A guide to payment methods

Today, businesses and consumers are spoilt for choice when it comes to payment methods. 

But not all methods are equally useful or practical for every business. Choosing the right ones can make all the difference when it comes to keeping your customers happy.

While some businesses need to implement mobile-friendly alternative payment methods, others must prioritize customers who desire buy now, pay later.

That’s why it’s worth spending some time understanding the various methods on offer, how they work, and how they can be more or less suitable for your needs. 

Our guide to payment methods takes a deep dive into this complex world, explaining the most popular payment types around the world and what to consider when choosing which options to offer at checkout.   

What is a payment method?

A payment method is any way to transfer funds from one party to another in exchange for goods or services. 

Examples of payment methods include credit cards, mobile payments, and cash. Each method has its uses, depending on the scenario and the needs of the user, as well as distinct advantages and disadvantages. 

Learn more: What is a payment instrument?

The benefits of using payment methods

From a business perspective, there are many great reasons to offer a variety of payment methods to your customers, including: 

• Choice and convenience - the more payment methods you can offer to your customers at checkout, the more likely they are to be able to find one that suits their needs, maximizing your conversions and driving loyalty 
• Global coverage - likewise, being able to offer a broad range of payment methods sets you up for global success by allowing you to meet customer payment preferences in different markets. Local methods are often the most popular ways to pay in specific countries and stand the highest chance of acceptance 
• Lower costs - by tailoring your payment options to your business model and requirements, you can avoid fees associated with methods that don’t align with your goals 
• Security - many online payment methods protect your business and your customers by employing advanced security features like tokenization, encryption, and multi-factor authentication 
• Data and reporting - if you’re partnered with a payment processor that enables different payment methods, you’ll most likely also have access to granular data on everything from fraud to acceptance rates, which allows you to spot issues and optimize your operations 

Learn more: Payment channels: A guide for businesses

Types of payment methods

Below, we go into more detail about the different payment methods you could offer your customers: 

Card payments

Debit and credit card payments remain among the most popular payments in the world, accounting for a combined 32% of all ecommerce transactions in 2022. 

While their popularity is expected to decline over the next few years (as businesses and consumers increasingly embrace the convenience of alternative payment methods like digital wallets and buy now, pay later), businesses looking to maximize revenue need to be able to accept a variety of card payments, such as:

• Debit card - debit cards allow customers to make payments directly from their bank account to your business. Unlike credit cards, funds are deducted immediately and the customer’s spending power is limited by the amount they have in the account associated with the card (as well as any overdraft limit)
• Credit card - credit cards allow customers to make payments by spending against a limited line of credit from a provider like Mastercard, Visa, or American Express. The customer then pays off the total amount spent at the end of a given period, usually a month, plus any interest if they don’t settle their bill on time 
• Prepaid card - a prepaid card is a type of card that, rather than being linked to a bank account or line of credit, has a set amount of funds loaded onto it in advance. The user can only spend the amount on the card before it needs to be topped up
• Contactless - a contactless transaction is an in-person method of payment where, rather than inserting a card and entering their pin, the user simply needs to tap their card to the terminal in order to make the payment. Contactless limits vary around the world and by card provider

Phone payments

Phone payments include any transactions completed through a telephone or smartphone. 

• Digital wallets - digital wallets, such as Apple Pay and Google Pay, allow users to store information for a range of cards directly on their smartphones and then to make both in-person and online payments without having to enter their details each time. Sensitive card details are kept safe from hackers via encryption, tokenization and biometric authentication 
• MOTO payments - Mail Order/Telephone Order (MOTO) payments enable transactions via the phone, email, regular mail or fax. They are often used by businesses to take remote payments from their customers. During a MOTO payment, the customer authorizes the merchant to enter their card details into a virtual terminal in order to complete the transaction 

Online payments

Online payments is a broad term for any payment type that relies on the internet. This includes: 

• Online banking - online banking allows customers to transfer funds directly from their bank account to your business account. Online bank transfers can be an immediate, secure and highly transparent payment method
• Payment links - payment links are URLs or QR codes that you can send to your customers that, when clicked, take them directly to a secure, hosted checkout page, which can be customized to your requirements. Payment links are quick and convenient, and can be a great option for businesses that, for example, don’t yet have a finished ecommerce website, that sell a lot of bespoke items, or that sell through multiple channels
• QR Codes - QR codes are essentially a barcode that your customer scans with their smartphone camera to be taken to a payment page. QR codes enable frictionless, contactless payments and can be used in conjunction with loyalty programs 
• Cryptocurrency - cryptocurrency payments are made using any type of cryptocurrency. Cryptocurrency is a type of digital money that doesn’t rely on the traditional banking system or a national currency. Instead, transactions are verified by a peer-to-peer, decentralized computer network and recorded on a public ledger called a blockchain
• BNPL - buy now, pay later (BNPL) allows customers to spread the cost of a purchase over several installments. The BNPL provider pays you the full amount that the customer owes at the point of purchase, and you then pay the provider a fee for the use of the service. By enabling consumers to buy items they may not otherwise be able to afford, BNPL can significantly increase your revenue and customer loyalty 

