Learn about payment methods — explore and compare different options

As companies strive to provide their customers with more convenient and flexible payment options, there’s a growing range of alternatives to choose from. While cash, debit cards, credit cards, and checks were once the primary forms of payment that businesses accepted from their customers, many more advanced types are available now, like digital currencies and electronic transfers.

You don’t need to accept all payment methods — but you do need to understand which ones are best for your business and customer base. Whether you’re selling products in a brick-and-mortar store or online, not knowing which options to offer could result in lost customers and fewer purchases.

In this guide, we’ll discuss the pros and cons of different payment options and how to create a frictionless checkout experience by setting up payment types that attract your ideal customers.

We’ll go over all the most common payment options, including:

• Cash
• Checks
• Cards — debit, credit, prepaid, and gift
• Mobile payments
• Bank transfers
• Mobile wallet — Apple Pay, Google Pay, etc.
• Digital currencies
• Autopay
• Installments

We’ll also cover:

• What a payment is
• Pros and cons of different payment types
• How to prep your business for different payment methods

What is a payment?

A payment is the tender a business accepts in exchange for goods or services. As more shoppers buy goods via ecommerce, the forms of payment that your website accepts could have an impact on shoppers’ buying decisions. In fact, a lack of alternative payment options — like point-of-sale financing — could slash your ecommerce profits.

Aside from payment options, customers also care about payment terms and discounts. For example, B2B buyers might be accustomed to net 30 terms, which means they have 30 days to pay the invoice before it’s considered late.

If you want to incentivize customers to pay early, some B2B businesses offer payment discounts, which give clients a modest discount in exchange for paying early.

Pros and cons of different payment types

Customer expectations for speed, usability, and variety at checkout are continuing to increase. One way to meet these increased demands is to provide your customers with a variety of payment options.

There’s no one correct mix of payment options. However, offering multiple payment options comes with plenty of advantages, such as:

• Encouraging more shoppers to buy your products and services online
• Accepting payments for high-ticket items in a brick-and-mortar store, since most customers don’t want to carry large amounts of cash
• Speeding up the checkout process with easy-to-use options like mobile wallets
• Offering innovative shopping experiences — like a metaverse storefront — to attract more shoppers
• Increasing payment security and decreasing incidents of fraud

But as beneficial as multiple payment options are, they can also become a double-edged sword. Some of the downsides of accepting multiple payments include:

• Shoppers may not embrace the options you’ve invested in — for example, if you have a brick-and-mortar store in an area where customers prefer to pay with cash
• Higher fees for card processing, which you may need to pass on to shoppers
• Installation of new, expensive card readers or payment portals so you can accept various types of payments
• Increased complexity with your accounting system, especially if you accept cash in addition to electronic payments
• Longer wait times for financial data to post, since electronic payments can take multiple days to clear

Only you can decide which options are the best fit for your business and shoppers. Let’s look at some of the different payment options — including their pros and cons — to help you determine which options make the most sense for your business.

Cash

Despite all the digital payment options available to consumers, plenty of people still prefer to pay with cash. This is a mainstay for brick-and-mortar stores, and it isn’t going away anytime soon. In fact, depending on the state where you live, laws might require you to accept cash.

With cash payments, customers pay for goods or services with dollar bills or coins. If they don’t pay with exact change, you’ll need to give back the difference. Cash is the most accessible payment method, which makes it common in lower income areas. It’s also popular for lower cost items or for retailers that require a minimum purchase for paying with a card.

Pros of using cash

• You receive payment immediately.
• Cash doesn’t have payment processing fees.
• You don’t need internet access to process cash payments.

Cons of using cash

• It can take more time to put cash in your drawer and count out customers’ change.
• Businesses need to keep coins and small bills on hand to make change, requiring regular trips to the bank.
• Businesses with a lot of cash can become a target for theft and fraud.

Checks

Checks are one of the less-common forms of payment, but they’re popular for high-ticket transactions. Shoppers often write checks when they buy furniture, purchase a car, or put down a payment on a home.

In a brick-and-mortar setting, checks often require verifying a customer’s identity before processing it. This can significantly slow down the checkout process, and it presents security issues to businesses.

But even so, some customers prefer to pay with checks because they don’t have a debit or credit card, or they don’t want the liability of carrying large amounts of cash. The good news is that cashier’s checks and certified checks require the customer to front the money, which makes these types of checks a safer option.

Pros of using checks

• They have low fees or no fees at all.
• Checks offer some protection, thanks to identity verification, signatures, and options like cashier’s checks.
• Checks create a paper trail that cash doesn’t provide.

Cons of using checks

• Check fraud costs businesses millions — and potentially billions — of dollars every year.
• Checks require a longer processing time at the register.
• It’s nearly impossible to track a payment’s status if the customer mails you a check.

