Introduction to Different Types of Payment Methods
Institutions are constantly trying to develop new ways to streamline transactions to improve purchasing convenience. Depending on the payment method, customers may need to manually count their funds or undergo transaction fees.
On the business end, companies may also need to wait several days until these funds become available. However, by pinpointing customers' preferred types of payments, retailers can prioritize the methods that generate the most sales.
Why Businesses Need to Accept Customers' Preferred Payment Method
Payment methods have evolved significantly over the past 50 years alone. While once customers made purchases strictly through cash or bartering, many consumers do not even carry physical bills anymore. Now, shoppers have a multitude of options to choose from when making a purchase. This makes it crucial for businesses to understand their customers' preferred payment methods and implement the technology to accept them.
Companies throughout the United States have seen a major shift from traditional credit cards to virtual wallets. These payment tools require stores to implement contactless payment technology to accept and secure these transactions. Otherwise, businesses can lose potential sales to competitors who recognize their customers' needs. When organizations adapt to their customers' preferred payment methods, they can significantly increase their profitability in various ways.
- Businesses that expand their payment acceptance can reach customers around the globe.
- Stores can significantly decrease shopping cart abandonment and increase conversion rates by appealing to different payment preferences.
- Online retailers can reduce fraud and security risks by accepting virtual payments with authentication measures.
- Various payment methods have different transaction costs that can cost businesses significant profit. By focusing on preferred methods, companies can minimize their transaction costs from unnecessary transaction tools.
5 Types of Payment Methods
Now more than ever, businesses have to cater to numerous methods of payment to capitalize on all potential sales. However, each method comes with its own advantages, disadvantages, and risks that businesses have to undertake. By understanding these components, owners can better assess the benefits of each option.
Up until 2018, cash was still the most commonly used method of payment when purchasing inexpensive items. Now, it is going out of style for the newest consumers, who prefer more digitalized methods. However, accepting cash does not cost businesses any holding or processing fees that other forms do. Cash is also a last-ditch effort for many shoppers that need to make a quick purchase.
On the other hand, the Internal Revenue Service (IRS) pays close attention to cash transactions and requires documentation for audits. Therefore, companies must carefully track and record physical cash flow for future reference. Luckily, most modern point-of-sale (POS) systems track and record track cash purchases separately from credit card transactions.
Most consumers stay away from writing checks as it presents risks to both them and the business. Thieves can easily steal physical checks and gain access to the person's banking and routing numbers. They are also extremely easy to fake, making it difficult for businesses to recognize real checks from fraudulent ones.
Fewer and fewer businesses are accepting checks as the rate of use has gone down significantly over the years. Most companies refuse to adopt check processing technology as the funds aren't immediately available like in other methods. Instead, employees have to make a bank run at the end of the data to deposit payment. Plus, larger checks can take multiple days to verify until the funds become available.
3. Debit Card
Consumers as young as 13 can have a debit card to access funds within their checking account. The three primary types of debit cards include Visa, Mastercard, and Maestro. These service providers sometimes have transaction fees that either the business or consumers must front.
Regardless of the institution, paying with a debit card is the same. Customers either swipe their magstripe or insert the chip and plug in their PIN to secure their transaction. Once the merchant and bank accounts verify the purchase, the funds can take up to 72 hours to become available. However, most transactions become available by the end of the business day.
4. Credit Card
Credit cards function the same way that debit cards do, except they run through credit institutions rather than traditional banks. The three many credit providers are Visa, Mastercard, and American Express. Because consumers borrow the initial funds, they are responsible for paying back these institutions within the payment terms. Otherwise, they are subject to interest and late fees. The company may also have to undertake processing and verification fees.
Most businesses already accept major credit cards, as customers can use them in-store, online, and over the phone. Funds typically become available during the same business day, depending on the purchase amount. However, larger transactions present a significant risk to the consumer if they do not have adequate funds for repayment.
5. Mobile Payments
Mobile payments, also known as contactless payments, are becoming increasingly popular as consumers can complete transactions via their smartphones. Providers, including Apple Pay, Samsung Pay, and Android Pay, allow customers to leave their physical cards behind when shopping. By hovering their phone over the payment terminal, the POS system instantly recognizes and completes the transaction.
Especially today, when sanitation is of the utmost importance, businesses and consumers prefer contactless payments. Not only do they limit contact, but they are quick and painless.