TYPES OF PAYMENT METHODS: Full List and Explanation

TYPES OF PAYMENT METHODS
Photo Credit: Practical Business Skills

It’s no surprise that customer expectations for speed, ease of use, and variety of options at your site’s checkout page are once again on the rise. But how exactly can you improve your checkout page to satisfy your customers, reduce shopping cart abandonment, and drive more sales? Simple. One of the best ways to meet your customers’ increased demands is to offer them a variety of payment options. So, what types of online payment methods are there? And how do they differ depending on which countries you want to target around the world? This article will teach you about various types of online payment methods for businesses that are worth investigating. We also provide examples of popular types of payment methods, such as SAP and Google.

What Is a Payment?

Payment is defined as the transfer of money, goods, or services in exchange for goods and services in acceptable proportions agreed upon by all parties involved. Services exchanged, cash, check, wire transfer, credit card, debit card, or cryptocurrency can all be used to make payments.

Types of Payment Methods

Payments are made in a variety of methods. These types of payments have changed and evolved throughout history, and new payment methods are likely to emerge in the future. These are the most common types of payment methods for businesses today.

#1. Credit Cards

Credit cards are now widely used for both purchases and payments. Furthermore, credit cards work by providing the user with a line of credit up to a certain limit. When you attempt to use your credit card, the merchant bank receives your account information. The merchant bank then receives authorization to process the transaction from the credit card network.

Many businesses accept credit cards, but many charge a fee to the merchant who provides the machine and payment infrastructure, as well as their financial institution. This fee is frequently a percentage of the transaction amount or a flat fee per payment.

Pros

  • Assist an individual in establishing a credit history that can be used to make larger purchases in the future.
  • Reduce risk by carrying a single plastic card rather than cash.
  • Generate revenue through rewards and airline miles.

Cons

  • Increase the likelihood of overextending credit and incurring unpayable debt.
  • Many merchants charge processing fees, making purchases more expensive than other methods.
  • Charge a high-interest rate (15% to 25% APY) on outstanding balances.

#2. Debit Cards

Debit cards may resemble credit cards in appearance, but their underlying mechanism is entirely different. When a debit card is used, funds are withdrawn from an individual’s account immediately. Instead of having a credit line from which you can borrow more than you have saved, debit card transactions can be declined if you do not have enough money in your account.

Pros

  • Facilitate transactions by ATM withdrawals or purchases, as many major corporations do.
  • There are usually no annual fees or transaction fees as long as you have money in your account.
  • Limit spending to the account balance to discourage excessive spending.

Cons

  • It frequently limits fraud protection to specific dollar amounts or periods.
  • Limit your spending capabilities to your account balance, excluding higher amounts for emergency or high-need situations.
  • Some banks charge overdraft fees if you withdraw more money than you have in your account.

#3. Cash

Many businesses, such as the retail industry, still use cash. Cash payments are still accepted in coffee shops and convenience stores, for example. Given the fees associated with debit and credit cards, many small retail businesses prefer cash methods of payment from their customers out of the many types available. Cash has its drawbacks, as it can be misplaced, stolen, or destroyed. Businesses that conduct large transactions frequently incur additional costs to cover related security measures such as secure transit or fraud detection.

Pros

  • Remove all hidden fees because there are no transaction costs when using cash.
  • Manages to spend because you can only spend what you have in physical bills.
  • It aids in budgeting because you can easily see how much money you have to spend.

Cons

  • Does not improve your credit score because no credit is used.
  • Charges ATM fees when withdrawing money from an ATM
  • Poses a higher risk of theft because cash is frequently owned by the bearer.

#4. Mobile Phones

In recent years, contactless payment technology has made payments easier than ever. The credit or debit card machine, known as a point of sale terminal (POS), can read the customer’s banking information via the mobile device’s software application. When the phone reads the information from the POS terminal, a signal is generated to notify the customer that the payment was successful.

Pros

  • It allows extremely quick transactions (a simple tap with your smartphone and authentication is all that is needed).
  • Encourages financial security by using tokenized mobile payment apps.
  • Increases security by requiring biometric authentication on mobile devices.

Cons

  • Because it is still a new payment method, it is not always accepted.
  • Only certain types of mobile phones are supported.
  • Connects multiple assets; if you lose access to your phone due to theft or a dead battery, you will be unable to make payments.

#5. Checks

Checks have fallen out of favor as technology has advanced, allowing payments to be submitted electronically. However, there are times when checks are advantageous, such as when the seller requires a guaranteed payment. A bank cashier’s check or a certified check are two types of checks that banks provide to assist sellers in receiving payment from the buyer.

