13 Different Types of E-commerce Payment System

E-commerce payment system is an electronic payment system that facilitates online transactions without the need for physical cash or checks. This method allows businesses to receive payments globally.

E-commerce has rapidly expanded in the past few decades with the convenience of shopping from your home or a remote place. According to Statista’s 2026 projection, e-commerce sales are expected to exceed 8.5 trillion U.S. dollars worldwide.

E-commerce payment methods, like credit cards, debit cards, mobile wallets, net banking, cryptocurrency, etc., allow customers to pay according to their convenience, each with its own set of advantages and disadvantages.

The Geekflare team has compiled a guide to different types of e-commerce payment systems, analyzing their working, user experience, regulations, benefits, and challenges.

• 1. Cryptocurrency – Best for Decentralized Payment
• 2. Credit Card – Best for Rewards and Security
• 3. Remittance – Best for Cross-Border Transactions
• 4. Debit Cards – Best for Customers with Limits on Spend
• 5. Prepaid Cards – Best for Gen Z and Millennials
• 6. Smart Cards – Best for Securing and Storing Large Data
• 7. Buy Now, Pay Later – Best for Paying in Installments
• 8. Cash On Delivery – Best for Technologically Challenged Customers
• 9. Mobile Payments – Best for Smartphone Users
• 10. Netbanking – Best for Regulated Transactions
• 11. Bank Transfers – Best for Secured Transactions
• 12. E-Wallet – Best for Faster Payments
• 13. E-Checks – Best for US-based Transactions
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1. Cryptocurrency

Cryptocurrency is a digital currency not issued by any banks or central authority.. Its peer-to-peer ecosystem enables businesses to send or accept payments from anywhere in the world.

Transactions are secured by cryptography, meaning information is encrypted and sent as unique codes.  This decentralized payment system supports a growing market, with revenue from cryptocurrency payments poised to reach US$51.5 billion in 2024.

Online retailers like Rakuten, Shopify, etc. widely accept cryptocurrencies like Bitcoin and Ethereum.

How Does Cryptocurrency Payment Work

Sending and receiving cryptocurrency payments require a digital wallet, a payment gateway, and a cryptocurrency exchange such as Coinbase. 

Here are the quick steps to set up your crypto payments.

• Set up a digital wallet to accept payments from the customer’s wallet. 
• Choose a crypto payment gateway to process the payments at checkout. 
• Integrate BTC payment via third-party plugins or apps. Online store builders like Shopify, WooCommerce, and Magento offer built-in plugins. 
• Exchange your cryptocurrency from a crypto exchange platform, considering factors like market value and pricing. 

2. Credit Card

Credit card is an e-commerce payment method that offers a credit limit from banks or financial institutions for shopping and other transactions. 

Credit cards are the staple of the US payment system and, overall, the second most popular online payment method in e-commerce. This rise in the usage of credit cards is because of its convenience, which allows payers to borrow money from cardholders to make payments. Payments are processed by credit card processing companies like Stax, Stripe, PayPal, etc. 

However, businesses must stay PCI-compliant when accepting credit card payments. The processing fees range from 1.5% to 3.5% per transaction. 

How Credit Card Payments Work

Here’s a simplified breakdown of how credit card payments work. 

• The customer enters the card details in the checkout step. 
• The payment gateway securely encrypts the information and transfers it to the payment processor. 
• This payment processor then transfers this information to the card networks, like Visa and Mastercard. 
• The card network transmits the same information to the customer’s credit card issuer/bank, which checks for the available credit limit. 
• Next, the customer’s bank approves or declines the payment and passes this information back to the card network, which then passes it to the payment processor and payment gateway. 
• After the approval, the fund transfer is initiated from the customer’s bank to the merchant account. 

3. Remittance

Remittance refers to the digital transfer of funds from one individual or party to another.

Remittance is the best e-commerce payment method for cross-border transactions. The payment transfer can be made through bank accounts, wire transfers, and online payment platforms like PayPal and RazorPay. 

For businesses seeking additional flexibility or specific features, PayPal alternatives like Stripe, Payoneer, and Wise offer robust solutions tailored to different business needs. These alternatives may provide lower fees, better customization, or more advanced security features, depending on the provider.