Cards — debit, credit, prepaid, and gift

Debit and credit cards are currently one of the most popular payment options in the world. In 2021, around 51% of the world’s population owned a debit card. Credit card payments increased from 24% of US transactions in 2019 to 27% of all transactions in 2020.

Prepaid cards and gift cards are also popular options. Let’s look at the differences between these types of cards, as well as their pros and cons.

Pros of using debit cards

With a debit card, shoppers pay by swiping the card and entering their personal identification number (PIN). This draws money directly from a shopper’s checking account. Banks charge retailers a processing fee for debit card transactions, which is why some retailers require a minimum purchase amount to cover the fee.

Even so, debit cards are beneficial for several reasons:

• They speed up average transaction times.
• They allow customers to withdraw cash during a transaction, which could give them a reason to make a purchase at your brick-and-mortar location.
• Debit cards permit businesses to accept payments either in person or online.

Cons of using debit cards

• Transaction fees can add up if customers pay exclusively with cards.
• Businesses spend more time waiting for transactions to clear, which can complicate accounting.

Pros of using credit cards

With a credit card, the shopper taps, swipes, or inserts their card to charge the purchase to a third-party company. Because these payment methods involve a third party (a bank or a lender), credit cards usually come with higher processing fees.

If the credit card has a higher limit, it isn’t unusual for customers to put big-ticket items on credit cards. That way, businesses can accept payments for high-ticket items without the risk of storing cash.

Businesses also accept credit cards for these reasons:

• Lower rates of fraud or theft than cash and checks
• Faster checkout process
• Added convenience of financing purchases with a credit card could increase sales

Cons of using credit cards

• Higher processing fees
• Risk of a chargeback if a customer disputes a charge
• Longer wait times for charges to clear

Pros of using prepaid cards

With prepaid cards, shoppers load money onto cards and pay the fees themselves. They swipe the card, which acts similarly to a debit card, and continue to use it until the funds are depleted.

Unlike gift cards, prepaid cards are issued by a bank or a credit card company. Instead of spending money only with one retailer, shoppers can use prepaid funds nearly anywhere.

Many businesses accept prepaid cards for these reasons:

• They give lower income shoppers the opportunity to pay digitally without the safety concerns of cash.
• Prepaid cards leave a paper trail.

Cons of using prepaid cards

• If a transaction is over the amount on the prepaid card, shoppers will either have to cancel the transaction or pay for the overage with a different method.

Pros of using gift cards

Gift cards are a type of prepaid card that shoppers usually can only use at a single retailer. Like prepaid cards, gift cards are no longer usable once a shopper exhausts all of the funds on the card. Your business needs to issue the gift card, which can incentivize purchases, but this does come with the onus of creating your own gift card program.

Even so, many businesses accept gift card payments because:

• Shoppers can buy either physical or digital cards.
• Gift cards incentivize shopping by people who might not have heard of or used your brand before.

Cons of using gift cards

• Businesses need to create their own gift card program, which includes issuing and managing gift card funds.
• It can take years to recoup funds from unused gift cards.

Mobile payments

Mobile payments shouldn’t be confused with mobile wallets, which we’ll cover later. With mobile payments, shoppers pay with QR codes, barcodes, or SMS messages. They load their banking or card information directly onto their device, which interacts with your store’s payment portal. For example, a shopper can scan their fingerprint on their phone to pay in store.

Pros of using mobile payments

• Nearly all shoppers have phones, so this payment method is very accessible.
• Mobile payments are incredibly fast — most shoppers can pay by tapping their phone on a terminal.

Cons of using mobile payments

• There’s potential for security risks or fraud if the customer’s phone is stolen.
• Businesses need to choose the right type of card reader to accept mobile payments.
• Businesses need to regularly update payment readers to efficiently process mobile payments.

Bank transfers

Bank transfers are common for high-ticket purchases and B2B transactions. If shoppers don’t want to pay with cash, card, or check, they can send their banking details to you directly. All you need is their account number and routing number.

Pros of using bank transfers

• There is greater security because there is no risk of chargebacks.
• As long as the customer’s details are correct, you can charge them electronically without paper checks.
• Businesses can charge customers on a regular monthly basis.

Cons of using bank transfers

• Some shoppers might be hesitant to share their banking details.
• Businesses must protect customer banking information from unauthorized access.
• International transfers take longer and are subject to fees.

Mobile wallet — Apple Pay, Google Pay, etc.

With mobile wallets, shoppers use a third-party digital payment wallet to process transactions.

