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Types of e-commerce payment systems

11 MIN

Oct 30, 2023


Global e-commerce payments are projected to cross $8.7 trillion by 2026. This projection has been largely supported by the different types of e-commerce payments available to businesses and consumers. These payment systems allow businesses to accept payments from customers online, and offer diverse features and benefits to both parties. The following explores the most common types of e-commerce payment systems and how they stand globally.

Why do e-commerce payment systems matter?

E-commerce payment systems are digital highways that facilitate the flow of funds between consumers and merchants. Think of these systems as virtual cash registers, enabling us to transact seamlessly from our devices. They bridge the gap between global buyers and sellers, fostering a borderless marketplace.

Types of e-commerce payment methods

There are diverse e-commerce payment systems available, each with its pros and cons. The best payment system for a particular business will depend on several factors, like the type of products or services being sold, the target market, and the merchant's budget.

Digital wallets

Digital wallets like PayPal, Apple Pay, and Google Pay, have gained substantial popularity recently. These wallets allow users to securely store payment information and complete transactions with remarkable ease. According to Statista and Worldpay, digital wallets began matching credit cards in popularity for the first time in 2020 as the most favoured online payment method in the US—a trend that shows no sign of slowing down.

In 2022, Digital Wallets held a 48.1% market share, and that's expected to rise to 54.1% by 2026. The rise is due to the increased adoption of smartphones and easy-to-use apps worldwide.

Key Benefits of digital wallets

  • Convenience: Digital wallets eliminate the need for repetitive entry of payment details
  • Security: Encryption and authentication mechanisms protect user information
  • Speed: E-commerce transactions are expedited, resulting in a seamless checkout experience.

Drawbacks of digital wallets

  • Security concerns: Instances of breaches in digital wallets have raised concerns about data vulnerability
  • Selective merchant acceptance: Not all merchants universally embrace digital wallets, potentially leading to user inconveniences.

Credit and debit cards

Credit and debit cards are the second and third most popular payment methods respectively for e-commerce transactions worldwide. For instance, credit cards accounted for 20.0% of the total e-commerce transactions in 2022, and this is expected to decline to 18.1% in 2026. The decline in credit card use is driven by the growing popularity of mobile wallets and merchants' increasing acceptance of digital wallets.

Meanwhile, debit cards accounted for 12% of the total market share of transactions in 2022. This is expected to remain relatively stable in 2026. Debit cards offer the same level of buyer protection as credit cards. However, they do not allow customers to spend more money than they have in their bank accounts.

Benefits of credit and debit cards

  • Universal acceptance: Virtually all online merchants and platforms support credit and debit card payments
  • Accessibility: Credit cards extend lines of credit, while debit cards allow direct spending from accounts
  • Security: Credit card companies offer robust fraud protection, safeguarding both consumers and merchants.

Key Challenges of credit and debit cards

  • Fraud vulnerabilities: The spectre of credit card fraud persists, potentially rendering consumers liable for unauthorised charges
  • Fee structures: Credit card companies occasionally impose substantial fees on merchants, which may be passed on to consumers.

Bank transfers

Bank transfers are a type of e-commerce payment system that allows customers to transfer funds directly from their bank account to a merchant's bank account. This is the fourth most popular payment system for e-commerce transactions worldwide. They are relatively less expensive than credit cards. Bank transfers are also generally reliable, making them a top choice for many in some regions globally. For instance, according to the European Central Bank, 45% of e-commerce payments were made via bank transfers in 2020. While this could be linked to the covid-19 pandemic lockdowns, it’s still noteworthy.

In terms of global numbers, bank transfers accounted for nearly 9.9% of the 2022 market share. It is, however, projected to decrease marginally to 8.8% by 2026.

Advantages of bank transfers

  • Cost-effectiveness: Bank transfers often incur lower fees compared to credit card transactions.
  • Transparency: Funds are directly transferred between accounts, minimising intermediary involvement.
  • Cross-border efficiency: Bank transfers are ideal for international transactions, eliminating currency conversion fees.

Challenges with bank transfers

  • Processing time: Bank transfers can take several days to clear, potentially delaying transactions.
  • Lack of immediate gratification: In the fast-paced digital world, the delayed processing time of bank transfers might discourage users.

Buy now, pay later (BNPL)

Buy now, pay later (BNPL) is a growing trend in e-commerce, with transaction volume expected to reach $725.36 billion by 2030. This type of e-commerce payment system allows customers to split the cost of a purchase into smaller payments over some time. BNPL is becoming increasingly popular as it offers customers a more flexible way to pay for purchases. However, if used irresponsibly, BNPL can also be expensive, leading to debt problems.

Benefits of buy now, pay later (BNPL)

  • Financial flexibility: Consumers can access products immediately and defer payments
  • Streamlined process: BNPL platforms simplify checkouts, circumventing intricate credit checks
  • Enhanced conversion rates: Merchants often observe higher conversion rates when offering BNPL options.

Challenges with buy now, pay later (BNPL)

  • Overspending/debt concerns: The BNPL model might encourage overspending, potentially leading consumers into debt traps
  • Lack of regulatory framework: The BNPL industry is still evolving, lacking standardised regulations in some regions.

Mobile payments

Mobile payments are a payment method that allows customers to pay using their mobile phones. They can be made using diverse methods like near-field communication (NFC), QR codes, and voice commands.

Benefits of mobile payments

  • Convenient: Customers can make payments with a single tap or scan
  • Secure: Mobile payments use encryption to protect customer payment information
  • Rising adoption: Mobile payments are becoming increasingly accepted by merchants.

Key drawbacks of mobile payments

  • Limited coverage: Despite rising adoption, all merchants have yet to accept mobile payments widely
  • Requires a smartphone: Customers need a smartphone with a mobile payment app to use this payment method
  • Can be expensive: Mobile payment providers may charge fees for transactions.

