Payment methods: 10 types of payment options 

CommerceCategory
17 min read
Raubi Marie Perilli

When a customer makes a purchase, the payment process needs to be as fast, secure, and convenient as possible. Whether the transaction happens in-person, online, or through mobile or contactless payment, the payment method must make it easy for both the buyer and the seller to exchange funds.  

These days, businesses have a variety of payment methods to choose from. Traditional payment options (like cash, checks, and bank transfers), digital and online payment methods (like credit/debit cards, mobile payments, and e-wallets), and emerging payment technologies (like buy now, pay later services) offer a variety of options.  

So which payment option is best?  

Let’s look at the unique attributes, pros, and cons of each of these payment methods and consider how they align with the wants and needs of buyers and sellers.

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Credit and debit cards  

Credit cards and debit cards are the most well-known and frequently used payment methods. Credit cards are linked to a line of credit issued by a financial institution, and debit cards are linked to a bank account. When cards are used in-person or online, funds are taken from a line of credit (for credit cards) or taken from a bank account (for debit cards) and transferred to the merchant. 

The most commonly used credit and debit cards are Visa, Mastercard, American Express, and Discover. They are used across the world and in most retail, e-commerce, and service-based businesses due to their convenience.  

To accept credit and debit card payments, a business needs to choose a POS device and/or payment gateway for eCommerce payment processing. The payment processor manages the transaction by scanning the card, reading a chip on the card, utilizing tap-to-pay, or manually entering the card information.  

GoDaddy has a point-of-sale(POS) system that supports credit and debit card transactions in-person, online, and over the phone — while offering the lowest transaction fees* in the industry compared to other leading providers.  

Pros 

  • Most popular methods of payment 
  • Widely used by customers across the world  
  • Convenient and easy-to-use 
  • Easily integrates with most POS systems and e-commerce platforms  
  • Provides detailed record-keeping  
  • Supports recurring payments and autopay  
  • Most cards offer contactless payment  
  • Most major cards offer 24/7 customer service 
  • Customers can receive rewards for using credit cards 

Cons  

  • Requires a payment gateway and/or POS device 
  • Includes fees for the seller that range from 1% to 3.5% of the business transaction  
  • Merchants may face chargebacks if customers dispute transactions 
  • Sellers typically need to wait a few days before money is deposited into their account 

Related: How to accept credit card payments in-store and online 

Cash  

Cash is the most traditional of all payment types. It involves the exchange of physical paper banknotes and coin currency during a transaction.  

While cash is the most classic type of payment method, it cannot be used widely by all businesses because it is not an online payment method. It can only be used in person as it involves the transfer of physical currency. Due to its reliance on in-person transactions, cash is most often used in brick-and-mortar stores, restaurants, markets, food trucks, home services, and personal services. 

Pros 

  • Business immediately receives funds with no processing delay  
  • No transaction fees  
  • Lower risk of chargebacks or fraud 
  • Does not require internet or technology  

Cons  

  • Only able to accept payments in person  
  • Increased risk for loss and theft  
  • Requires manually calculating funds  
  • Limited transaction recording  
  • Must keep cash-on-hand for providing change to customers 
  • Must make physical cash deposits at a bank 

E-wallets  

E-wallets, also known as electric wallets or digital wallets, allow individuals to store, manage, and securely transact digital currency and financial assets through apps and online platforms. E-wallets are connected to an individual's financial account and funded by transfers from other e-wallets or through deposits from bank accounts, credit cards, or cryptocurrency. The most popular e-wallets are PayPal, Venmo, Apple Pay, Google Pay, and Skrill. 

E-wallets can be used to pay in-person or online. Online payments electronically transfer funds from the wallet to the merchant. In-person payments can use tap-to-pay on iPhones and other devices to make a mobile payment and directly transfer funds without the need to enter any information. E-wallets are often used to make payments at small businesses and brick-and-mortar stores as well as for e-commerce digital goods, services, and subscriptions. 

While credit/debit cards are still the most widely used payment method, e-wallets are gaining popularity. According to Research and Markets, the global mobile payment market is expected to reach over $6 billion by 2028. 