Pros

  • Charge minimal to no fees (outside the cost of the paper check and a stamp to potentially mail payment)
  • Provide security by requiring checks to be signed by the recipient, who must frequently show identification before cashing.
  • Create a paper trail as proof of payment.

Cons

  • It could be expensive depending on how checkbooks are ordered and securely delivered to the payer.
  • Increases processing time because funds are not transferred until the recipient cashes the check.
  • They are still vulnerable to fraud; if a depositing bank does not require identification, fraudulent checks require only a single forged signature.

#6. Electronic Funds Transfers

Wire transfers and ACH payments (Automatic Clearing House) are typically used for larger or more frequent types of payment methods for businesses where a check or credit card would not be appropriate. A payment from a manufacturer to a supplier, for example, would typically be made via wire transfer, especially if the payment was international.

Pros

  • May allow payees to receive funds more quickly than other methods.
  • Can be set up as an automatic payment for recurring transactions.
  • Provide for the investigation and resolution of fraudulent transactions.

Cons

  • Require the payer to have the funds available for disbursement immediately.
  • It may not be recoverable in the case of certain types of EFTs.
  • Higher transaction fees or costs may result.

#7. Cryptocurrency

Tokens, or digital currency, are a more modern method of facilitating transactions. The idea is simple: anyone with digital currency can send coins or tokens to any address on a blockchain. Blockchains that support smart contracts can use logic to automatically withdraw or transfer specific amounts based on underlying conditions.

Pros

  • Do not necessitate the use of a bank account; facilitation is only possible with an Internet connection.
  • Can easily accommodate the preferred digital currency of a payee by exchanging coins/tokens in a centralized or decentralized exchange.
  • This could result in very quick payment processing.

Cons

  • Does not have a stable value and may result in a capital loss.
  • Require a moderate level of technical understanding of how to send funds; failure to send correctly may result in funds loss.
  • It is not as widely accepted as other methods of payment.

Types of Payment Methods Online

Most modern types of online payment methods for businesses provide simple, quick, and secure ways to pay—the bare minimum of what payment providers are expected to provide. Such businesses accomplish this by eliminating the need to enter lengthy credit cards or personal information.

To speed up the checkout process, they instead use stored payment methods and/or third-party processing. Here are some types of online payment methods for businesses:

#1. PayPal

With over 254 million users worldwide, PayPal is one of the most dominant types of online payment methods available for today’s businesses, alongside credit and debit cards. PayPal is an eCommerce payment processing company owned by eBay that allows users to create a PayPal account and pay a fee for each cash transaction.

#2. Amazon Payments

Amazon Pay is another major player in the space of different types of online payment methods. Furthermore, Amazon Pay, like PayPal, is a digital payment processing service that allows customers to pay online using Amazon as a payment method on third-party websites.

Amazon Pay completes the transaction and provides a quick checkout experience by using the information already stored in the shopper’s Amazon account. Online retailers can certainly benefit from Amazon’s undeniable popularity across the internet, as the vast majority of customers will already have an Amazon account.

#3. eBay Managed Payments

eBay Managed Payments is another online payment option. Furthermore, eBay’s payment system allows customers to enter and process payment information without having to digitally travel to a third-party site and thus leave the marketplace.

#4. Google Pay

With hundreds of millions of users already saving their credit card information to their Google Accounts, Google Pay could provide an additional level of convenience for a significant number of your customers. Google Pay, which is trusted worldwide, allows shoppers to select from the payment methods saved in their Google account to check out quickly and smoothly on third-party sites.

#5. Apple Pay

Did you know that in the United Kingdom alone, nearly half of all smartphone users own an iPhone? Because of Apple’s massive popularity, Apple Pay is a viable online payment option.

It provides your customers with a simple, secure, and faster alternative to traditional credit and debit card payments because it eliminates the need to enter lengthy card information and operates on a one-click payment process.

#6. Gift Cards

Gift cards, like prepaid cards, contain a specific amount of money, but they are primarily distributed by retailers and, more recently, major credit card providers such as Visa, Mastercard, and American Express.

Types of Payment Methods in Sap

SAP is a comprehensive e-commerce platform that enables you to build a user-friendly online store with a simple interface. Omnichannel is easily supported by SAP Commerce Cloud. This means that businesses can sell through a variety of channels and solutions. Accepting payment for services or goods offered by online stores requires the integration of a payment gateway into commercial websites.

This eliminates the need for online business owners to deal with customer payment issues. This section will explain which three types of payment methods are integrated into SAP for businesses.

