Customers today expect to make online purchases quickly and easily.
The rise of mobile wallets like Apple Pay, autopay subscriptions, and other convenient payment methods, has made it so that customers have little patience for stores that make them jump through hoops to spend money.
But because different customers have different preferences, this puts the onus on business owners to be able to accept payments in all types of formats. Learning how to set up your business to accept different payment methods will go far in keeping your customer base happy—and spending.
Today’s purchasers pay for goods and services using nine principal payment types. Here’s a list of the most common payment methods, including their advantages and disadvantages.
Table of contents
The most popular payment methods
Nine of the top payment methods that ecommerce retailers should be well aware of include the following:
- Credit and debit cards
- Cash
- Mobile wallet
- Buy now, pay later (BNPL)
- Check
- Bank transfer
- Autopay
- Cryptocurrency
- Rewards or points
1. Credit and debit cards
Credit and debit cards are one the most common payment methods, especially for online stores.
- Credit card companies, including Visa, Mastercard, American Express, and Discover, extend credit to purchasers. Credit card companies cover the purchase price, and customers pay their card balance every month.
- Debit cards do not extend credit to a purchaser but deduct money directly from the purchaser’s bank account.
Advantages of credit and debit card payments
Credit cards allow customers to make large purchases even if they don’t currently have much cash. This may benefit retailers since using a credit card usually results in a larger shopping cart total than if the customer pays with cash.
Debit cards only let customers spend what is in their bank accounts, but they offer the customer convenience and security, as they don’t have to walk around with large sums of cash in their wallets, and it’s often faster than bank transfers or checks.
Disadvantages of credit and debit card payments
The principal disadvantage is the payment processing fee that credit card companies levy on merchants. Most debit card fees stay around 1% of the purchase price or less, but some credit cards can charge a merchant up to 3.5% of the purchase price.
Furthermore, there is a lag from the purchase to the amount appearing in the merchant’s bank account, which can vary depending on the payment processor. This is in contrast to cash, which is immediately available after the sale.
2. Cash
Cash payments are the most traditional payment method (and no, we’re not including the barter system in our list). They occur when a customer hands paper or coin currency to a merchant.
Believe it or not, some ecommerce merchants still take cash, such as choosing cash on delivery (COD) as a manual payment method within Shopify Payments.
With COD, customers pay cash when receiving their orders in person, such as through a courier, though cash is rare in the ecommerce world. Shopify Payments supports and doesn't charge transaction fees on COD.
Advantages of cash payments
The merchant instantly receives payment, and they do not owe any fees for payment processing.
Disadvantages of cash payments
For all its simplicity, cash has lost much of its appeal among customers. Many customers prefer credit cards that give them cash-back rewards, while others like the convenience of mobile payment services embedded into their smartphones and smartwatches.
Keeping cash on site makes merchants vulnerable to theft. For online retailers, accepting cash is largely impractical, if not impossible.
3. Mobile wallet
Mobile wallet services function via apps that run on smartphones, tablets, and smartwatches, and link to a customer’s credit card, debit card, or bank account.
Payment processors can also integrate some of these options into web-based checkouts, depending on the service. Some mobile wallet examples include Apple Pay, Google Pay, and Samsung Pay. Once a person sets up their mobile wallet account, they can use these apps to quickly pay for things at vendors that accept mobile payments.
Advantages of mobile wallet payment
Mobile wallets offer great convenience to customers, who can use them at tap to pay terminals in brick-and-mortar stores or in an online shopping cart when purchasing items over the internet.
While they don’t yet rival credit or debit cards in scale, their popularity is growing. Global consumers spent nearly $1 trillion via mobile payments in 2022, and analysts at Spherical Insights & Consulting expect that figure to approximately triple by 2032.
Disadvantages of mobile wallet payments
Merchants will need a new point-of-sale terminal to accept tap to pay transactions in a brick-and-mortar store. Many mobile wallet apps also place transaction limits on their customers—limits that tend to be much lower than most credit card limits. This can put an artificial cap on the size of a customer’s purchase.
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4. Buy now, pay later (BNPL)
A buy now, pay later plan (BNPL) payment is a loan that the BNPL company offers to a customer so that they can purchase merchandise on credit, but without a credit card.
Popular BNPL lenders include Shop Pay Installments from Shopify, Affirm, Afterpay, Sezzle, PayPal’s Pay Later, and Klarna. BNPL is particularly popular for online shopping, and some brick-and-mortar retailers now accept it in stores.
