It’s no question that the world has been digitally transformed — both in business and in life. We can hail a ride from a mobile app, and our transactions for all sorts of goods and services can be easily paid for from our phones. Physical wallets are phasing out, left behind in favor of digital wallets and other digital payment options. All you need to use a digital wallet is a smartphone.
There’s no question that cashless payment systems and digital payment adoption have accelerated over the last few years. In 2019, 77% of US consumers were using at least one type of digital payment system. By the end of 2020, that rose to 78%.
What has grown more significantly is the number of electronic payments and alternative payment methods consumers now use. Between 2019 and 2020, there was an 8% rise in the number of consumers increasing their payment options to two or more types of digital payments. That figure now stands at 58% of the US population.
TL;DR
- Digital payment methods have significantly transformed how we conduct transactions, making physical wallets increasingly obsolete. The adoption of digital payment systems in the US has grown, with 78% of consumers using at least one type by the end of 2020.
- There are a wide variety of digital payment types, such as mobile POS systems, contactless payments, and digital wallets.
- While businesses shouldn’t rush to implement all the various types of payments, they should be accepting at least a few already. And more importantly, they should be working with a payment provider who can adapt as payments continue to evolve.
What Exactly Constitutes a Digital Payment?
Digital payment methods essentially make up any payment type that is done digitally. From a consumer’s perspective, that means any transaction that doesn’t need a physical credit card, debit card, prepaid cards, or checks. Mobile phone and online bank transfers, mobile wallet payments, in-app payments, online payments, QR code payments, and all other electronic payment methods that qualify as a digital payment.
For merchants, digital payment methods include the ways in which payments are accepted. A consumer may use their physical credit card, for example, but if the point of sale system is digital — such as a mobile device instead of an analog cash register — this would be considered a digital payment.
Digital payments feature a multitude of benefits including:
- Digital payments streamline transactions by eliminating the need for physical handling of cash or checks. Transactions can be initiated and completed in seconds, reducing the time spent on payment processing. For businesses, this means faster cash flow and improved operational efficiency, as there is no waiting period for checks to clear or cash to be counted and deposited. Consumers benefit from immediate confirmation of transactions, reducing the hassle of carrying cash or waiting for change.
- Digital payments incorporate robust security features to protect sensitive information and prevent fraud. Encryption techniques ensure that payment data is transmitted securely between parties, making it difficult for unauthorized individuals to intercept or access sensitive information. Fraud prevention measures, such as tokenization and multi-factor authentication, add layers of security to verify transactions and protect against unauthorized use of payment credentials. These security measures enhance consumer trust and confidence in digital payment systems.
- Digital payments provide unparalleled convenience for both businesses and consumers. Businesses can accept payments anytime, anywhere, using mobile devices or online platforms, which expands their customer base and improves service delivery. Consumers benefit from the ability to make purchases with a tap or click, whether in-store, online, or through mobile apps.
- Going digital reduces paperwork and manual processing for businesses by automating payment reconciliation, invoicing, and record-keeping processes. Businesses can also streamline accounting tasks by integrating digital payment systems with their financial software, which improves accuracy and efficiency in financial reporting. For consumers, digital receipts and transaction histories are easily accessible online, reducing clutter and simplifying budget management.
Types of Digital Payment Methods
With more than three-quarters of US consumers performing digital transactions, the incentive for businesses to accept them is huge. Whether you’re an eCommerce business or a retailer, the smooth processing of digital payments will help win consumer confidence.
Here are the various digital payment types to consider bringing on board.
1. Mobile point of sale (mPOS) systems
Mobile point of sale systems most commonly come to mind when discussing digital payments. mPOS systems work through smartphones, tablets, and other wireless devices to accept payments from anywhere.
Restaurants, retailers, and on the road service providers benefit the most from mPOS systems. They allow you to move with the device and accept payments wherever you need — both bank cards and mobile wallet payments.
What makes mobile POS systems unique?
Wireless devices allow business owners more flexibility. When social distancing came into place, those with mPOS devices could easily meet customers where they sit, limiting contact or gatherings of people at checkouts. These are not traditional card reader devices.
In addition, most mPOS software solutions come with features that allow businesses to email receipts, track sales, inventory and even set up loyalty programs that go straight through the system. It’s a more convenient, modern way to accept payments, enhance the customer experience, and boost productivity.
Setting up mPOS in your business
Mobile POS systems are easy to adopt. Solutions providers like Stax integrate with a range of solutions to enable merchants to go mobile. Plus, all Stax solutions accept mobile payments, such as Apple Pay, Google Pay, Samsung Pay, etc.