For seamless international transfers, many businesses also rely on virtual IBAN providers. These allow businesses to manage cross-border payments efficiently, offering unique IBANs for different transactions without the need to maintain multiple bank accounts. This streamlines remittance and simplifies global financial operations.

Because of its global acceptance, the transactions through remittance are projected to reach US$151.30bn in 2024, as per Statista. Different countries have different regulations and laws for cross-border remittance, leading to limits in transactions. 

When accepting payments, remittance fees vary based on the service provider, transfer amount, destination country, and the chosen speed of transfer. However, the charges are still lower than those for credit cards. 

How Remittance Works

Remittance works by first choosing a payment gateway that includes a bank account and payment preferences and provides faster transactions and low surcharges. Depending on the types of payment gateways available, businesses can opt for those that best suit their needs, such as hosted, API-hosted, or local bank integration gateways. After the sender enters the recipient’s bank account information and transfer amount, the remittance provider contacts the bank to determine the availability of funds. After the transfer of funds, the foreign currency is converted, and exchange rates are levied.

Some transfers may take up to 3–4 days to complete, while others may take only a few hours.

4. Debit Cards

Debit card is a widely accepted e-commerce payment system, ideal for customers who have set their financial limits. Research suggests that debit cards account for 12% of online transactions in America in 2022, as per Oberlo. However, this is relatively going to be stable after 2026. 

Different countries have different regulations and acceptance laws for cards such as Visa, Mastercard, and AMEX. 

How Debit Cards Work

Debit cards work in the same way as credit cards. The difference is that the customer’s bank checks for sufficient funds in the bank account instead of a credit limit while making the payment.

5. Prepaid Cards

Prepaid cards, also known as store-valued cards, are preloaded with a specific amount of money. Keeping it does not require a bank account or a good credit history. Shoppers can purchase the prepaid cards from a store or an e-commerce website. For this reason, young generations and GenZ have embraced the use of prepaid cards. 

The adoption of prepaid cards is estimated to increase at a CAGR of 16% from 2023 to 2030. Like credit cards and debit cards, prepaid cards are also issued by Visa, Mastercard, JP Morgan, AMEX, etc. 

Prepaid card transactions have different regulations than banking cards, and hence, they require additional fraud protection measures. 

How Prepaid Cards Work

Prepaid cards work the same way as debit cards. Once the customers enter their card details and transaction amount, the payment processor connects it with the card association. 

The card association then checks for the available balance and approves if the balance is higher than the transaction amount. 

Upon approval, the funds transfer seamlessly from the card provider to the merchant’s bank account.

Additionally, businesses may use virtual card providers to issue prepaid virtual cards. These virtual cards work similarly to physical prepaid cards but offer more flexibility and security by generating unique card numbers for online purchases. This helps businesses control spending limits and minimize the risk of fraud during e-commerce transactions.

6. Smart Cards

Smart card is a form of debit or credit card that has a microprocessor chip embedded in it. Also called an EMV card (Europay, Mastercard, and Visa), the card is designed to store large amounts of data and process transactions. 

The chip can also store other information such as PINs, private keys, account numbers, passwords, and personal information. Smart cards offer higher security than other cards, with features like biometrics and high-grade encryption. 

The Smart Card Market size is estimated at USD 18.69 billion in 2024 and is expected to reach USD 28.22 billion by 2029, as per Mordor Intelligence.

How Smart Cards Work

Smart cards are usually more viable in offline transactions – using a POS machine or a card reader. Smart cards contain microchip processors embedded in a contact pad. 

Smart cards interact with the card reader through swipe or tap. When a user swipes the card into the card reader, the reader can read the transactions and initiate the transaction. Similarly, when a user taps the card, the card reader connects through a contactless radio frequency interface, enabling transactions. 

However, online transactions work in the same way as credit and debit cards. Here, the payment gateway connects with the microprocessing chip. This chip participates in the transaction and encrypts the card number as well as the PIN.

7. Buy Now, Pay Later

Buy Now, Pay Later is a popular payment method that allows customers to purchase products upfront and pay later for them. The customer has the flexibility to pay the full amount later or divide them into small investments. 

Because of this payment model, BNPL is growing rapidly among the millennials and GenZ. BNPL’s user base will reach 900 million users by the end of 2027, according to Juniper Research. 

