How Do Digital Payments Work?
Digital payments are seamless, quick processes that are prompted by a tap, click, or swipe. However, while digital transactions may seem simple, there’s a lot more going on under the hood.
The process involves several intermediaries: the payer (in-person or digital consumers), the payee (merchants or service providers), and the payment network. For every e-transaction to be successful, the payer needs to have an account with an issuer bank – with enough funds to cover the transaction – and the payee needs an acquirer bank account to receive the payment.
When a customer makes a digital transaction, payment information is relayed through a payment gateway, often prompting the user to verify their identity through passcodes or OTP/PIN codes.
After the verification process is complete, and information is successfully relayed through the network, the payment is processed through a conduit platform known as a “payment rail”, making funds accessible to the payee.
8 Types of Digital Payment Methods
The digital payments ecosystem is developing fast, with new methods popping out of the woodwork regularly. We highlight a few major digital payment types below:
1. Electronic payment systems
Electronic payment systems are platforms that assist with online, keyed-in sales. They include more traditional payment options like wire transfers, bank transfers, eChecks, as well as modern financing solutions like Buy Now, Pay Later (BNPL).
As the ecommerce market continues to boom in the US, electronic payment systems are critical in facilitating secure online payments, whether customers choose to pay with physical credit or debit cards or digital wallets.
2. Digital wallets
Digital wallets, or e-wallets, a software program that facilitates online payments and in-person contactless transactions. Digital wallets work in a similar way to physical wallets, by storing user payment information and passwords in the cloud.
They’re typically used on mobile devices but can also be stored on computers and laptops, and some of the most notable platforms include Apple Pay, Google Pay, and Samsung Pay.
3. Mobile payment apps
Also known as peer-to-peer payment apps, platforms like PayPal and Venmo allow regular users to send payments to each other, in a similar way to traditional bank transfers.
However, mobile payment apps are more streamlined than many traditional bank transfer services, removing the need to enter clunkily bank details, and letting users send and request funds simply by entering a recipient’s name, username, email, or mobile number instead.
Mobile payment apps also allow for business transactions. These tend to charge transaction fees, but they’re still useful for vendors who don’t have the existing infrastructure to handle other forms of digital payments.
Thinking of adopting the method? Here are some essential mobile payment statistics to know in 2025.
4. Credit or debit card
Credit or debit cards are physical payment cards that are primarily used for in-person transactions. Users can use credit or debit card devices to carry out payments in multiple ways.
Chip and pin payments utilize the Europay, Mastercard, and Visa (EMV) chip found in cards, and require authenticating the transaction by entering their personal identification number (PIN) into the card terminal.
Contactless, or ‘tap’ payments, can also be carried out by most credit or debit cards through the use of EMV and near field communications (NFC) technology, while swipe payments relay cardholder information through the magnetic stripe on the back of the device.
5. Biometric payments
Biometric payment technology uses biometric verification, like a fingerprint, facial pattern, or iris scan, to authenticate a payer’s identity, authorizing the deduction of funds from their account.
Lots of contactless payment platforms are already harnessing some form of biometrics to authenticate payments. However, in increasingly common cases, the technology is being used to support the full process, with Amazon Go stores across the US already accepting payments through the hand, face, or fingerprints of consumers.
6. Cryptocurrency payments
Cryptocurrency is a decentralized currency that’s not managed by mainstream financial institutions. While the payment method isn’t as commonplace as other options on this list, it’s been rising in popularity in recent years due to its quick payment delivery and comparatively low transaction fees.
Crypto-curious merchants can accept decentralized payments by setting up their own crypto-wallet or even selecting a POS that facilitates cryptocurrency transactions.
7. Gift cards
Prepaid cards and gift cards are digital payment methods that businesses can accept to encourage repeat buying. Working in a similar way to prepaid debit cards, businesses load the cards up with specific amounts, and the card can then be used to purchase products and services.
While physical gift cards have existed since retailers like JCPenney rolled them out in the 1970s, digital gift cards have emerged as a more convenient, environmentally conscious alternative, with the digital payment market expected to reach $510 billion in 2025.
8. QR Codes
QR (Quick Response) codes make it easy for customers to quickly pay. When a customer scans an establishment’s QR code on their phone, they will then be prompted to choose a digital payment method (such as debit card or Google Pay) to pay.
These are generally an extremely fast and secure way to make a payment, and the market is expected to grow 48% between 2025 to 2029.
How to Accept Digital Payments in Hospitality
Digital payments support the needs of fast-paced service businesses by helping servers to take payments quickly and securely. If you’re interested in digitizing your payment processes in 2025, we’d recommend setting up a POS system if you haven’t already.
POSs are dynamic business devices that let users log, track, and process digital payments. They facilitate a wide range of digital payment methods, and business owners are able to mix and match their POS hardware package depending on what payment options they wish to accept.
For example, if you want to accept chip and pin or swipe payments, you’ll require a traditional card terminal, whereas contactless card readers should suffice for businesses that are only interested in accepting tap payments.
Vendors can also accept payments through QR payments and BNPL services like Afterpay and Clearpay through POS providers like Square. So it’s always wise to consider how you’d like to accept payments before landing on a POS system.
Learn more about the best restaurant POS systems.
Benefits of Digital Payments for Business Owners
Digital payments bring a slew of benefits for business owners looking to modernize their processes. We discuss just a few of its upshots below.
- Enhanced security – The untraceable nature of cash makes it vulnerable to instances of fraud or theft. Digital payments, on the other hand, offer in-built security and verification mechanisms to protect users against these pitfalls, making it a more secure option overall.
- Greater cashflow visibility – Digital payments give business owners a granular overview of their income and expenditures, making it easier for them to make quick business decisions and plan for the future.
- Faster service times – By reducing the time spent fumbling for change, digital payments help staff serve customers faster than if they were using cash transactions. Not only does this result in more satisfied buyers, but it also benefits business profit margins by upping customer turnover.
- Improved payment accessibility – Consumers aren’t using cash much anymore, with 41% of Americans claiming to have ditched all physical currency in 2024. Therefore, by offering basic digital payment methods, as well as more niche options like crypto payments and BNPN services, you’re able to make your business more accessible to larger segments of the population.
- Greater business agility – Dropping cash-based transactions also makes it easier for businesses to scale, by lifting restrictions on mobility and facilitating faster payments.
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