2. Contactless payments
Contactless payment methods are rapidly becoming table stakes for consumers and businesses alike. Thankfully, the technology was already there, and today most businesses accepting card payments are accepting contactless.
What makes contactless payments unique?
Contactless payments are powered by near-field communication (NFC) technology. This allows contactless-enabled cards to connect with the right devices to perform the transaction. This is the same technology that has paved the way for mobile wallets.
Accepting contactless payments in your business
Contactless payment methods can only be accepted by NFC-enabled devices. If you don’t already have one of these devices, you will have to buy one or get access to one on a plan. Same as with an older terminal, credit card transaction fees do apply, which may be a barrier for businesses that have been all-cash. But those who are used to accepting credit cards will find it almost the same. Merchants can simply tap instead of inserting or swiping credit cards.
Both credit cards and mobile wallets work with this technology. And the good news for merchants using mobile wallets is that providers like Apple Pay and Android Pay don’t charge for transactions. It’s just the fees through the payment processors that merchants will need to check.
NFC-enabled POS devices can be explored here.
3. Digital wallet payments
Digital wallets lets consumers make contactless payments, linked to their debit card or credit card information, without the need for a physical payment card. It is essentially a virtual Visa or Mastercard that sits in a mobile device.
Earlier in 2021, Finder.com found that roughly 150 million North Americans have used a digital wallet at one time or another as their preferred payment method. What is the reason for this large number? According to 98 million of that 150 million, it’s because they’re so unbelievably convenient.
What makes the digital wallet unique?
Digital wallet technology has become very easy for consumers to adopt and use. Nearly every smartphone comes with its own wallet that’s ready to be set up – the iPhone has Apple Pay, Google has Google Pay, Samsung has Samsung Pay, and so on. This ease of use and setup has enabled digital wallet adoption to spread rapidly among consumers.
What’s great for merchants is that most in-person POS systems that allow contactless payments will accept mobile wallet payments. A digital wallet is different from mobile app payments in that it is not an app or online electronic payment, but rather a tap or scan of a tokenized card.
Accepting mobile wallets in your business
If you are using a POS or mPOS system that accepts contactless payments, chances are your device will also be able to accept mobile wallet payments. Most mobile payment apps now widely accept contactless payments. To check, simply contact your payment processing company to confirm.
For new or upgraded solutions accepting mobile wallets, Stax has a suite of contactless solutions that have you covered.
4. Peer-to-peer digital payments
Venmo, PayPal, and even Facebook Messenger are examples of peer-to-peer electronic payment solutions. These platforms allow users to search for other users and perform online transactions between themselves.
What makes peer-to-peer payments unique?
Peer-to-peer electronic payment methods link to the payer and payee’s bank account to withdraw and deposit funds, providing a way for users to easily perform a funds transfer. In most cases, mobile banking apps do not have the capability to transfer money between users that don’t share the same bank account. Peer-to-peer solutions bridge this gap.
Accepting peer-to-peer payments in your business
Peer-to-peer solutions are not going to be viable for most businesses, but it does present an opportunity for micro and small businesses. If you run a market stall or a small services business, peer-to-peer payments could be a great way to start accepting payments before investing in the more costly payment gateways and solutions.
To set up a peer-to-peer digital payments, you simply need to download whichever platform you want to use, connect your accounts, and you’re ready to transact.
5. Biometric authentication
Biometrics can seem a bit daunting, but most people are already using this technology to open their phones dozens of times each day. It’s essentially just a tool to verify identity, ensuring only the person who owns the bank account or digital wallet or biometric payment card can be the one to authorize transactions through it. Today, most mobile wallets are already using biometric authentication, requiring the user to scan their fingerprint before the wallet can be opened.
For those that have enabled facial recognition, this too can be the authenticator to enable payments.
What makes biometric authentication unique?
Biometric authentication is one of the most secure ways to verify the identity of the person making the transaction. This makes fraudulent digital payments very difficult, making yet another case for why consumers are rapidly switching to mobile wallets.
And biometric authentication doesn’t stop at mobile wallets. There are many new services and startups in the works around the world that are using biometrics to process payments. Schools in the UK have started using facial recognition to take digital payments in the lunch line. India has designed credit and debit cards that simultaneously are tapped and take fingerprint biometrics to ensure the “tapper” is the person who owns the card. While these digital payment services may seem futuristic, they are already seen as leading security measures in the financial industry and have started to replace the traditional card reader.
Accepting biometric authenticated digital payments in your business
If you’re accepting mobile wallets, you’re already accepting biometrically authenticated payments. But if you want to really step into a totally wallet-free solution, consider looking into biometrics payment platforms and payment solutions. While these solutions aren’t as widespread as other solutions, it may be worth keeping an eye on biometric electronic payment trends.
