9 different payment methods to choose from [Complete list]
Tips / 21.02.2022
Gone are the days of only being able to pay by cash or even cheque. Our world is changing so fast and with all the technological advancements taking place, you could even pay for a purchase with your watch or smartphone, if that’s more convenient for you.
Times certainly are changing. The payment methods available to us today are far more in number and convenience, and this is just the beginning. If you’re curious about the various types of payment methods, stick with us and find out.
Table of Contents
Different types of payment methods
Debit payments are usually associated with an issued debit card in the cardholder’s name. While they may look similar to credit cards or even prepaid cards, the mechanics that drive them are different.
One of the distinguishing features of a debit card is that it enables you to use funds that you already own. These funds are in your account and you’ve earned them in some way or another.
They do not make up a loan from a bank or a line of credit. This is your cash. And you can use it to pay at practically all merchants with a card machine for contactless, Chip&PIN, and magstripe payments, as well as make purchases online.
Keep in mind that paying by card often leads to more impulse purchases and that these unplanned events can create a misaligned budget.
Much like the name implies, payment with a credit card works like this: a card is issued to the cardholder based on their credit history, with a certain monetary value that the cardholder can use in exchange for paying it back to the lender at a later date and at a specific interest rate.
The challenge with credit card payments is that because they’re so easy to use, it’s also quite easy to spend more and this means going beyond one’s means.
On the positive side, a credit card payment is useful for making larger purchases in one go, which can be paid off in smaller monthly installments over a period of time.
A prepaid card is one that is preloaded with cash and can be used similarly to a debit or credit card because it enables cardholders to make purchases at merchants with card readers either contactless, via Chip&PIN, or through a magstripe.
These cards are preloaded with cash that the cardholder already has and in addition, it is unnecessary to open an account with a financial services provider in order to use one, unlike debit and credit cards.
Contactless payments work using near field communication, or NFC, technology and can enable a cardholder of a debit, credit, or prepaid card to make payments simply by hovering the card or tapping it lightly over a card reader or POS terminal.
They are almost instantaneous, as the process of communication between the cardholder’s issuing bank, the acquiring bank, and the merchant’s financial services provider takes only a few seconds.
There are many benefits to contactless payments, including the fact that they’re much safer than magnetic stripe payments. However, there are some associated risks in that a thief who gets access to a cardholder’s card may be able to make purchases up to a certain limit without being detected.
Therefore, a PIN number must be entered after a series of consecutive transactions or you have made purchases with a contactless card to help improve security.
Payments with a smartphone
The two most popular digital wallets today are Apple Pay and Google Pay and they enable a cardholder to enter their card details in their wallet, which are then saved for future use.
Much like debit, credit, or prepaid cards, a cardholder simply needs to hover their smartphone over a POS terminal in order for the transaction to be processed.
One excellent security feature of phone payments is the aspect of tokenisation, meaning that actual card data is encrypted and decrypted in the process to improve safety. As a merchant, you can also take card payments on your phone.
Mail Order / Telephone Order payments
Say that you’re planning a trip to an exotic location around the world and you’d like to reserve your accommodation. Physically, paying at a POS terminal is impossible, and therefore, virtual terminals were created.
Essentially, payment through a virtual terminal enables the cardholder to read out their details to a merchant on the other side of the line, who then enters these card details into the virtual terminal and the payment is then processed.
In this way, you can make even your reservation if you are miles away from the physical location where the payment needs to be made.
Cash hardly needs an introduction, as it’s been with us for decades and even centuries. However, because of some of the different payment methods discussed above, the world is slowly turning into a cashless society, as the safety of cash is questionable and it does not offer the same level of convenience as card payments.
For example, unless you’re doing curbside pickup or paying for delivery in cash, payments online with cash are quite limited. Also, there’s a physical risk to carrying cash if someone robbed a cardholder.
However, it’s great for small purchases and there is a vast network of ATMs that can be accessed to withdraw more. Remember that these ATMs usually charge fees for withdrawals.
Payment Requests are one of the online payment methods for small businesses that can be utilised to ensure payment is processed quickly and efficiently.
A Payment Request is a one-time link that is sent to a customer who is then taken to a secure payments page on which to enter their card details and proceed with the payment. Once done, the payment is approved and the customer can proceed.
Other variations of Payment Requests are PayLinks, which can be sent via SMS, email, or a chat app to multiple customers in one go. The logic behind the payment in terms of the cardholder being taken to a secure payments page is the same.
Bank transfers refer to the exchange of funds through online banking services. It involves a transfer of funds from one account to another account, which can be at a different banking institution, and what’s usually required for this is the recipient’s correct IBAN number, recipient’s names, etc.
Since these transfers are usually performed between one financial institution to the next, there are high levels of security involved. However, there may be associated costs depending on the amount being sent as well as whether you’re sending funds to a person with a different financial institution.
While this is not an exhaustive list of all the different types of payment methods, it certainly covers the most prevalent and commonly used ones.
Whichever payment method you choose to use, or a combination thereof, always remember to have security at the forefront of your mind and take steps to keep your personal data safe and out of the hands of fraudsters and bad guys.