and reduce costs?

When businesses carefully and successfully determine which LPMs are suitable for customers, they can benefit from increased revenues and lower operational costs.

Higher revenues can come from an increase in conversions. If local payment methods are the preferred and trusted way to pay, then customers are more likely to purchase when they can use those LPMs. More than 55% of customers surveyed globally consider their preferred payment method essential, or they won’t shop with the business.³

Revenues can also receive a boost from improved authorization rates. When customers use LPMs that are known to local banks, transaction approval may be more likely.

Also, locally processed transactions help businesses reduce or even eliminate cross-border fees. Local payments are usually processed in the local currency, which eliminates currency conversion fees. Finally, local payments usually facilitate faster settlement of funds, speeding businesses’ access to revenue and improving cash flow management.

Here’s how this can work: A customer in Brazil may want to use a preferred payment method such as a local credit card at a US-based business. However, the business can’t process the transaction locally as it would probably need to be processed by a US bank connected to the business’s payment processor, and that bank might decline the overseas transaction – or accept it and charge the business fees for the cross-border transaction. When businesses offer local payment methods with connections to a local payments processor, this transaction can be processed locally, at lower cost to the business and with less friction for the customer.

Growing globally while going local with payments

Growing globally and accepting local payment methods doesn’t need to be complicated. With help from PayPal, businesses can easily integrate LPMs that align with the ways customers want to pay – everything from debit and credit cards to digital wallets and bank transfers. The process can be hassle-free, helping businesses focus on profitable growth around the world.

Ready to add alternative payment methods for your customers?