The ultimate guide to the different types of payment methods

 

Shoppers nowadays have a plethora of choice when it comes to making a payment.

They can use their watch, smartphone, card, face, fingerprint, and even car keys (we’re not joking!).

With so many options and touchpoints, there also appears to be an increased opportunity for merchants to cater to more customer needs, helping decrease cart abandonment and increase customer retention.

At Pomelo Pay, our 25+ payment methods allow businesses to accept the most important payment methods and open up to new markets.

Talking about payment methods, here’s what we’ll be covering in this comprehensive guide:What is a payment method? List of top payment methodsWhat is the most common method of payment? What are the different online payment methods? What is the safest method of payment? Why accept more payment methods? How to choose the best payment methodHow to accept several payment methodsWhat is a payment method?

Payment methods refer to the ways your customers can buy your product or service. When you purchase something at a shop, you can usually decide to pay by cash, card or mobile phone.

When you buy something online, you’ll also probably see a dropdown list of all the payment options allowing you to pay by card, direct bank transfer, e-wallets or even crypto! In 2021, you may be surprised to hear that there are over 200 types of payment methods!

Since we offer 25+ payment methods, it’s worth understanding the different ones available.

Let’s look at a list of the top ones. List of payment methodsCash

Cash is the original and oldest payment method: the physical coins and notes you’ll find in your wallet, an ATM or at the bank.

But over the past couple of decades, cash payments have decreased by 15%. Although they are the cheapest way to accept a payment, many businesses tend to prefer the security and convenience of online payments.

In the UK, 98% of the population owns a debit card, and it’s the most popular payment method for both online and offline purchases.

The biggest benefit of using debit cards is the extra layer of security when completing a payment.

Not only do customers have to input a personalised PIN code, but each payment must go through a card network such as Visa and Mastercard. This ensures purchases are not fraudulent and come from a verified bank account.  

Accepting debit card payments usually requires using a card machine, also known as a POS machine. Credit Cards

Credit cards are funded by banks and building societies, with the customer paying with borrowed money rather than a bank account. Credit cards have a pre-approved limit and are later paid back by the customer (with interest) over time.

Credit cards allow customers to spread payments across time, as well as earn rewards and points for their spending.

As for the merchant, credit cards operate similarly to debit cards. They require inputting a PIN, payments go through a card network and there is the additional layer of protection provided by the credit card company.

Credit cards are the second most popular payment method after debit cards, with UK residents completing 340 million transactions in 2019. Bank transfers

Bank transfers are popular amongst B2B transactions and larger payments such as wholesale orders.

In the UK, you need an account number and sort code to send a bank transfer, and an IBAN and SWIFT code for international transfers.

Although bank transfers are popular, they are often less secure than other payment methods; that’s because there is no card network in place to monitor the transaction, and therefore cannot be recalled if there is an error. Bank transfers are also a lot more manual and time-consuming to process.

Direct debit payments are scheduled and automated payments, typically used for household bills and in subscription payment models such as TV subscriptions. The customer sets up a direct debit mandate with their bank to ensure monthly payments are on time, every month or week.

Over 4 and a half billion payments were made through direct debit in 2019, with the Direct Debit scheme offering a full refund guarantee for any mistaken payments.

Direct debits are another popular payment method for businesses, since they guarantee a monthly income. Although it increases customer retention, direct debits are not applicable to every business and similarly to bank transfers, don’t have the added security of a card network. Mobile payments

Mobile payments refer to payment methods that use your phone. These could be remote, in-person, or contactless payments. Examples of mobile payments include mobile wallets, qr codes and payment links.

Launching under a decade ago, mobile payments are one of the newest payment methods available, but are quickly rising in popularity, with Google and Apple Pay boasting over 300 million users combined.  

That’s because they are an incredibly convenient payment method and due to biometrics, are often considered more secure than other payment methods.  

Two of our most popular mobile payment solutions at Pomelo Pay are QR codes and payment links, which are both channels that enable credit/debit card payments as well as Apple and Google Pay.Mobile payments: e-wallets

Mobile wallets are virtual wallets (also called e-wallets) that store your customers’ payment information and allow them to pay online and in-person.

Examples of mobile wallets are Apple Pay, Google Pay, Alipay and WeChatPay: they essentially allow customers to store money on their phone and then use it to complete a payment using biometrics.

Mobile wallets are a popular payment method since they are convenient, secure and often a lot cheaper since wallet to wallet transactions are usually free.

Read more: Is Apple Pay Safe? Is Google Pay Safe?

‍Mobile payments: payment Links

Payment links are an easy and convenient way to accept payments remotely. Businesses essentially send their customer a link via text or email, and the customer just needs to fill in their card details to complete the payment securely.  

Not only is this an incredibly versatile payment method, but sending a link directly to your customers’ mobile phone means they pay a lot more quickly.

Thanks to payment links, David, EPC contractor, now gets paid as soon as he finishes his job. He sends the payment link the day before, completes his job and then asks his client to pay.

According to David: “We find that the time scales are better, customers get what they need on time, and we get paid on time.”

Read the case study: How this Business Owner Uses Pomelo Pay to Get Paid InstantlyMobile payments: QR code payments

QR code payments are a great way to speed up in-person transactions. You’ve probably seen them on restaurant tables and outside cafes as more people prefer ordering online.

The process is simple: customers scan the QR code, a notification pops up that takes them to a separate payment page where they fill in their details and then complete the payment. They can also choose to pay with their preferred e-wallet on their phone, such as Google or Apple Pay.

With QR codes, business owners can also turn their smartphones into a card machine. This makes it a lot cheaper to accept payments, and also speeds up order processing.

Tiziania, owner of a mobile food business, offers QR code payments to those who want to skip the queue. With QR codes, she’s effectively doubled the amount of orders she can serve.

Read the case study: How This Mobile Food Business Doubled Their Orders With On the Go PaymentsAlternative payments

Alternative payments refer to a number of different methods, including:“Buy now, pay later”Digital currencies (such as crypto currencies)Prepaid cardsCheques

While some of these methods seem outdated or too new, and are commonly referred to as “alternative payments”. In some cases it’s worth adding them as a payment option, although it really depends on your sasaran market. What is the most common method of payment?

Debit card payments are the most common payment method, currently accounting for 42% of all online and in-person payments.

This is followed by a mixture of cash, direct debit and credit card payments - although, it’s worth noting that mobile payments are growing at the highest rate. Cheques are the least common form of payment. What are the different online payment methods?

Online payments are used when the customer is not present, for example if the store is based online and does not have a brick-and-mortar location. Online payment methods include:Direct debitsBank transfersMobile payments E-walletsPayment linksQR codesDigital currencies“Buy now, pay later” programmesWhat is the safest method of payment?