What is Alternative Payment?

The payments landscape is constantly changing with new technology and applications regularly emerging trumpeted as the latest and greatest “Alternative Payment” system. With all of this change it might be helpful if we define “Alternative Payment.” Perhaps the challenge is to define “Traditional Payment” and say that everything else is Alternative Payment, but somehow that does not satisfy the question. 

There are a two ways to look at this question; the practical application and the academic question. Practically speaking, in the current payment landscape any payment system that eliminates card associations from the transaction is an alternative system. Academically, the question is more complicated and reaches to the Financial Institution. To satisfy both the practical and academic definitions, “Alternative Payment” could be defined as: payment methods that do not adhere to the issuer-network-acquirer model and those that do not utilize card association networks or, where the liability of payment is held by an issuer that is different than the FI holding the consumers “dda.”

Do “E-Wallets” qualify? What about merchant issued debit cards? ACH Decoupled Debit is an example of an “alternative payment system”, but does it meet the criteria? The result of an ACH decoupled debit transaction is the disintermediation of the Financial Institution holding the consumers dda from the card based transaction. What if we consider EFT networks, or the ACH to be a part of the FI, then where do we draw the line? Perhaps any payment where the consumer does not directly enter their credit/debit card number at check-out qualifies as an “alternative payment”. Google Checkout or PayPal transactions that are funded by a Credit Card do not appear to be “alternative payment. National Payment Card, BillMeLater and eBillMe clearly consider themselves alternative payment. What is Alternative Payment? What do you think?

Peter Guidi is the Vice President of Sales at National Payment Card

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