Pros 

  • Fast and convenient transactions 
  • Higher sales potential  
  • Generates detailed digital records  
  • Customers don’t have to share banking information with merchant 
  • Encryption and authentication methods offer secure transactions 
  • Hygienic when paired with a no-touch payment option 
  • Integrates with many POS systems and e-commerce platforms  
  • Most e-wallets offer immediate transfer of funds  

Cons  

  • Requires a compatible payment gateway and/or POS device 
  • Susceptible to fraud and chargeback disputes (but less common than credit/debit card disputes)  
  • Technical downtime can disrupt business 
  • Customers may have concerns about sharing banking information with e-wallet providers 
  • May include transaction fees (varies for each e-wallet provider) 

Bank transfers  

Bank transfers, also referred to as wire transfers, are ways to electronically move funds from one banking account to another. To process a bank transfer, both parties need to provide their banking information. Types of bank transfers include ACH transfers, SWIFT, and SEPA transfers. 

Bank transfers are often used to move large amounts of money. They are not typically used at retail and B2C businesses but instead used for large B2B transactions and for payments for high-ticket service offerings.  

Pros 

  • Secure and direct 
  • Reduced transaction fees (does not have a percentage-based cost) 
  • Accepted globally 
  • Decreased risk of chargebacks and disputed transactions  
  • Reliable alternative to checks for large purchases  

Cons  

  • One-time fee is involved 
  • Requires working with a banking institute  
  • Fees don’t make sense for small transactions 
  • Longer processing times 

Contactless / NFC-enabled cards and apps  

NFC (near-field communication) enabled cards and apps facilitate contactless in-person payments. When making a purchase, a buyer can swipe a compatible device (such as a mobile device or wearable) or a card near a sensor which activates payment. NFC technology is also referred to as tap-to-pay transactions. 

Tap-to-pay contactless payments work with most credit and debit cards and e-wallets. Many major credit and debit cards now include NFC technology. It is offered by Visa, Mastercard, American Express, and Discover. Many e-wallets also offer a tap-to-pay option, such as Apple Pay and Google Pay.  

This type of tap-to-pay is now offered in many brick-and-mortar businesses for in-person purchases at grocery stores, restaurants, retail stores, markets and vendors, and other hospitality and transit businesses. It is widely used and expected to grow in popularity. Grand View Research predicts that contactless payments will account for more than $164 billion in spending by 2030. 

Pros 

  • Multiple options for customers (can use credit/debit cards or digital wallets) 
  • Fast and convenient transactions  
  • Hygienic, no-touch payment option 
  • Generates digital record-keeping  

Cons  

  • Includes transaction fees  
  • Requires NFC-enabled POS hardware 
  • Relies on internet access  
  • Potential for accidental payments  
  • Security concerns  
  • May need to educate customers unfamiliar with the technology  

Contactless payments may also be associated with the use of QR codes. This technology does not employ NFC technology. Instead, it displays a QR code that buyers scan to be taken to an app or webpage on their phone where they can complete a transaction. It is a type of contactless payment that does not require the buyer and seller to share devices or cards, but it does not require NFC-enabled devices or cards.  

Related: Why you should offer multiple payment options to your customers 

Prepaid cards  

Prepaid cards are physical or digital assets (such as a plastic card, barcode, set of numeric numbers, or digital credit) that are preloaded with a specific amount of money to be used for purchasing. Once funds are exhausted, the card can be thrown away or in some cases, additional funds can be added. Prepaid cards are often referred to as gift cards. They are frequently given as a present, award, giveaway, or means to make a specific purchase.  

Prepaid cards include general credit/debit style cards that come with a specific monetary amount that can be used anywhere credit/debit cards are accepted. These cards include Visa Gift Cards, Visa Prepaid Cards, Mastercard Gift Cards, and Mastercard Prepaid Cards.  

Other types of branded prepaid cards come with funds that can only be used to make purchases from specific merchants, such as an Amazon Gift Card or a Starbucks Gift Card. Prepaid cards can also exist without a physical card and be offered as a credit within an app or user account.  