6. Social media payments
Small businesses doing big things through social media are harnessing the built-in mobile-commerce solutions that some social media platforms enable. Facebook, Instagram, and Pinterest business accounts all offer an in-built social shopping solution, including in-app purchases. These types of electronic payments allow for fast and convenient payment processing from your customer’s chosen financial institutions or credit card companies.
Any business selling online, promoting goods through social media should be aware of the ways these platforms can accept digital payments.
What makes social media payments unique?
It’s very common these days for brands to build entirely on social media. Some may even start as influencers, gaining a great following and venturing into their own product lines, all within the social media ecosystem.
As anyone with a website knows, building web traffic requires a lot of work. If you have a social media platform that’s already thriving, why take them away from that platform when you could instead engage with and accept online shopping payments directly through the social media platform or via a direct link from your business social account?
Accepting social media payments for your business
The best way to accept social media payments depends on the platform. Platforms like Facebook, Instagram, and Pinterest all have unique social selling features, so look into your account settings to learn how to start accepting payments.
7. Crypto payments
No digital payments list would be complete without discussing cryptocurrency. Cryptocurrency has gained its foothold in the mainstream, but it is still largely unknown to many, particularly when it comes to accepting crypto as a valid form of digital payment.
What makes cryptocurrency unique?
Cryptocurrency is a decentralized currency that is not managed by any financial institution. It is run on the blockchain, a totally secure digital currency infrastructure that makes it immune to fraud and theft.
Businesses, at this point, don’t get a lot of direct benefits from cryptocurrency. Regulation is in the works, so it’s not a way to get out of taxes (as it was once purported to be), but with so many consumers now holding cryptocurrency, accepting it is a way to ensure you’re ready to take whatever digital payment method consumers want to use for their financial transaction.
Accepting crypto payments in your business
There are a few ways merchants service provider can accept cryptocurrency, covering both online and in-person payment options:
- Cryptocurrency POS terminals – A variety of providers are now accepting cryptocurrency in the same way they would accept a mobile wallet or contactless card payment.
- Personal crypto-wallets – Everyone using crypto has a wallet where they store their currency. Merchants could set one up to allow customers to make peer-to-peer style transfers for goods.
- Crypto digital payment plugins – eCommerce sites have a range of options in the form of app and plugins that enable businesses to accept cryptocurrency.
8. Online payment gateways
Online payment gateways facilitate transactions between merchants and consumers in eCommerce settings. They are essential for businesses that operate online stores and need to securely handle credit card, debit card, and other digital payments.
What makes online payment gateways unique?
Payment gateways like PayPal, Stripe, and Square offer a secure and efficient way to process online transactions. They provide features like fraud detection, multiple payment methods, and integration with various eCommerce platforms, making them indispensable for online businesses.
Setting up online payment gateways for your business
To set up an online payment gateway, choose a provider that suits your business needs. Integrate the gateway with your eCommerce platform, and configure it to handle transactions. Ensure that you comply with relevant regulations and standards, such as PCI DSS, to protect your customers’ payment information.
9. Bank transfers
Bank transfers are a traditional method of payment that can now be done digitally. It involves transferring funds directly from one bank account to another. They are commonly used for large transactions, recurring payments, and B2B transactions. As a result, this type of payment is most popular with companies that bill in large amounts like real estate agencies, educational institutions (think universities), and car dealerships.
What makes bank transfers unique?
Bank transfers are secure and reliable, often involving lower fees compared to credit card transactions. They can be initiated through online banking platforms, and Automated Clearing House (ACH) transfers and wire transfers are popular methods within this category.
Accepting bank transfers for your business
To accept bank transfers, provide your customers with your bank account details and instructions for initiating transfers. For recurring payments, consider setting up ACH debits. Ensure that your business complies with banking regulations and maintains accurate records of transactions.
10. Digital checks and eChecks
Digital checks and e-checks are electronic versions of traditional paper checks. They use the same information as paper checks but are processed electronically, providing a faster, safer, and more efficient way to handle payments.
What makes digital checks unique?
Digital checks offer the familiarity and security of traditional checks with the added convenience of electronic processing. They are particularly useful for businesses that need to handle check payments but want to streamline their operations.
Accepting digital checks in your business
To accept digital checks, you need a payment processing service that supports this method. Customers can enter their check information online, and the payment processor will handle the electronic transfer of funds. This method can reduce the time and effort involved in processing traditional checks.
11. In-app payments
In-app payments are transactions made directly within mobile applications. They are commonly used in gaming apps, ride-sharing services, and other mobile-based businesses.
