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The retail payment system: definition, forms, trends and challenges

When you are running a retail store – whether online or off, it’s only natural to be thinking about your sales and the payments you receive. After all, retailers rely on customers to pay for the goods and services they offer in order to operate. That’s why optimising the payment experience of customers is an essential aspect of every business’ success.

To master the retail payment system and thus skyrocket your sales, read on. You will learn what the different types of payment methods are, how you can implement them in your business, why you need to offer various options for your customers and much more.

What are retail payments?

Before we dive into the details of the retail payments system, let’s first clear out the haze around which payments fall under its umbrella.

Retail is when a business sells goods and services to customers for profit. It doesn’t matter whether the client is an individual or an entity. The difference with wholesale trading is that here the goods are sold directly to the end customer.

The retail payment system refers to the clearing of financial transactions conducted between companies and clients in exchange for goods. Simply put, every time someone uses a cash machine, pays or gets paid, whether in person or through a bank transfer, they use a payment system. Apart from everyday purchase transactions, retail payments can also include salaries and taxes.

In the UK, the official economic regulator is the Payment Service Regulator (PSR). They are responsible for ensuring that the interests of both retail businesses and consumers are met while promoting innovation and competitiveness in the marketplace.

Based on the value of the sold products, as well as on the type of retail, customers’ preferred payment methods can differ. That’s why choosing the right payment system to work with is essential not only to help you collect the money you are owed but also to provide your customers with a smooth experience and help you manage your funds easily.

What are the types of retail payment methods?

Nowadays, there is a range of options for accepting payments. The more choices you offer your customers, the more you improve their purchase journey and hence, boost their satisfaction with your business.

So, let’s go through the different types of retail payment methods (along with their advantages and disadvantages).


Cash payments have been around for quite a long time. Straightforward and reliable, this method helps retailers collect the profit of their sales directly, without having to wait for the funds to arrive in their bank account or without having to pay transaction and maintenance fees.

The downside of this method, however, is the limitations it sets. Online businesses can’t rely on cash, at least in most cases. You can’t sell remotely and reach customers everywhere, which limits your sales. Additionally, not many people carry large amounts of cash, so this might be a problem with high-value purchases.

Credit and debit cards

The use of credit and debit cards has seen rapid growth, especially following the pandemic. That’s mainly because card payments are convenient, time-efficient and secure.

In many countries, local authorities have even passed laws requiring retailers to accept card payments in order to fight tax evasion among businesses. Additionally, merchants favour card payments because the money transfers directly into their accounts without them having to go to the bank to deposit it.

So what’s the catch? While card payments are considered a safe method, there is still some risk of fraudulent activity. There is also the matter of fees, such as transaction costs and account maintenance costs. On the bright side, some payment service providers offer more favourable tariffs.

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NFC devices

Near-field communication (NFC) is a technology that makes the wireless transfer of data possible. Contactless credit and debit cards, for example, use NFC to work. But, relying on the same technology, mobile phones, laptops, tablets and smartwatches can also be used to initiate payments.

In recent years, NFC payments have made a splash, mainly for their convenience. Customers only have to bring their mobile devices close to the POS terminal and the payment will be processed. There is no need to carry cash or a wallet – the buyer will just use the mobile device they have on hand.

The disadvantage of this method is that to accept such payments, you will have to invest in payment acceptance hardware that works with NFC. There might also be some data breaches if the customers’ device password is not strong enough.


Cheques are another form of payment method often associated with larger purchases and high-value items. While in the past they were used quite often, now payments made by this method are less frequent. The digital version of paper cheques is e-cheques, which are more commonly used these days.

The benefits here are that you will save on transaction fees. Additionally, you will provide your customers with a convenient method to purchase high-value goods from you.

Since electronic cheques act as direct bank transfers, their processing is associated with transaction fees. However, these fees are often lower than those of any other online payment method.

While the use of cheques is becoming increasingly rare, their acceptance doesn’t require an upfront investment, so offering them as a payment option won’t cost you much.

Gift cards and store credit

Gift cards and store credit are flexible and creative ways to accept payments while increasing your sales. They ensure customer loyalty and encourage recurring activity.