3 Types of Payment Methods in SAP Hybris Integration

There should be different types of online payment methods integrated into your site for selling services or products to simplify the payment transfer process between customers and businesses. Make sure the payment gateway you use accepts the same languages as the rest of the web pages so they can communicate effectively. Finally, you should determine the cost of the payment gateway service integration process.

SAP has three types of payment methods integrated:

#1. Direct Integration

When using this method of payment, the customer is directed to the site’s checkout page. The data is then sent to PSP via API. In this case, the seller is responsible for the confidentiality of the client’s data. This integration is preferable for complete control over transactions and management of your payment page. It is worth noting that security is important in direct integration, and how technologically secure the environment will depend on the seller.

Pros:
  • Complete transaction control
Cons:
  • There is no way to influence the implementation of the reduced level of client authorization.

#2. Hosted Order Page

The buyer navigates to the payment page of the third-party PSP, to enter the card details using this method. It is worth noting that HOP is regarded as the safest because PSP is always PCI DSS certified—the payment card industry’s data security standard. There are two types of redirection: to another page and in a pop-up window.

Pros:
  • High level of protection.
Cons:
  • Dependence on the provider

#3. Silent Order Page

This method is also referred to as extended direct integration. The SOP allows users to fill out an order form directly on the website, but the system does not send confidential data through the API, instead sending it directly to the payment gateway. It is worth noting that during this time, a window for outside interference appears because the system’s confidential data is opened for verification by a third party.

Pros:
  • Direct data transmission
Cons:
  • Lack of security when transmitting data via API

Payment Methods Google

Google Pay (formerly Android Pay) is one of several online mobile payment methods created by Google to power in-app, online, and in-person contactless purchases on mobile devices, allowing users to pay with their Android phones, tablets, or watches. Users can use a PIN, passcode, or biometrics such as 3D face scanning or fingerprint recognition to authenticate themselves.

Payment Methods Google Service

Google Pay transmits card information via near-field communication (NFC), allowing for fund transfers to retailers. It allows users to upload credit or debit card chip and PIN or magnetic stripe transactions to Google Wallet, which replaces credit or debit card chip and PIN or magnetic stripe transactions at point-of-sale terminals.

It’s similar to contactless payments, which are already popular in many countries, but with two-factor authentication. The service enables Android devices to communicate wirelessly with point-of-sale systems by utilizing a near-field communication (NFC) antenna and host-based card emulation (HCE).

Google Pay does not send the actual payment card number when a user makes a payment to a merchant. It instead generates a virtual account number that corresponds to the user’s account information.

Google Pay necessitates the installation of a screen lock on the phone or watch. There is no card limit. Users can add payment cards to the service by photographing them or manually entering the card information. Users present their authenticated devices to the point-of-sale system to pay.

What are the two types of payments?

Payment Methods:

  • Cash and checks. 
  • Money order. 
  • Debit and credit. 
  • Mobile payments or digital wallets. 
  • Digital currency

What is payment and types of payment?

Cash, check, wire transfer, credit card, or debit card are all acceptable forms of payment. Modern payment methods make use of the Internet and digital platforms.

What is the most common payment method?

Credit and debit cards

Credit and debit cards remain the most widely used payment methods worldwide.

What are the 4 types of payments?

Types of payments

  • Cash (bills and change): Cash is one of the most common ways to pay for purchases.
  • Personal Check (US Check): These are purchased using the buyer’s account.
  • Debit Card: Using a debit card withdraws funds directly from the buyer’s bank account.
  • Credit Card: Credit cards resemble debit cards in appearance.

What are the 3 methods of payment?

Payment options include:

  • Cash. The physical coins and notes you’ll find in your wallet, at an ATM, or at the bank is the original and oldest payment method.
  • Credit cards
  • Charge cards
  • Bank wire transfers
  • Direct debit. 
  • Mobile payments.

FreTypes of Payment Methods FAQs

What's the payment method?

The variety of payment methods available to merchants from their customers, such as credit cards, digital wallets, direct debit, offline payments, and so on. In a store, you might pay with cash, a credit card, or a mobile payment option like Apple Pay.

What are the latest payment methods?

These modes are:

  • Banking cards
  • USSD.
  • AEPS.
  • UPI.
  • Mobile wallets
  • Banks pre-paid cards
  • Point of sale
  • Internet banking

What does UPI stands for?

Unified Payment Interface

A smartphone application that allows users to transfer money between bank accounts is known as a Unified Payment Interface (UPI). The National Payments Corporation of India created this single-window mobile payment system (NPCI).

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