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5 Mar 2024 Article

Understanding Payment Methods: What are They? And How Many Types are There?

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Today, the array of payment methods is vast, from tapping a contactless card on the subway to splitting the bill after a meal with friends using a mobile app. There are now a staggering number of ways to pay.  

However, the abundance of choice can leave both consumers and businesses overwhelmed.

Businesses are wondering how to make payments as easy as possible for customers. And consumers are looking for the fastest and safest way to pay. 

To simplify things, we’ve created a guide to the various payment methods across the EU, explaining the most common payment methods and how to use them. In this article, we will cover the following topics:

What are payment methods? 

The term ‘payment methods’ refers to how customers and businesses transfer money for transactions. These payment methods have evolved over time and can be categorised into several common types. 

When shopping in a physical store, customers can use payment methods like cash, credit cards, or mobile options like Apple Pay. 

Online transactions may involve bank transfers, such as direct debits or Pay by Bank (also known as account-to-account or A2A payments), or digital wallets like PayPal.

Payment methods – especially digital wallets and bank payments – have a lot of local variations, while the major card networks have a global reach.

How many types of payment methods are there? 

There are more than 200 ways people can pay for things worldwide and that number continues to grow. 

Yet, fortunately, businesses do not have to cater to all these variations (though some do try). Instead, a choice must be made; for many, it is simple: the local payment method most popular with consumers. However, payment technology is advancing so much that offering different payment methods is becoming simpler. 

Indeed, consumers naturally pick the payment method they like best – depending on their personal preferences and what is the easiest option for them. 

Across markets, offering the right mix of payment methods helps make transactions smooth for buyers and sellers alike. 

What are online payment methods?

Let’s be clear: online payment methods refer to transferring funds over the Internet –  making online and, in some cases, offline purchases. 

Today, everyone is making an online payment – but the question remains: which method does she prefer? Debit card? Secret credit card? Bank transfers via direct debit? Or is Granny all connected and syncing her digital wallet with her mobile?

The online payment process is divided into four main players: the consumer, the merchant (or business), the consumer’s bank, and the merchant’s bank. online payment methods aim to provide a secure and seamless payment experience – and emerging technology paired with EU regulation means that instant payments are also becoming more commonplace.

It is worth noting that payment methods such as PayPal, Mastercard, Klarna are networks or service providers that sit between the banks, while a payment with Bitcoin doesn’t involve any bank.

What are the most common methods of payment? 

Different payment methods have evolved over time, adapting to societal changes, new payment technologies and, in some cases, regulations.

Some of the most common payment methods include:


Even with digital payments growing, cash is still popular, especially in places like coffee shops and convenience stores. Smaller shops sometimes prefer cash because using debit or credit cards can mean extra fees. But dealing with cash has its own issues – it can get lost, stolen, or damaged. And if a business does a lot of cash transactions, they might have to spend more on security measures like safe transportation and fraud detection.


  • Cash transactions provide immediate access to funds without the need for processing times or fees.
  • By accepting cash, businesses can avoid transaction fees associated with credit and debit card payments.
  • Facilitates better spending management for individuals, as expenditures is limited to the physical cash in one’s possession.


  • Does not contribute to building a credit score, as cash transactions do not involve using credit.
  • Poses a higher theft risk, as cash is typically owned by the bearer.
  • Lacks the ability to maintain a spending record, unlike digital payment methods that offer transaction history.

Credit cards

Credit cards are now over 30 years old and still popular for making payments – even as newer payments methods emerge, they remain extremely popular in some markets.

Here’s how they work: the consumer gets a credit limit, which is the maximum amount they can spend using the card. When they use the credit card, the merchant bank gets the account info and checks with the credit card network to ensure the transaction is approved.

Businesses that accept credit card payments will typically be charged fees by the card network and issuing bank. These fees can be a percentage of the transaction amount or a fixed fee for each payment. Because of this, some merchants actually refuse to use certain credit card types because of cost.


  • Facilitate international transactions, expanding a business’s reach to a broader customer base.
  • Transactions are easily traceable, providing a transparent record of sales and expenses for businesses.
  • Minimise risk by providing the convenience of carrying a single plastic card rather than cash.


  • Pose the risk of spending too much and ending up with hard-to-handle debt.
  • Incur processing fees from many merchants, increasing the overall cost compared to alternative payment methods.
  • Impose high interest rates on unpaid balances (a pro of course if you are a bank).

Debit cards

Debit cards might look like credit cards, but they work differently. When a consumer uses a debit card, the money comes straight from their account. Unlike credit cards, which let you access a line of credit, a debit card might not work if the individual doesn’t have enough funds in their account.

Debit cards are handy, widely accepted, and offer some fraud protection, similar to credit cards. However, they usually don’t come with as many benefits, and users may face fees if they accidentally spend more than what is in their accounts.