Depending on their device and preferences, shoppers might use Apple, Google, PayPal, Amazon, or eBay wallets to pay for their purchases. Many of these mobile wallets integrate with shoppers’ devices or other accounts, which can speed up the transaction process (especially for ecommerce stores).

Pros of using mobile wallets

• They allow for fast, convenient international transfers.
• Wallets often use EMV technology, which makes them safe in brick-and-mortar stores.
• All a shopper needs is their smartphone.
• Mobile wallets make it easy to create shopper loyalty programs.

Cons of using mobile wallets

• Mobile wallets have much higher costs than other payment options, including mobile payments, because they go through a third-party provider, similar to a credit card.
• Not all smartphones allow shoppers to pay with mobile wallets.

Digital currencies

Digital currencies, like Bitcoin or other cryptocurrencies, are on the cutting edge of payments. With digital currency, shoppers pay with money that is in an electronic form. These currencies operate independently of a bank, which gives shoppers and businesses a greater degree of flexibility.

Pros of using digital currency

• It lets businesses circumvent some limitations of the traditional banking system.
• Digital currency allows for easier international transactions.
• Fraud is more difficult for digital currencies that use blockchain technology.
• There’s no risk of chargebacks.

Cons of using digital currency

• The value of digital currency can change frequently, which makes it difficult to price goods.
• Not all businesses (or shoppers) trust digital currency.
• Accepting digital currency can come with tax implications.

Autopay

Whether it’s through a bank transfer, credit card, or other payment option, autopay is an efficient way to collect fees from your customers. Autopay is ideal for B2B businesses that deliver services on a monthly basis, but it’s also a great option for B2C brands that sell subscription goods.

If a shopper wants to receive products on a monthly basis, they simply opt into autopay during the checkout process. Every month, your business will charge their payment information automatically and send them their goods.

Pros of using autopay

• Your business receives payment on time, every time, and predictably.
• You can automatically retrieve payment digitally, with no need to process cards or paper checks for each transaction.
• Shoppers won’t be at risk of late fees.

Cons of using autopay

• If your autopay solution experiences a glitch or the customer sets it up incorrectly, it could result in undercharging or overcharging.
• If a customer cancels autopay, you either need to cancel their service or try to win them back.

Installments

Installment payments include buy now, pay later (BNPL) apps such as Afterpay and Affirm. These are also known as point-of-sale loans. This option usually displays during the checkout process and helps shoppers pay for their purchases through third-party installment plans.

With installments, shoppers can spread out the cost of a purchase over time, which can make your goods more affordable. This is especially helpful if you sell B2C goods at a price of $50 or more. Users pay through third-party providers, which front the cost and charge shoppers installments, plus interest.

Pros of using installments

• Installments allow shoppers to spread out the cost of your products or services over time, which can encourage purchases.
• Third-party providers manage the installments, which help you collect payment without extending loans yourself.

Cons of using installments

• There are so many BNPL installment apps on the market that it can be difficult to partner with the right mix of providers.
• Shoppers with no credit or low credit scores, including those who have maxed out their BNPL options, may not qualify for installments.

Prep your business for different payment methods

As you can see, there are a lot of payment options to choose from. Since most shoppers don’t pay with just a single option, it’s important for your business to accept multiple types of payments. If you offer payment options that your customers don’t trust, simply aren’t interested in, or are causing too much friction during checkout, they’ll likely leave.

Follow these quick tips to determine which types of payment you should accept:

1. Choose a point-of-sale (POS) system. Your POS system allows you to accept card or smartphone payments. However, the POS you choose will also limit which payment options you can accept. Choose the right POS for your business to see which payment methods are available.
2. Establish a payment gateway. A payment gateway links different payment systems to help digital transactions process as smoothly as possible. These gateways make it possible for your business to work with a variety of banks and shoppers. Most POS systems have payment gateways built in, but others let you choose your own gateway.
3. Learn about your target audience’s preferences. Who is your ideal shopper? Where do they live? Shopping preferences and location will affect which payment options your audience prefers. For example, mobile payments are very popular in Asia, while debit and credit cards reign supreme in the United States.
4. Consider how customers respond to new payment technologies. Certain types of buyers are less accepting of new technologies. For example, if you target shoppers who traditionally shop with cash or checks, they’re less likely to accept digital currencies or other alternative payment options like QR codes, email invoicing, and instant financing. You have to understand how much novelty your audience is willing to accept before you roll out different payment options.

Deliver the best checkout experience and attract more customers

Learning about different payment methods can help you determine what’s best for your business and customers. It’s a smart way to increase organizational efficiency, attract more customers, and increase purchases.

When you’re ready to get started, implementing the right payment processing solution is only one click away. Adobe Commerce is the world’s leading digital commerce solution for merchants and brands.

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