Because prepaid cards are so frequently associated with gift cards, they are often used in retail, e-commerce, restaurants, and hospitality businesses. But, more industries are adopting the use of prepaid cards. Uber, Spotify, and other online service companies now offer cards as a way to prepay for subscriptions and services. Per Research and Markets, the U.S. prepaid card market is expected to reach over $1.6 billion by 2027.  

Pros 

  • Controlled spending for consumers 
  • No risk of chargebacks 
  • Increased customer reach 
  • Potential for impulse purchases 
  • No reliance on credit approval for consumers 
  • Provides a great gift option 
  • Prepays merchants and drives up revenue  
  • Does not require assessing a customer's bank account  
  • Good option for younger buyers as it comes with a spending limit  

Cons  

  • May include activation fees for customers  
  • May have limits on card balances 
  • Need for customers to reload funds 
  • Consumers must manually check balances online 
  • Requires a compatible payment gateway and/or POS device 

Related: Create digital gift cards to generate revenue online 

Buy now, pay later  

Buy now, pay later (BNPL) is a method of payment that gives buyers a way to receive their goods immediately without paying the full price up-front. It is similar to financing. Buyers pay a portion of the price to make a purchase and agree to pay in installments until the full price is paid, often interest-free or with low fees.  

Typically, sellers work with a partner such as Klarna, AfterPay, Affirm, QuadPay, and Sezzle to offer buy now, pay later options. The seller adds an option to their payment process where buyers can choose to buy now and pay later. Buyers can choose payment terms, which often include options to pay over three to four payments or in monthly payments over a year.  

BNPL is popular for purchasing big-ticket retail items online. In a survey conducted by C&R Research, 60% of respondents said they had used a Buy Now, Pay Later service. It is frequently used by e-commerce businesses selling fashion items, furniture, electronics, home decor, entertainment tickets, jewelry, video games, and other luxury goods.  

Pros 

  • Increased purchasing power for customers  
  • Potential for increasing sales  
  • Good option for customers who don’t have credit cards 
  • Businesses receive funds right away  
  • BNPL partners take on the risk of fraud and disputes 

Cons  

  • High transaction fees for merchants 
  • Potential for increased spending and debt 
  • May require credit checks and impact customer credit score 
  • Risk of customer defaulting on payments  
  • Customers are charged fees if they miss a payment  
  • Requires a compatible payment gateway 

Autopay  

Autopay, or automatic payment, is a recurring financial transaction that doesn’t require the buyer to take action to initiate payment. Once a buyer sets up autopay, they are charged and funds are deducted from the customer's account at regular intervals.  

Many online payment gateways offer options for autopay. A customer enters their payment information (which can be connected to a digital wallet, credit/debit card, or bank account), and funds are deducted from the account on a set date. Some examples of autopay services include PayPal Automatic Payments, Stripe Billing, Amazon Auto Reload, Apple Pay preauthorized payments, and Google Pay autopay. 

Automatic payments are an online payment method frequently used by businesses that charge customers on a consistent basis, such as subscription-based businesses and service providers. Software-as-a-service (SAAS), memberships, and media subscriptions typically offer autopay options and charge users a set price each month.  

Other service-based businesses, such as utility and auto-insurance companies, often provide options for customers to sign up to automatically pay for their monthly service, even as pricing fluctuates. Charities also regularly use autopay to encourage donors to sign up to make monthly donations.  

Pros 

  • Convenient for both buyers and sellers  
  • Promotes customer retention 
  • Ensures timely receipt of payments 
  • Improves cash flow  
  • Reduces administrative billing, invoicing, and collection tasks 
  • Customers avoid missing payments 

Cons  

  • Requires a compatible payment gateway  
  • Has the potential for insufficient funds or overdraft fees 
  • Limited control over individual payments  
  • Increased time managing and canceling payments that customers forget about  
  • Loss of personal touch  

Checks  

Paper checks are a type of payment that act as a promissory note. A buyer writes a check as a promise to the merchant that they can take the check to a bank and cash it to pull funds from the buyer’s bank account. Checks can be connected to personal or business bank accounts. Merchants can cash checks and deposit the funds into their account or take the money out as cash.  

Checks are often used for in-person purchases at small businesses or for transactions that require a large transfer of funds, such as in real estate or personal and professional service-based industries. Checks are not commonly used by digital and online businesses.  