However, customers hesitate to embrace BNPL because of security risks such as identity theft and data leaks. Various BNPL providers, such as Klarna, Affirm, Afterpay, and Simpl, offer fraud protection for merchants and customers. 

The BNPL model is not regulated in countries like the USA and the UK, and hence, it does not guarantee the projection against the loan taken. 

How to Buy Now Pay Later Works

Here is a quick rundown of how BNPL works for merchants: 

• The merchant creates an account and signs the agreement with a third-party BNPL provider. 
• After signing the contract, the merchants can integrate this into their checkout page. 
• When the customer chooses the BNPL as payment mode, the BNPL provider runs a soft credit check for approval. 
• After the approval, the provider pays the full amount to the merchant, while the customer has the option to choose an installment cycle. 

8. Cash On Delivery

Cash on Delivery is the traditional method of payment in e-commerce. As the name says, the customer pays the amount to the courier provider at the time of delivery. However, this payment method has declined drastically in the last few years with the introduction of digital e-commerce payment methods. 

Global Payments Report 2023 predicts the Asia-Pacific region as the most popular for cash on delivery, with Vietnam topping the list. Most customers with no bank accounts or a lack of access to online payments prefer paying through cash. 

Some percentage of customers prefers it because they feel paranoid about using online methods for security reasons. 

How Cash on Delivery Works

Cash on delivery doesn’t provide instant payment to the merchants. After the buyer chooses the payment method of COD, the seller prepares an invoice and dispatches the order. 

The delivery agent collects the amount at the time of delivery. 

Next, the logistics company deposits the cash at the e-commerce portal or their local office. Then, the e-commerce company transfers the amount to the seller’s account. 

9. Mobile Payments

Mobile payments allow customers to transfer the amount directly to the seller through their mobile device. The increased adoption of smartphones has encouraged mobile payment technologies. The global mobile payment technology is projected to increase from USD 942.3 Billion in 2022 to USD 2983.9 Billion by 2032 as per Spherical Insights. 

Mobile payments can be made using features like near-field communications, voice commands, or a QR scan. As mobile payments rise, government regulations focus on setting laws to promote security, competition, and consumer protection.

Mobile payment apps like Google Wallet and Apple Pay allow the customer to transfer the amount from their bank account or credit card to the seller’s account. 

How Mobile Payment Works

Mobile payments work seamlessly in a few steps: 

• Mobile payment options are available either on a proprietary app or by redirecting the customer to a third-party app. 
• Once the customer proceeds to checkout and chooses Mobile payment as the preferred method, the mobile payment app sends the request to the customer’s bank account for authentication. 
• The payment processor secures the bank account number or credit card information by replacing it with a tokenized number. 
• This tokenized number is used to process the payment and deduct the funds from the customer’s account. 
• After verifying the payment, these funds are directly transferred to the seller’s linked bank account. 

However, the customer has to pay 1-3% of the purchase amount, whereas the merchants need not pay anything. 

10. Netbanking

Netbanking or Internet banking is a payment system in e-commerce for transferring funds to the seller without visiting the bank. Net banking facilitates a seamless connection between the customer’s accounts and digital marketplaces.

Users can make secure purchases, track their transactions, and manage their accounts using this payment method. 

With around 71% of US customers embracing Internet banking, e-commerce merchants are widely accepting this payment system. Moreover, online banking is facilitated by the banking institution, holding them accountable for safeguarding their customer’s privacy and regulating their payments. 

Banks use various security measures like 256-bit data encryption, 2FA, automatic logouts, PIN authentication, OTP authentication, and firewalls for untrusted networks.  

Banks charge around 1-3% of the transaction amount for accepting net banking as payment. 

How Netbanking Payments Works

To accept Internet banking payment as a business, you’ll need a merchant account. The merchant then integrates a payment gateway into their e-commerce website, where the payment authorization takes place. 

When the customer chooses net banking on the checkout page, they are redirected to the Internet banking portal. The customer selects the main account and proceeds with the payment authorization. After the authorization, the customer’s bank redirects the customer to the merchant’s website. 

Finally, the payment gateway confirms the transaction and transfers the funds from the customer’s account to the merchant account. The transfer may take several hours to a few days to initiate the payment. 

11. Bank Transfers

A bank transfer refers to the transfer of funds from one account to another using a banking app. This is slightly different from Internet banking, where users have to register and generate a username and password. 