  • Debit card transactions are immediately withdrawn from the account, providing faster access to funds.
  • Debit card transactions typically have lower processing fees for businesses than credit cards.
  • Encourage responsible spending by restricting transactions to the available account balance.


  • Often offer limited fraud protection, subject to specific amounts or time limitations.
  • Restrict spending capabilities to the account balance, limiting the ability to make higher expenditures in emergencies or urgent situations.
  • Some banks impose overdraft fees when attempting to withdraw more funds than are available in the account.

Bank transfer

Ever wondered how a bank transfer works? It’s simple, it’s the direct transferring of funds from one bank account to another, whether it’s the same bank or a different one. And it’s not just local – consumers can even do it between banks in different countries.

Here’s how it goes: when a consumer is done shopping, they pick bank transfer as a payment option, and the business then provides the consumer with their bank details and a unique reference code for the transaction. Then, the consumer tells their bank to send the specific amount to the business’s account, making sure to use that unique reference they were given. After that, the bank sends the money to the business.

Once the business gets the funds, they check the code – and the deal is done!


  • The main benefit of the direct bank transfer payment method is a typically high level of security. 
  • Bank transfers involve the direct flow of funds between bank accounts, reducing the number of other parties, and therefore typically reducing payment processing fees incurred by merchants.
  • Sometimes, bank transfers may have lower fees than other payment methods, such as credit card transactions.


  • Customers need to take the initiative to make payments through direct transfers. Sending an invoice promptly doesn’t ensure that it will be paid via bank transfer on the designated due date.
  • As payment initiation rests with the customer, errors or delays may occur.
  • Bank transfers typically involve the exchange of personal information between the sender and the recipient. If privacy is a concern, other payment methods that offer more anonymity may be preferable.

Instant Account-to-Account (A2A) payment

Imagine a bank transfer made for the 21st-century world we live in. Thanks to open banking, Instant A2A payments are taking payments to the next level. 

Instant account-to-account (A2A) payments mean transferring money directly between accounts without using cards or intermediaries – much like a bank transfer. This transfers are virtually instant thanks to open banking and the emergence of third-party providers, such as Brite Payments. Read more about how Brite works

This new “Instant payment” form enables businesses to transfer money swiftly, typically within five to 30 seconds. In contrast, some standard online bank transfers take at least one business day to reach the recipient’s bank account. Therefore, an instant A2A payment is a very effective way to transfer money from one account to another. It’s also one of the most secure payment transactions in the world. 

If you want to know more about the benefits of A2A payments and how they are helping businesses across Europe, download our A2A Payment explainer. 


  • Transactions are completed within seconds, offering instant access to funds, and are available around the clock, providing continuous accessibility.
  • A2A payments also eliminate the need for intermediaries, streamlining the transfer process and cutting out middleman costs.
  • Can be used alongside other open banking-powered services, such as AIS, for customer verification and onboarding processes when making a payment.


  • Relying on technology and system outages or technical issues can disrupt transactions. However, thanks to recent EU regulation changes, this is becoming something banks and providers are taking steps to reduce.
  • Standardisation of instant A2A payments may vary globally, leading to interoperability challenges – however, the EU, US and UK markets are addressing these issues.
  • It is a new payment method – many consumers have yet to understand the benefits and may need to be educated about the payment method.

Open banking adoption is currently highest in Europe. Learn more in our article about 6 essential Open Banking trends 2024

Digital wallets

Digital wallets, also known as e-wallets, are apps that store payment card details on a smartphone or wearable device. This transforms a phone or device into a virtual ‘wallet’, enabling it to act like a contactless card. This digital wallet allows consumers to make payments easily using card readers that support contactless transactions.

Using this approach, additional security features can be added to enhance the safety of contactless transactions. For instance, you might need to use biometric measures like fingerprint or facial recognition to confirm payment. Examples of digital wallets include Apple Pay, Android, and Google Pay. 


  • Digital wallets streamline the payment process, making transactions quicker and more convenient. There’s no need to carry physical cards or cash, as everything is accessible from a device.
  • By requiring biometric verification and encrypting card details, digital wallets offer a more secure transaction process than traditional cards, reducing the risk of fraud.
  • Many digital wallets are integrated with reward programs, allowing users to easily collect points or discounts, enhancing the overall shopping experience.


  • Digital wallets require a charged, functional device. A consumer cannot easily access funds if a phone battery dies or the device malfunctions.
  • Not all merchants accept contactless payments via digital wallets, which can be inconvenient in places that only accept cash or physical cards. Digital wallets are also basically card payments (meaning that there’s a card transaction underneath the mobile tap-and-go action) which means high costs for merchants.
  • While digital wallets use advanced security, they also collect a vast amount of personal data, raising concerns about privacy and data security. Users must trust companies to protect their information and not misuse it.

