The World of Payments: Understanding Different Types of Payment Methods

Today, the world is your oyster when it comes to making payments. With the various types of payment systems available, you can pick and choose a convenient payment option to shop, pay, and transfer funds.

However, the world of payments can be confusing with so many different types of payment methods. Thus, here’s a guide to help you through this maze.

Different Types of Payment Systems 

1. Cash

While cash remains one of the oldest and most widely used types of payment methods, its importance today has declined with the rise of digital cashless payment modes.

2. Cheque

A cheque is essentially a paper voucher linked to your bank account. When the payee deposits this cheque into their bank account, the amount mentioned gets deducted from the payer's account.

3. Debit Cards

Debit cards are linked to your bank account and deduct the spent amount directly from your account. With swipe-and-pay convenience, debit cards eliminate the risk of carrying cash on the go.

4. Credit Cards

Credit cards come with a predetermined maximum credit limit. You can spend from the sanctioned credit limit and repay the amount later (with a 20-50-day interest-free window), making big-ticket purchases more affordable.

5. Prepaid Cards

Prepaid cards are preloaded with a certain sum. You can spend up to this preloaded sum and effectively curb debit card-related overspending issues.

6. Contactless Payments

Contactless payment systems use NFC (Near-Field Communication) technology to process payments without contact up to a certain limit. In other words, you can wave your debit/credit/prepaid card at NFC-enabled POS machines/readers to make purchases.

7. Offline Bank Transfers

NEFT (National Electronic Fund Transfer) and RTGS (Real-Time Gross Settlement) are the two ways you can make offline bank transfers. Both require you to fill up an application form with the sender’s and beneficiary’s bank details, amount, etc. However, these types of payment methods may be available only at select bank branches.

8. Online Banking

Online banking channels allow for both electronic fund transfers and merchant payments. Additionally, you can set up NACH mandates to automate payments. However, you will first have to sign up with your bank to avail of the benefits of this payment system.

9. Mobile Banking

Mobile payment systems bring you the convenience of making remote, in-person, or contactless payments via your smartphone. You can access this type of payment system via banking apps or mobile wallets.

Different Types of Payment Methods Gaining Traction 

• E-Wallets 

An e-wallet is a digital wallet that stores your account details and is linked to a credit/debit card. You can load money into the wallet and make instant payments.

• UPI 

The Unified Payment Interface is an interoperable payment system that allows you to send and receive money using any UPI-based app.

• Online Payment Platforms 

Safe and secured online payment systems like Google Pay, Apple Pay, and others allow you to make app-based contactless payments in seconds.

India’s Online Payment Migration 

The cash-dominated Indian economy has slowly moved to embrace the various types of cashless payment systems. Rapid digitisation and expanding internet penetration have contributed to the growth of different types of payment methods online in India.

These types of payment systems offer more than just 24x7 availability, top-notch security, and convenience. For instance, you can go online & open a Federal Bank savings account in 3 minutes — via the Fi Money app. No paperwork, no hassles! Fi, alongside its licensed partner Federal Bank, showcases the future of secure, digital banking. The app is designed primarily for working professionals in India. It can help you save up, invest wisely & analyse your expenses. If you upgrade to other account plans within Fi — you get access to premium features like Jump, US Stocks, Mutual Funds, etc. & not to mention up to 3% back as rewards! In short, Fi's an online money management solution that helps you get smarter with your money — in a fun & uncomplicated manner.

Frequently Asked Questions

1. What are the different types of traditional payment methods commonly used in retail transactions?

Cash and cheques are the most common traditional payment methods used in retail transactions.

2. How do credit cards work as a payment method, and what are their advantages and potential drawbacks?

Credit cards work on a deferred payment basis, allowing you to spend from the pre-sanctioned credit limit and repay the same later. Credit cards make big-ticket expenses manageable, help build a credit score, and offer exciting rewards. However, they also pose the dangers of overspending, high interest payments, and identity fraud threats.

3. What are the main differences between debit cards and credit cards as payment options?

When you use a debit card, the sum is instantly deducted from your bank account. Alternatively, the sum is deducted from the sanctioned credit limit when you use a credit card.

4. Can you explain the concept of mobile payment methods and how they are becoming popular in today's digital landscape?

Mobile payment methods are virtual payment tools like e-wallets and apps that allow you to make payments instantly via a smartphone. You just need a mobile payment tool linked to a functioning bank account. These types of payment methods are gaining popularity in the cashless economy today due to their convenience, safety, and 24x7 availability perks.

5. Are there any security concerns associated with online payment methods, and how can users protect their financial information while making transactions?

While mostly safe, online payment methods are susceptible to malware attacks, phishing, data leaks, and cyber attacks. You can protect yourself by enabling multi-factor authentication, creating strong passwords, and using secured networks to make payments.