Bank transfers can happen using the proprietary mobile app, where the senders enter the receiver’s account information to transfer the funds. However, the bank transfer method has declined in the last few years with the adoption of new technologies like cryptocurrency, mobile wallets, and Buy Now, Pay Later. 

It remains the fourth most popular e-commerce payment system in e-commerce. Bank transfers offer the same level of protection as net banking. 

How Bank Transfers work

Similar to net banking, customers can accept bank transfer payments. All you need is a merchant bank account to accept payment and integrate it into your e-commerce website. Upon checkout, the customer initiates the payment with a transfer amount. 

Once the customer enters the PIN and OTP for authentication, the payment gateway verifies the payment and enables a seamless transfer of funds to the merchant account. 

12. E-Wallet

E-wallets or digital wallets are the most popular online payment method in e-commerce that eliminates the need to enter bank details or credit card information. Customers can transfer the funds through a QR code scan or merely a virtual wallet number. 

For this convenience, digital wallets account for around 49% of global e-commerce transactions, as per Statista. This is projected to increase to 54% by the end of 2026. Digital wallet providers like Apple Pay, PayPal, and Google Wallet offer multiple levels of security layers, such as encryption, tokenization, and 2FA, to enable secured transactions. 

How E-Wallet Payments Work

E-wallets work the same way as mobile payments for accepting and sending payments. To accept payments via e-wallet, follow these steps.

• Register your merchant account with the digital wallet provider of your choice. 
• Next, the merchant needs to integrate the wallet using a plugin or a source code. 
• When the customer prefers to pay via digital wallet, they can use biometric authentication or OTP for verification. 
• After the sender verification, the funds from the sender’s wallet are transferred to the merchant’s wallet.

13. E-Checks

E-checks or electronic checks are one of the oldest online payment systems that make payments from your checking account. It works in the same way as the traditional check, but instead of tearing a paper check, the customer enters the information, such as the sender’s account number, routing number, and payment authorization. 

E-check payments are initiated through the Automated Clearing House (ACH), which is pivotal to digital payments in the USA. E-checks are more secure than their paper counterparts since they offer an additional layer of protection and higher encryption for both merchants and customers. 

How E-checks Work

Here’s a typical process of how merchants can accept payments via e-checks. 

• Merchants sign up for an ACH account with e-check providers like Stax Payments and Seamless Chex. 
• The business account registration includes information such as business information, banking details, and contact information.
• After registration, the merchants can integrate these e-checks through a plugin or an API. 
• Once the customer initiates the payment through e-check, the e-check provider authenticates the transaction and deducts the funds from the customer’s account. 
• The payment may take 2–3 days to reflect in the merchant account after the verification. 

What Are the Criteria for Choosing an E-commerce Payment System

The e-commerce industry has erupted with so many E-commerce payment options, and it’s not possible to choose all of them. Hence, it is important to consider some factors when deciding how to accept online payments. 

Consider the following factors when selecting an e-commerce payment method.

Security 

Security plays a significant part in safeguarding merchants’ and customers’ sensitive information. It is vital to choose an e-commerce payment method that offers basic to advanced security measures like encryption, authentication mechanisms, and fraud protection. 

Some payment methods, like mobile wallets, go the extra mile by using biometrics and real-time payment authentication.

Fees and Pricing

Pricing is significant for small businesses that have low-volume transactions. Different payment methods have different structures and costs, such as processing fees and transaction fees. Depending on your business type and transaction amount, the cost structure may impact your profit. 

For instance, credit and debit cards charge higher commissions, as much as 4%, which is not a viable choice for smaller transactions. Some payment options charge a monthly or a contractual fee, while others charge per-transaction fee. 

It is always profitable to enter into a monthly subscription or contract for high-volume transactions. 

User Experience

User experience covers various aspects like navigating to the third-party site, quick payment processing, and hassle-free payment options. These factors can significantly impact customer loyalty and result in brand reputation. 

Regulatory Compliance 

Regulatory compliances and laws vary from one region to another. Merchants should consider an e-commerce payment method that follows regulatory laws and complies with country-standard laws.

Ensure that the payment method aligns with the regional regulations of your target audience.

Integration with the Existing Provider

Ensure that the chosen e-commerce payment method offers seamless integration through plugins, web apps, or simple API integration. The integration process should be seamless and free of technicalities. 