Pros 

  • Established and traditional payment method  
  • Suitable for large payments  
  • Offers detailed record-keeping 
  • No transaction fees  

Cons  

  • Longer clearing times 
  • Risk of insufficient funds or check fraud  
  • Inconvenient, manual process for customers  
  • Dependance on banking institutes  
  • Does not work for online and digital businesses  

Money orders and cash-based vouchers are similar to checks in that they are physical papers that act as promissory notes. Buyers give a business a money order or cash-based voucher as a promise for payment. The difference is that the promised funds have already been confirmed with money orders and cash-based vouchers. The buyer has already paid the bank to receive the money order or cash-based voucher so the merchant is guaranteed to be paid by the bank, whereas the check does not guarantee that there is money in the account to cover the promise of the check. 

Cryptocurrency  

Cryptocurrency is a type of digital or virtual currency. Unlike traditional currency, crypto is decentralized, which means it is not controlled or backed by any authority, government, or financial institute. No bank holds or manages the money represented by cryptocurrency. Instead, it uses cryptography and blockchain technology to record each financial transaction. 

Cryptocurrency is stored in digital wallets. To pay with cryptocurrency, customers transfer funds from their digital wallet to a vendor. There are thousands of types of cryptocurrencies, and some are more mainstream than others.  

Payments with cryptocurrency occur by making a transaction between two crypto wallets. Vendors may set up a QR code that customers can scan to facilitate their crypto payment, or the payment can be processed via a public key or through an NFC or contactless payment device.  

Some mainstream cryptocurrencies now offer debit cards to make payments. The debit card is connected to the individual's crypto digital wallet, and funds are directly deducted at the time of purchase. Buyers can also use cryptocurrency to purchase gift cards. Through certain companies, buyers exchange cryptocurrency to receive physical or digital assets that can be used as standard prepaid cards.  

Crytopcurrency is still not widely used in every industry and in all regions. Ecommerce and technology-related products and services more frequently offer this payment type, while some brick-and-mortar small businesses are beginning to offer cryptocurrency payment as a way to stand out and attract new customers.  

Pros 

  • Quick receipt of funds  
  • Attracts people who want to use currency outside government-backed financial systems 
  • Has a potential investment value 
  • Fast and secure transactions 
  • No potential for chargebacks  
  • No processing or transaction fees 
  • Accessible without access to banking institute 
  • Offered globally  
  • Reveals no personal or banking information  

Cons  

  • Volatile exchange rates  
  • Inconvenient for processing refunds 
  • Requires an energy-intensive mining process that prompts environmental concerns 
  • Complexity in integrating with POS systems  
  • Limited adoption by customers  
  • May have additional tax implications related to capital gains  
  • Subject to evolving and complex regulations 

Related: Is cryptocurrency right for your commerce business?

How to choose the payment options for your business 

Merchants have a lot of options when choosing the best types of payment methods for their business. The key to finding the right option is considering your unique needs and buyers. Weigh the pros and cons of each payment option to determine what is right for your business while also matching forms of payment with the wants and needs of your unique customer base.  

Choose the options that will cause the least amount of friction for your customers and business operations. And, if you still aren’t sure which payment method to choose, start with the option that is the most familiar and widely used by customers everywhere.  

What is the most popular payment method? Credit and debit cards are the most popular payment method. Each payment type works in-person and online so they support both physical and digital businesses. Plus, credit and debit cards are widely recognized and trusted by customers and accepted across the world.  

Which payment method is better? Due to their mass appeal and acceptance, credit cards and debit cards may be widely considered the best forms of payment. Both offer ways to pay in-person and online and are easily integrated into most POS and payment systems.  

If you’re looking for a way to easily accept payments from customers, check out GoDaddy Payments, which is integrated with all our website solutions (including GoDaddy Airo). Our payment solution securely accepts credit and debit card payments anywhere any time. It offers customers a payment method they know and trust while giving your business ease in accepting payment with the lowest transaction fees* in the industry compared to other leading providers. 

*Lowest pricing compared to leading providers Square, Stripe, and Shopify for ecommerce, in-person and keyed in transactions. 

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