Cash on delivery (COD)

Cash on delivery (COD) is a payment method where the customer pays for their purchase when it is delivered. The customer typically pays the delivery person in cash or by check. This is a popular payment method in some countries, but it can be inconvenient for customers who have to wait for their purchase to be delivered before they can pay for it.

The saying that cash is king no longer applies to e-commerce payments. While cash remains essential, in 2022, cash-on-delivery payments only accounted for 2% of global e-commerce transactions.

Advantages of cash on delivery (COD)

  • Familiarity and trust: COD leverages the age-old practice of in-person payment, fostering familiarity and trust among consumers who may be apprehensive about digital transactions.
  • Payment flexibility: Cash on delivery accommodates users who prefer cash payments and don't have access to digital payment methods. It also extends financial inclusivity to those without access to banking services.
  • Reduced risk for buyers: With Cash on delivery, consumers inspect the product before making the payment, reducing the risk of receiving damaged or incorrect items.

Challenges with cash on delivery (COD)

  • Customer inconvenience: Customers have to wait for their purchase to be delivered before they can pay for it
  • Increased delivery costs: Merchants may have to pay higher delivery fees for COD orders
  • Risky for merchants: There is a risk that customers will not pay for their orders.


Cryptocurrency payments, like Bitcoin and Ethereum, introduce a decentralised and groundbreaking approach to e-commerce transactions. It is a digital or virtual currency that uses cryptography for security. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature. It is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.

While cryptocurrency is used as a payment method for e-commerce transactions, it is not yet widely accepted by merchants. For instance, cryptocurrency e-commerce payments amounted to only $11 billion last year.

Benefits of cryptocurrency

  • Global connectivity: Cryptocurrency streamlines cross-border transactions sans the burden of currency conversion
  • Decentralisation: Transactions unfold directly between users, bypassing intermediaries and their accompanying fees
  • Fortified security: Cryptocurrencies incorporate cutting-edge encryption methodologies, heightening resistance against fraudulent activities.

Key challenges with cryptocurrency

  • Volatility: The price of cryptocurrency can fluctuate wildly, making it difficult to price goods and services.
  • Security: Cryptocurrency transactions do not offer the same fraud protection as traditional payment methods such as credit cards
  • Acceptance: Not all merchants accept cryptocurrency as payment.

Choosing a payment system

Selecting the most suitable e-commerce payment system is a strategic decision that businesses must undertake with careful consideration. The evolving landscape, diverse consumer preferences, and dynamic industry trends collectively shape the criteria that guide this pivotal choice.

1. Target audience demographics

Understanding the demographics of your target audience is a foundational element. Different generations exhibit varying payment preferences. Younger consumers gravitate towards digital wallets and cryptocurrency, while older segments may lean towards traditional credit cards or bank transfers. Tailoring your payment options to align with your audience's preferences can enhance customer satisfaction and conversion rates.

2. Industry type and complexity

The nature of your business significantly influences the choice of payment systems. For instance, high-risk industries might lean towards more secure options like credit cards. Meanwhile, low-cost products could benefit from the convenience of mobile payments or BNPL, streamlining the purchasing process for customers.

3. Regional and cultural variations

Geographical considerations are paramount, as payment preferences often vary across regions. Digital wallets dominate in one area, while bank transfers or cash on delivery are favoured in another. Adapting to regional payment norms can foster trust and facilitate smoother transactions.

4. Transaction speed and convenience

The speed and convenience of payment methods can impact customer satisfaction. Digital wallets and credit cards offer swift transactions, while bank transfers and cryptocurrency might entail longer processing times. Choosing methods that align with your customers' desire for efficiency can enhance their experience.

5. Security measures

Security is non-negotiable in the digital realm. Consumers prioritise payment methods that offer robust security features such as encryption, authentication mechanisms, and fraud protection. Opting for systems with proven security measures safeguards customer data and your business reputation.

6. Mobile optimisation

With the proliferation of smartphones, mobile optimisation is a key consideration. Payment systems that offer seamless mobile experiences, such as mobile wallets or mobile banking apps, resonate with users accustomed to making quick purchases on their devices.

7. Cost structure

Different payment systems have varying cost structures, including transaction fees and processing charges. Considering these costs is crucial for maintaining healthy profit margins. For instance, credit card transactions often incur higher fees compared to bank transfers.

8. User experience

User experience encompasses everything from the checkout process' simplicity to the available payment options. A hassle-free, user-centric experience can significantly impact customer loyalty and brand perception.

9. Future-proofing and innovation

As technology evolves, payment methods continually advance. Adopting innovative methods like cryptocurrency or BNPL can position your business as an early adopter and cater to tech-savvy consumers.

10. Regulatory compliance

Navigating the regulatory landscape is pivotal, particularly for newer payment methods like cryptocurrency or Buy Now Pay Later. Ensuring that your chosen methods align with regional regulations can avert legal complexities.

11. Integration with existing systems

Seamless integration with your existing e-commerce infrastructure, PMS, website or mobile app, is essential for a consistent customer journey. Compatibility ensures that transactions unfold smoothly and without hitches.

12. Customer support and returns

When evaluating potential payment partners, prioritising those who excel in customer care can contribute significantly to the success and satisfaction of a business's payment operations.

Closing thoughts

The decision of which e-commerce payment system to offer involves meticulous analysis of factors ranging from your audience's preferences and industry to regional variations and security measures. Crafting a payment ecosystem that balances these considerations fosters a seamless customer experience and positions your business for success in the ever-evolving e-commerce landscape.

While digital wallets continue to take the lead among e-commerce payment systems, one thing is certain. The e-commerce payment system provides the best user experience that’ll ultimately rule the future.


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