Moreover, gift cards help customers make purchases of high value. At the same time, store credit shows your clients that you provide a favourable return policy, which in turn gives them more confidence to shop with you.

The bottom line is that offering gift cards and store credit is a smart way to secure a sale. Even if the gift card is never used, selling it in the first place nets you a profit. Similarly, even if a customer returns an already purchased product, should they use the store credit option and exchange the product for another one, this still counts as a sale for you.

Other retail payment options include direct bank transfers, online checkouts, QR code payments, Payment Requests and more.

Benefits of offering various retail payment options

Consumer expectations are changing and businesses need to adapt. After two years of doing everything online – working, studying, shopping, people are becoming more accustomed to digitalisation. Mobile payments are not seen as a luxury anymore – customers expect them, and many would even not complete a purchase if their preferred payment method is not among the offered.

Besides meeting the demands of today’s customers, there are plenty of other advantages that alternative retail payment options hide. Here are a few reasons why investing in payment-acceptance hardware or devices is worth it.

  • Contactless payments are convenient and processed faster at the point of sale, which means no waiting lines and wasted time queueing.
  • By meeting your customers’ needs, you promote loyalty and can boost recurring activity in your business.
  • You leave a positive impression and encourage favourable word of mouth from your buyers.

In the end, it all comes down to delivering a satisfactory customer experience, making your finances easier and increasing your sales.

How have retail payments changed?

The landscape of retail businesses is an ever-changing one. Trends come and go quickly and merchants need to adapt just as quickly to them in order to secure their long-standing position in the marketplace.


The recent impact of Covid-19, together with the already ongoing digitalisation of the payments system, has changed the global retail framework. Driven by the rapid social adoption of technology, more and more merchants are turning to alternative payment acceptance tools.

In contrast to this, cash payments have seen a decline in the period of just ten years, from 2010 to 2020, according to UK Finance. Following the pandemic, cash use declined drastically, accounting for only 15% of all payments in 2021. At the same time, the percentage of all payments made via contactless cards reached 32% in the same year.

To answer consumers’ demands, among other factors, many countries have decided to introduce ordinances that oblige retailers to have POS terminals and accept card payments. Respectively, many merchants have started their e-commerce shops and adopted online checkouts in order to reach more clients and sell remotely with freedom.

But how will the retail payments ecosystem look in the years to come?


As trends show over time, there is a decline in some payment methods in favour of other alternative ones. Today’s customers are looking for convenience, and anything that saves them time quickly becomes the new favourite.

The forecasts for the next few years are that the use of cashless methods will continue to grow – a tendency that was present even prior to the pandemic.

While more people are starting to opt for alternative payment methods, frankly, cash is still a preferred method for many, especially when it comes to low-value purchases. The predictions are that although cash use will fall to 6% by 2031, it will still remain a valued-by-many method of payment.

Merchant services for retail businesses

While more and more people are opting for contactless payments, merchants are looking for new ways to answer those demands. The solution to this is merchant services for retail, which refers to the group of tools and systems used to facilitate the transaction of cashless payments.

To make use of this option, a retailer usually needs to set up an account with a merchant service provider, who will then act as an intermediary between the payee, the bank and the merchant. They will handle the whole process behind an electronic payment transaction.

Merchant services can be beneficial to retailers in numerous ways. Nevertheless, their primary goal is to provide merchants with the necessary tools to start accepting alternative-to-cash payment methods, which in turn, enables them to increase their cash flow and expand their business.

The retail payment system in a nutshell

Retail payments occur when a client pays for the goods and services offered by the business. Working with the right payment system is fundamental to the successful growth of any company and while there are various options to choose from, it all boils down to what will optimise your sales and guarantee a hassle-free shopping experience for your customers.

Today’s customer looks for convenience and swiftness. Credit and debit cards are becoming more popular, while cash payments and cheques are being used less frequently. That’s where merchant services come in handy to facilitate transactions of cashless payments.

Different strategies might work for different types of retail businesses, but to stay relevant in the marketplace, one must always keep up with current trends and forecasts.

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