What makes in-app payments unique?
In-app payments offer a seamless and convenient way for customers to make purchases without leaving the app. They can enhance the user experience and increase conversion rates for businesses.
Setting up in-app payments for your business
To enable in-app payments, integrate a payment gateway or SDK (software development kit) into your mobile app. (Be sure you choose a payment processor that shares their API keys.) Ensure that the payment process is secure and user-friendly. Offer multiple payment methods to accommodate different customer preferences.
12. Prepaid cards and gift cards
Prepaid cards and gift cards are popular digital payment methods that allow consumers to load a specific amount of money onto a card for future use. They can be used online or in-store, providing a flexible and convenient payment option.
What makes prepaid cards unique?
Prepaid cards and gift cards offer consumers a controlled way to manage spending, making them a popular choice for budgeting and gifting. They can also help businesses attract and retain customers by offering branded cards and promotions.
Accepting prepaid cards in your business
To offer prepaid cards and gift cards, partner with a payment service provider like Stax that supports these products. Design and issue branded cards, and integrate the necessary systems to accept them as payment. Promote your cards to customers through marketing campaigns and incentives.
Keeping Up with the Future of Digital Payments
Not every business owner needs to rush out and set themselves up to accept all of the digital payment types above. However, it helps to be aware of them so you can be ready to adapt when needed.
It’s also beneficial to choose a payment processor that supports today’s most widely used digital payment technologies.
Stax has a range of solutions, from hardware to software and payment processing, so you are ready to take on the digital payments world.
FAQs about Digital Payment Options
Q: What constitutes a digital payment?
A digital payment is a transaction that is conducted digitally without needing a physical credit card, debit card, prepaid card, or cheque. This includes payments made via mobile phone and online bank transfers, mobile wallet payments, in-app payments, online payments, QR code payments, and other electronic payment methods. For merchants, it includes the ways in which payments are accepted, whether through a digital point of sale system or other electronic means.
Q: What are different types of digital payment methods to consider for businesses?
Businesses can consider mobile point of sale (mPOS) systems, contactless payments, digital wallet payments, peer-to-peer digital payments, biometric authentication, social media payments, and crypto payments. Each of these methods has unique features and benefits and are widely accepted ways for customers to conduct transactions.
Q: What is mobile point of sale (mPOS)?
mPOS (mobile point of sale) systems are solutions that allow businesses to accept payments through smartphones, tablets, and other wireless devices. They bring flexibility by allowing businesses to move with the device and accept payments wherever needed. Wireless devices are particularly handy in situations like social distancing where contact needs to be limited. mPOS systems are easy to adopt and come with additional benefits like sales tracking, inventory management, and setting up loyalty programs.
Q: What are contactless payments?
Contactless payments are powered by Near-Field Communication (NFC) technology. It allows contactless-enabled cards to connect with the appropriate devices to perform the transaction. The same technology also enables mobile wallets. Contactless payments can be made using NFC-enabled devices and traditional credit card transaction fees apply.
Q: How can businesses benefit from adopting digital wallet payments?
Digital wallets provide an easy and convenient way for customers to make contactless payments, as they are essentially a virtual Visa or Mastercard that resides in a mobile device. In-person POS systems that allow contactless payments typically also accept mobile wallet payments. This can be confirmed by contacting the business’s payment processing company.
Q: What are peer-to-peer digital payments?
Peer-to-peer digital payments enable users to perform transactions between themselves, bypassing the need to share the same bank account. Examples of these include Venmo, PayPal, and Facebook Messenger. While these wouldn’t be viable for most businesses, micro and small businesses may find them beneficial, particularly before investing in more costly payment gateways and solutions.
Q: What makes crypto payments unique?
Cryptocurrency is a decentralized currency that is not managed by any financial institution. It operates on the blockchain, a secure infrastructure that makes it immune to fraud and theft. Accepting cryptocurrency can ensure a business is ready to accept any digital payment method the customer wants to use.
Q: What does biometric authentication entail in digital payments?
Biometric authentication in digital payments verifies the identity of the person making the transaction, making fraudulent digital payments difficult. Biometric authentication can be used in mobile wallets and various new payment services around the world.
Q: What is unique about social media payments?
Social media payments leverage in-built m-commerce solutions in social media platforms. They offer convenient payment processing and allow businesses to accept online shopping payments directly through the social media platform.
Q: How can businesses keep up with the future of digital payments?
Businesses should be aware of the various digital payment options available so they can adapt when needed. It’s also beneficial to choose a payment processor that supports today’s most widely used digital payment technologies.