Advantages of BNPL
A BNPL service extends credit to consumers, including to many of those without good credit or those without credit cards. For consumers, there are typically no upfront fees to use the service.
Customers pay back the loan in installments without interest, unless they miss a payment. BNPL often encourages customers to spend more than they might with cash, a debit card, or even a traditional credit card.
Disadvantages of BNPL
BNPL services don't charge high interest rates to customers, at least upfront, but they instead tend to charge higher percentages to retailers. This typically ranges from 2% to 8% of the purchase, which can be far higher than what credit cards charge retailers.
5. Checks
Some customers still pay with paper checks, such as from a personal checking account or with a cashier’s check from a bank. While checks aren’t as fast as online payment methods, they can at least be more practical to send via the mail than cash.
Advantages of check payments
For a customer, checks come with almost no purchase limits. They can draft a check covering any amount of money in their bank account.
Disadvantages of check payments
Financial fraudsters have long favored checks as a way to stiff merchants out of money. To avoid the risk of bounced checks, merchants must invest in check processing terminals that rapidly process such financial transactions.
These check readers typically cost north of $250 and must link to a payment verification network. As such, many small businesses accept bank checks but refuse personal checks. Plus, checks add to processing times. An online retailer might wait to send goods until a check clears, which adds friction to the process.
6. Bank transfer
A bank transfer involves sending money from the account of one person or business to the account of another person or business.
Sometimes bank transfers go through the Automated Clearing House (ACH) network, such as with ACH transfers in the US, or sometimes they involve more direct bank-to-bank transfers, known as wire transfers. These transfers are popular for very large purchases, particularly those involving real estate.
Advantages of bank transfers
Bank transfers are very secure. While they often come with a one-time fee, sometimes for both sender and receiver, they do not involve a percentage-based commission like one would pay in a BNPL or credit card transaction.
Disadvantages of bank transfers
Bank transfers are impractical for most everyday purchases, especially small online purchases, given that it can take a few days for the transaction to clear. And with wire transfers, the one-time fee (often ranging from roughly $15 to $50) can be exorbitant when linked to small purchases. For this reason, bank transfers tend to be limited to very large purchases.
7. Autopay
An autopay system automatically debits a person’s bank account, credit card, or debit card on a set date, usually once per month. Autopay is popular for credit card payments, utility payments, monthly subscriptions, and scheduled charitable donations.
Advantages of autopay
Autopay promotes customer retention since customers can schedule automatic purchases instead of reauthorizing payments every month. Customers also like autopay because it prevents them from missing important payments for items like phone service and electric bills and makes online subscriptions easy to maintain.
Disadvantages of autopay
Autopay only applies to certain periodic transactions. It does not work for all types of purchases or for one-time purchases.
8. Cryptocurrency
Cryptocurrency has become an increasingly viable way to pay for goods and services, as services like BitPay and Wirex offer debit cards consumers can fund with mainstream cryptos like Bitcoin. Some ecommerce retailers even offer the option to pay directly with crypto, such as through platforms like Crypto.com.
Advantages of crypto payments
Many leading digital currencies, including Bitcoin, run via blockchains, which are systems that record financial transactions using decentralized peer-to-peer computer networking.
These blockchains operate independently of government control, which appeals to people who want to use currency that’s outside government-backed financial systems, as well as those who see crypto as more secure. Accepting crypto as payment opens businesses up to these customers.
Disadvantages of crypto payments
Compared to government-backed “fiat” currencies like the US dollar and the euro, cryptocurrency is volatile. This may pose a risk to merchants who accept crypto payments, as the value of the crypto you accept one day might be worth significantly less the next day.
Crypto also lacks the robust payment infrastructure enjoyed by credit cards, debit cards, and mobile payments, although this is starting to improve.
9. Rewards or points
Some ecommerce stores implement rewards or points systems, where customers can accumulate enough to pay for some or all of a purchase using their rewards or points. For example, customers might earn points based on a percentage of each order, and eventually, they can have enough points to buy an item with these points, rather than exchanging any money.
Advantages of rewards or points payment
Letting customers pay with rewards or points might mean earning less direct revenue, but it can be a great way to build customer loyalty.
Over time, that can lead to more sales and a lower customer acquisition cost, such as if you build your email list by giving rewards to new subscribers, rather than spending as much on advertising to acquire new leads.
Disadvantages of rewards or points payments
Adding rewards or points systems introduces an extra layer of complexity for retailers.