Cash payments 

A cash payment is any transaction conducted by the exchange of physical denominations of currency in the form of notes or coins. The use of cash varies significantly across different regions and demographics, though the general global trend is downwards. Cash is occasionally used for ecommerce, with 2% of transactions in 2022 made via cash on delivery.  

Factors to consider when choosing a payment method

Selecting the right payment methods is at the foundation of optimizing your business operations, maximizing your revenue, and offering your customers a streamlined payment experience.    

You should consider the following factors:

• Operating market area - preferred payment methods vary around the world and can be specific to a particular country. It’s not just familiarity that’s important: popular local payment methods send strong trust signals to your customers and can often be more cost effective for you and them. Research the most popular payment methods in any region you plan on operating in so that you can offer the ones that are most likely to be accepted and that will boost your conversions. Methods like card and digital wallets are pretty safe bets as they’re widely used around the world, but some bank transfer solutions and alternative methods like BNPL are especially popular in particular countries 
• Business model - whether you’re a subscription business, selling through an online marketplace, or a direct-to-consumer operation, it’s important to choose payment methods that align with your business model. That could mean that you need to offer payment methods that finely balance security with a frictionless checkout experience, or methods that are the most cost-effective for cross-border transactions     
• Transaction models - if you’re a subscription operation, and you need to take repeat payments on a particular schedule, you might find that it's convenient to set up direct debit bank transfers with your customers. On the other hand, if you take lots of small, irregular transactions, you need to accept card payments 
• Security & compliance - security and compliance is paramount. Any payment method you offer not only needs to utilize security features like encryption and biometric authentication, but should also comply with any regulations you’re required to meet in whichever regions you operate in. For example, the Payment Card Industry Data Security Standard (PCI DSS) 
• Scalability and integration - you need to think ahead when choosing your payment methods. Make sure they can scale alongside your operations as you grow and that they can seamlessly integrate with your existing business systems. If not, you might not be able to adapt as, for example, the volume of transactions you need to process increases or as you’re exposed to a greater threat of fraud 

What is the right payment method for your business?

Every business has unique considerations that make particular payment methods more or less suitable for their needs. From fees to fraud, you need to consider a multitude of factors in order to choose the optimal payment types for your operations and your customers’ preferences. 

Below, we explain how specific payment methods might suit different kinds of businesses.    

Ecommerce businesses and marketplaces

Ecommerce businesses and online marketplaces cater to a wide range of customers and require versatile payment solutions.

As the most popular global methods for ecommerce transactions, digital wallets and cards are essential. However, as alternative methods like BNPL and direct bank transfers are growing in use for online payments (both are set to increase in use by 1% between 2022 and 2026), offering them at checkout can be a great way to improve customer experience and boost revenue. 

SaaS and subscription businesses

Software as a Service (SaaS) and subscription-based businesses require seamless and reliable recurring payment solutions.

Bank transfers and direct debits are great for subscription businesses because they enable direct transfer of funds from the customer’s account. That means there’s no risk of losing out on a recurring payment due to an expired or canceled card. However, many customers prefer to use their cards for subscription payments, so these should also be factored in. Tokenization has reduced the chance of failed payments due to expired cards as the card network automatically updates tokens with new card details if they change. 

On demand service

Businesses offering on-demand services, such as ride-sharing or food delivery, need to offer quick and convenient payment methods. 

Considering many of these services are accessed through smartphones, it makes sense to offer digital wallet payments as an option for on-demand services. Digital wallets deliver maximum convenience to your customers by allowing them to pay in a couple of taps without having to leave the app or device.  

Choose the right payment methods with Checkout.com

There’s no need to worry about choosing exactly the right payment methods from the get go. 

By partnering with Checkout.com, you have access to our global suite of connected payment methods, allowing you to drive loyalty and conversions in every market. 

That means you have the option to implement all the methods discussed on this page and more, including the most popular payment options in each country. Best of all, there’s no need to switch on every method at once. You can select only the most suitable methods for your business model and your customers’ preferences and then add or remove them as you grow or refine your operations. 

If you’re unsure where to start, speak to our payment method experts today to discover the best solution for your needs.