Traditional Payment Methods
Transactions involving traditional payment methods often require a physical presence e.g. cash or checks, and cannot be processed remotely. Additionally, they need to be manually tracked and recorded, which can be a time consuming endeavor.
Cash Payments
This is the most conventional form of payment and includes coins and paper money. Cash transactions are instantaneous, not requiring any kind of digital or electronic system to finish the transaction. To record such transactions, however, businesses can make use of electronic systems.
Checks
Checks help facilitate big payments without cash on hand. Nowadays, paper checks are mostly used for business transactions or bill payments like rent.
Digital Payment Methods
These methods (as per the name) require digital or online access. For digital payment methods, there’s usually no cash involved. However, they aren’t totally devoid of physical elements as hardware like PoS machines or card readers are needed to complete transactions.
Credit and Debit Cards
Cards are used for both online and in-person transactions. They are linked to bank accounts, offering features like fraud protection and rewards and loyalty programs. With credit cards, customers have the option to defer payments allowing them to buy services now and pay later. Debit cards meanwhile automatically deduct payments from customer accounts upon the moment of purchase.
Digital Wallets
Digital wallets store your payment information, including passwords, in the cloud via an app on your phone or some other connected device, so that you don’t have to physically carry your cards around. Users can make electronic payments securely through their devices. Popular examples include Apple Pay, Google Pay, and PayPal.
Direct Debit
Through direct debit businesses can automatically deduct payments from a payer’s bank account with their prior authorization and consent. Mostly used for subscription-based businesses and bill payments like rent, this payment method helps mitigate the risk of delayed charges by providing an automatic, hassle-free user experience.
P2P Mobile Payment Apps
Peer to peer payment apps like Venmo and Zelle allow users to send and receive money instantaneously using their mobile phones. They primarily help users split bills with their friends and family.
Cryptocurrencies
Cryptocurrencies like Bitcoin and Ethereum are built around the idea of a peer to peer, decentralized network. For example, the way Bitcoin works is that anyone with a computer can plug into its network and start mining—though only those with specialized hardware can make it into a profitable endeavor. Working through a public-key encryption, this cryptocurrency stores a user’s private key in their “wallet”. To approve (decrypt) any Bitcoin transaction request, the payer’s unique private key must be used. Upon payment approval, the transaction information is sent for verification to Bitcoin’s network. This makes it a secure payment option. Cryptocurrencies, however, despite their security benefits, are not yet a widely used option.
Recurring Billing Methods
Recurring billing methods are payment models that charge customers after set intervals e.g. weekly, monthly, annually, etc. Used most commonly in subscription businesses, these payment models use the same methods as one-off transactions such as credit/debit card payments, direct debit, and so on. With recurring billing you can set up two kinds of payment: Automatic and Manual.
Automatic and Manual Payments
With automatic payments, customers can choose their preferred payment method for the auto-renew charge option for their billing cycle. Some automatic payment collection systems even let customers put multiple payment methods on file in case the primary method fails unexpectedly. Meanwhile, with manual payments, the customer is responsible for making their payment by logging into the specific payment system they use every time they have a bill due. The customer’s individual authorization is usually mandatory for such payments.
Security Concerns for Different Methods of Payment
Traditional payment methods are generally not as secure as digital ones. For example, cash can be stolen or lost quite easily and checks can be misplaced or forged even. As these methods require a physical presence in order to be processed, their security immediately comes at risk if they are displaced even momentarily.
Digital methods, on the other hand, are deemed more secure since they have multiple security layers and protocols like two-factor authentication (2FA) and password protection. This makes it harder for them to be hacked and for the money to be stolen. However, these methods aren’t 100% secure and are still susceptible to date breaches, identity theft, and fraud. According to research conducted in Australia, there were $490.1 million fraudulent card transactions between June 2020 to June 2021 in the country.
How to Choose a Payment Method for Your Business
For SaaS and subscription-based businesses, digital payment methods like credit/debit cards and digital wallets are usually the best option. For recurring revenue management, customer payment data needs to be able to be stored on file for auto-renewal charges. Since SaaS businesses can face involuntary churn due to expired cards or insufficient funds, it’s important to have such payment methods on file that can be electronically updated to retain customers. For these reasons, digital wallets and cards are the most feasible payment options.
Conclusion
Payment methods have evolved to satisfy consumer needs and preferences. From traditional payment methods like cash and checks, we’ve now developed and gotten used to digital ones like credit/debit cards, digital wallets, cryptocurrencies, etc.
As transactions have increasingly shifted online and subscription businesses have boomed, it is now important more than ever to be aware of the variety of payment methods available and their particular usage cases.
