Last editedMar 20235 min read
Each year seems to bring new digital payment methods. Some of these quickly fade away again. Others, however, go on to long-term success. This means that it makes sense for business owners to pay close attention to developments in the payment sector. With that in mind, here is a quick guide to the trending digital payment methods in 2023.
What are digital payment methods?
The term "digital payment methods" essentially refers to payment methods that do not require items to be physically transferred during the payment process. Prior to COVID-19, the main benefits of digital payment methods were generally seen as being convenience and security. Post COVID19, hygiene is now also seen as a key benefit.
There is a significant crossover between digital payment methods and online payment methods. They are, however, not quite the same. All digital payment methods can, in principle, be used online. (They may or may not be supported by any given merchant). All online payment methods are digital but they may or may not be suitable for use in real-world transactions.
Types of digital payment methods
For many years, the main digital payment methods were direct debits, bank transfers and standing orders. They were later joined by payment cards and ewallets. Now, however, there is a wide range of different digital payment methods for different situations. Here is a quick guide to the main digital payment methods for 2023 and beyond.
Payment cards can be linked to a payer’s bank account (debit cards) or to a line of credit (credit cards). In the real world, they can now be used without having to be inserted in a reader (contactless payments). They can also be used online.
Pros of payment cards
In the UK, debit cards are provided with current accounts as standard. This means customers are just about guaranteed to have one.
There are numerous credit card providers active in the UK market.
Cards are very easy to use in the real world. Most of the time, you can just tap and go. Sometimes, you’ll need to enter a PIN.
Using cards is more secure than using cash (for both payers and merchants).
Cons of payment cards
The fact that customers have been given a debit card doesn’t mean that they’ll have it on them when they want to make a purchase.
Modern customers may not want a credit card. Even if they do, they may not be able to get one. Even if they have one, they may not have it with them when they want to make a purchase.
Online, entering card details takes effort. This goes against the principle of making your checkout process as smooth as possible.
If you take recurring payments, you will need to have customers update their details when cards expire or are lost/stolen/damaged. This can trigger churn.
Mobile payments are made through a combination of an app and a wireless technology (usually Near Field Communications). The app works with the acceptance terminal to manage the payment. The wireless technology facilitates the communication between them.
Currently, mobile payments need to be used in combination with another digital payment method, e.g. payment cards or ewallets. This means that the pros and cons of mobile payments will depend in part on the pros and cons of the partner digital payment method. With that said, mobile payments do have a couple of specific pros and cons of their own.
Pros of mobile payments
Although the term “mobile payments” suggests phones, mobile payments can actually be carried out through other devices such as smartwatches. This means that there is a very high chance that the customer will be able to make a mobile payment whenever they want to.
Cons of mobile payments
With mobile payments, a customer’s ability to make payments only lasts as long as their battery. This is particularly relevant in cold weather when batteries drain quickly. It is, however, worth noting at any time.
Mobile phones (and smartwatches) are used for many other functions. This uses up battery power. It could mean that customers are reluctant to use their devices for payment in case it leaves them low on battery power.
E-wallets are digital wallets where customers can deposit funds they can then spend anywhere the ewallet is accepted. This means that, like mobile payments, e-wallets typically depend on customers also having access to another payment method.
As with mobile payments, therefore, the pros and cons of e-wallets depend partly on the pros and cons of the underlying payment method. With that said, e-wallets do have some specific pros and cons.
Pros of e-wallets
E-wallets are often very easy to integrate into websites.
Supporting a recognised ewallet brand (e.g. PayPal) can inspire trust.
Some e-wallets have their own buy-now-pay-later schemes. Accepting the e-wallets can give you access to these.
Cons of E-wallets
E-wallets may not work in the real world. If they do, they may not be a preferred payment option.
Although e-wallets are widely used, not everybody has one or wants one.
Standard ewallet payments require customers either to have funds in their wallet or to make a payment into their wallet to cover the cost. This means they have both relatively high transaction costs and a relatively high vulnerability to failure.
With direct debit, customers authorise merchants to take payments directly from their bank accounts. Merchants then organise the payments.
Pros of direct debits
Easy for the customer to set up and for the merchant to use.
Low processing charges.
Low risk of failed payments due to payment details going out of date.
Cons of direct debits
Slow processing time
Bank transfers and paylinks
Traditional bank transfers are still used. They are, however, falling out of favour. This is mainly due to security concerns. The inconvenience of having to get customers to set them up may also be a factor. Traditional bank transfers are increasingly being replaced by paylinks, also known as Instant Bank Pay or just Instant Pay.
Pros of Instant Bank Pay
Real-time payment confirmation.
Quick transfer of funds (sometimes on the same day).
Easy for customers to use even when they’re on mobile devices with small screens.
Cons of Instant Bank Pay
Instant Bank Pay is powered by Open Banking. Not all UK banks support this (yet).
Some customers may not be comfortable with the processing flow.
With standing orders, customers set up recurring bank-to-bank payments to payees. Since they are mainly used for recurring payments, they tend to be for fairly low amounts. This means that they are less vulnerable to the security issues that can impact traditional one-off bank transfers.
Pros of standing orders
Pushes administration (and its costs) onto the customer.
Cons of standing orders
If customers don’t do as you ask, you will need to work with them to address the matter. For example, you may need to guide them through the process of setting up a standing order. This can be more hassle than just setting up a direct debit for them.
Smart-speaker payments are essentially mobile payments but controlled through a person’s voice. They, therefore, have the same pros and cons as mobile payments. They also have a couple of specific pros and cons of their own.
Pros of smart-speaker payments
Allow people to make payments without being tied to a screen. This can be hugely convenient.
Cons of smart-speaker payments
Voice-activated payments only work effectively if a person's voice can be clearly heard and recognised. This does not always apply even in private buildings such as homes and offices.
Peer-to-peer payments (P2PP) are often known as social-media payments. They are, however, currently, more likely to be managed by stand-alone apps than by social media platforms. This may, of course, change in future.
Peer-to-peer payments are essentially bank transfers, usually to known individuals. They may, however, be used to send money to businesses.
Pros of peer-to-peer payments
Cons of peer-to-peer payments
The use of peer-to-peer payments is currently relatively limited compared to other digital payment methods.
Consumers may not be willing to use peer-to-peer payments to pay businesses as there is no real consumer protection.
Consumers either need to be at a computer or use a mobile device with plenty of battery.
Cryptocurrency is essentially digital cash. As such its pros and cons are much the same as for regular cash. It has the additional con of being more complicated to use.
Biometric payments use biometric authentication to activate a payment method. They are currently very niche so there is limited data available on them. It remains to be seen whether or not they will ever gain mainstream acceptance in the digital payment methods landscape.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. GoCardless can also be used to support buy-now-pay-later (BNPL) programs either run in-house or through a third-party provider such as Klarna. Find out how GoCardless can help you with one-off or recurring payments.