While Shopify has many integrations with loyalty program providers that make it relatively easy to set up and manage these systems, it’s still an extra component to handle compared to only accepting traditional payments. Plus, these systems can affect your short-term revenue if customers are paying with rewards or points rather than actual money.
How to choose the right payment method for your business
- Consider your customers’ location
- Check payment method history
- Survey your customers
- Compare payment processing fees
- Consider recurring billing
With all of these payment method options, it can seem overwhelming to choose the right one. But the good news is that you don’t have to limit yourself. Retailers often choose to accept multiple payment methods.
Although accepting multiple payment methods can add a little more complexity to your operations and accounting, that often pales in comparison to the benefits of ensuring you offer the payment methods your customers want to use. Use the following steps to figure out what payment methods to offer:
1. Consider your customers’ location
The countries where you sell can influence the payment methods you accept. For example, if you sell in China, your customers likely expect to be able to use payment apps like WeChat Pay and Alipay.
Customer location can also influence your choice of payment processors. You want your payment processor to be recognized and trusted in the country you are selling.
2. Check payment method history
Looking at your payment method history by reviewing orders within Shopify can provide clues as to what payment methods you should offer going forward.
Maybe when you first launched your store you took as many payment methods as you could find, but that could eventually get too unwieldy to manage, or maybe you’re paying too much in fees. If you’re seeing that customers are only using a handful of payment methods, then consider paring down to just those options, which can also streamline the checkout page for your customers.
Or, you might find that certain payment methods are infrequently used but facilitate valuable orders, and thus you might decide to keep using them.
3. Survey your customers
If you’re not sure what payment options your customers prefer, ask them! You can do so with a simple post-purchase survey emailed with their order confirmation. Or you could run a brief survey when attracting new leads, such as including a line on your email signup form asking what their preferred payment method is.
Consider tying surveys into your loyalty programs too. You could offer bonus rewards for customers who complete a brief survey on topics like preferred payment methods, shipping options, and other information you want to know.
Figuring out what your customers want is key, because you don’t want issues like cart abandonment to happen if someone gets to the checkout page, only to find that you don’t offer their preferred payment method.
4. Compare payment processing fees
One reason why some stores exclude certain payment methods is because of fees. While customers might prefer some payment options over others, a difference in fees might outweigh this customer satisfaction benefit, depending on factors like your margins.
5. Consider recurring billing
Lastly, consider adding recurring billing options, such as autopay for subscriptions. Finding a way to add recurring billing can be worth it even if it requires some extra steps to set up, considering that it can lead to benefits like increasing customer retention, as it removes checkout friction once customers get set up. You can even tie recurring billing into a rewards or discount system.
Accept a wide range of payment methods with Shopify Payments
If you want to offer your customers a wide variety of payment options easily, you can choose Shopify Payments as a payment processor. That doesn’t mean you have to limit yourself to processing payments through Shopify— you can still add integrations for other payment platforms. Shopify Payments offers a straightforward, affordable, and reliable way to accept payments.
With Shopify Payments, you can accept essentially every major credit card, along with alternative payment methods like mobile wallets such as Apple Pay, BNPL through providers like Klarna, autopay through Shop Pay, and more.
You don’t want to spend hours drawing customers in and getting them to the checkout page only to have them abandon their cart due to an unreliable payment processor or a lack of payment methods, so try integrating Shopify Payments into your store for a better checkout experience.
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Payment methods FAQ
What is a payment method?
A payment method is a way to pay for goods and services, such as using a credit or debit card, mobile wallet, bank transfer, check, cash, cryptocurrency, etc.
What are payment methods for?
Payment methods give customers options for how to pay for goods and services. Offering multiple payment methods can satisfy customers with different preferences in how they make purchases.
What are the three main types of payment options?
The three most common types of payment in today’s market are credit cards, debit cards, and cash. Credit and debit card transactions involve fees paid by merchants to the card companies, but they tend to involve larger purchase amounts than cash transactions.
What are the most popular payment methods?
The most popular payment methods are credit cards, debit cards, and cash, but it depends on the situation. Some online stores, for example, see that the most common payment method is a mobile wallet like Apple Pay, while some see options like buy now, pay later (BNPL) becoming more popular.
Which payment method is best and why?
The best payment methods are the ones that your customers prefer, as that is what will lead to higher customer satisfaction, retention, and fewer issues like cart abandonment for online stores. Consider factors like your customers’ location to see which payment methods are most popular.