Mobile P2P

Another type of mobile payment is peer-to-peer or P2P payments, which enable consumers to send money directly to another person. Money transfer apps, such as Venmo, PayPal, and Swish, empower users to send and receive money using their mobile devices linked to a bank account or card.

With P2P payments, users can swiftly send funds while keeping their bank account details confidential. To make a payment, the recipient’s e-mail address or phone number is all that’s needed.


  • Enables rapid transactions, with a simple smartphone tap and authentication sufficing.
  • Phone payments generate digital receipts and provide businesses with efficient record-keeping capabilities, simplifying accounting and transaction tracking.
  • Enhances financial security through tokenised mobile payment applications.


  • Still an evolving payment method, and reliant on the receiver also using the payment method.
  • Limited support, as it is only compatible with specific types of mobile phones.
  • May require the payer to use a specific or addtional app to authenticate payments.

Buy now, pay later (BNPL)

“Buy now, pay later” (BNPL) is a payment option that allows consumers to make purchases and defer the payment over time. With BNPL, customers can buy goods or services immediately and choose to pay for them in instalments spread over a specified period. This payment model has gained popularity recently and is often offered by both online and physical retailers.

Popular BNPL providers include companies like Klarna, offering slightly different terms and conditions for their instalment plans. It’s essential for consumers to understand the terms of the BNPL service they choose, including any fees or interest charges that may apply. 


  • BNPL options can attract more customers and boost sales, especially among those who may not have made the purchase without the instalment payment option.
  • Gives your business a competitive advantage, especially if your competitors do not offer similar payment plans.
  • Provides flexibility, making it easier for the individual to manage budgets and make higher-value purchases.


  • Customers may be more likely to return items purchased through BNPL, as they have less financial commitment up front.
  • Businesses have less risk if they use BNPL but this in turn means higher fees.
  • In fact BNPL providers typically charge significant businesses transaction fees, which can impact profit margins.

What are alternative payment methods? 

In addition to the payment methods mentioned above, there are many alternative payment methods. Alternative payment methods refer to non-traditional ways of conducting financial transactions that differ from conventional methods.


Digital currency or tokens offer a modern way to make transactions. It’s like having digital coins you can send to anyone’s address on a blockchain. The blockchain can automatically handle transactions based on certain conditions if it has smart contracts.

Even though most people have yet to adopt cryptocurrency, it has one notable advantage: you only need an internet connection to make a payment (and of a crypto wallet of course!). If both people have a digital wallet on the same network, they can easily make payments, though this has still yet to go mainstream.

Worth mentioning is that cryptocurrency prices are highly volatile, and they can experience significant fluctuations in short periods. Prices can be influenced by market sentiment, regulatory developments, technological changes, and macroeconomic factors.


Today, cheques are more of a payment relic than an alternative payment method but they remain in use. Cheques are linked to the payer’s bank account, featuring the bank’s routing number (a nine-digit code identifying the financial institution) and the account number. When a cheque is issued, the payee deposits it, starting the transaction’s journey through a clearing unit, which then adjusts each party’s account accordingly.

Many countries are moving away from using cheques. However, some countries, like France and Italy, still use them. Even so, we recommend looking into other ways to offer international transactions. Using cheques might work, but banks usually charge hefty fees for dealing with cheques from different countries and currencies.


An instalment payment plan can help customers pay a bill over time with more minor, regular payments. Merchants can offer these plans directly or use third-party processors. Unlike instalment loans with added interest from banks, merchant agreements usually don’t have extra charges. There are three main types of instalment payments:

Customer payments: Merchants accept payment instalments from customers to settle bills.

Loan repayments: Banks receive payment instalments from borrowers, along with any applicable interest.

Debt repayments: Creditors receive payment instalments from borrowers, with or without interest.

Considerations when choosing payment methods

In general, offering multiple payment options is beneficial for customers. A study by the PPRO Group in 2020 revealed that 44% of UK consumers stop a purchase if their preferred payment method isn’t available. 58% of the respondents agree they would stop a purchase if the checkout process is too complicated.

However, providing too many payment methods can also lead to a high bounce rate, as there is a user experience cost associated with overwhelming choices. 

To find the best mix of payment methods, consider:

Location: Match methods with your company’s country and customer base. Different countries may prefer different options.

Purchase mode: Assess if customers engage online, offline, or both. Choose a mix of omnichannel options. Focus on online methods if most purchases are online.

Business model: Consider if your model involves recurring payments or one-time payments. A subscription model adds complexity; choose methods that accommodate this.

Once you’ve narrowed down your options, it’s essential to look into the costs and potential risks. Also, not all methods work well with various currencies, which is crucial for international businesses. Keep a close eye on less popular options that are widely used by your customers to reduce any problems during the checkout process.

Do you want to learn more about what payment methods are trending right now? Read our article about 5 key payment trends you should know about in 2024

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