Mobile Optimization

With around 187.5 million mobile shoppers worldwide, it makes sense to use a mobile-optimized payment method for your e-commerce business. The e-commerce payment method should offer a mobile-friendly experience and faster payment options for shoppers. 

Mobile payments and digital wallets like Apple Pay and Google Pay resonate with users, offering them quick payment transfers and consumer protection. 

Target Audience and Demographics 

Consider your target audience and demographics, like the age group and their region compliance. Different age groups prefer different payment methods. Younger generations like Genz and millennials are more inclined towards cryptocurrency and digital wallet payments. 

While older customer segments are slightly shifting to these payment methods, a majority of them still prefer paying through bank transfers and credit cards.

What Is the Commonly Used E-commerce Payment System?

Digital Wallets, Credit cards and debit cards are the commonly used e-commerce payment systems. As per Federal Reserve Payments Study, over 90% of the users possess debit cards, and 84% of the US population have credit cards; these payment methods are widely adopted across the countries. 

As of October 2023, the global card purchase volume reached $42.7 trillion, with 50% of those transactions through e-commerce websites. Credit cards and debit cards stand out for their ease of use, quick payment processing, and regulated security measures for safeguarding consumer data. 

What is the Rarely Used E-commerce Payment System?

According to Statista, cryptocurrency, prepaid cards, and cash on delivery are the least used E-Commerce payment systems. Businesses do not widely accept cryptocurrency for a number of reasons:

• The volatility in prices leads to a low exchange price for the businesses, impacting their revenue. 
• Crypto payments offer no consumer protection, and the chargebacks are expensive. 
• Due to its unregulated nature, the user is only responsible for the security risks or frauds. 

Cash on delivery has significantly reduced from 2019 to 2022 and is further projected to come down to 1% from 2% by 2026, as per the FIS Global Payment Report. This decline is attributed to a number of reasons, like increased adoption of digital payment methods, high shipping fees, and complex refund methods. 

How Does an E-commerce Payment System Work? 

E-commerce payment systems work by facilitating the secure transfer of funds from the customer’s account to the seller’s account by using various elements. These elements include payment gateways, payment processors, merchant accounts, and security measures. 

These elements work together to facilitate the transfer of funds, depending on the business setup and the working of different payment systems. 

Here’s a quick step-by-step procedure of how e-commerce payment systems work: 

• The customer selects their preferred payment method on the checkout page. 
• After the customer enters the payment information, such as credit card or debit card number, it connects with the payment gateway.
• The payment gateway acts as an intermediary between the merchant and the payment processor (like a buyer’s bank). It verifies the transaction details, encrypts the data for security, and forwards it to the appropriate financial institution for approval.
• The payment processor or a buyer’s bank receives the transaction request, checks for available funds, and verifies the authenticity of the transaction.
• After verification, the bank sends back an approval and an authorization code to the payment gateway. 
• The payment gateway loops back to the e-commerce website with a confirmation. 
• After a few minutes, hours, or days, the seller receives the funds from the payment processor via the payment gateway.

What is the Role of Payment Gateways in E-commerce Payments?

Payment gateways act as a bridge between the merchants and the payment processor or buyer’s bank. It encrypts sensitive customer information (such as credit card numbers, CVV codes, and billing addresses) into a token number or authorization code. 

Every e-commerce website has to integrate with the payment gateway to ensure the secured passage of funds from the buyer’s account to the seller’s account. It is also vital to choose a payment gateway that integrates with various payment methods like credit & debit cards, digital wallets, ACH, and cash on delivery. 

What are the Types of Online Payment Systems?

The most popular payment systems are digital wallets (49%) and credit cards (20%), followed by debit cards (12%), according to FIS Global. Digital wallets are popular because of their fast online payment processing and low transaction fees. Each of these payment systems varies in terms of processing time, security, regulatory compliance and user experience.

Credit cards and debit cards excel in their secured transactions through the PCI DSS interface that safeguards consumer data and protects against fraud and identity theft by encrypting the card information. 

What are the Best Payment Processors?

The best payment processors are Stripe, Authorize.net and Square. Authorize.net is known for offering various payment options, including credit cards, contactless payments and eChecks. It offers several security features to protect customer data and manage large numbers of customers on the go.

Currently, it has more than 430,000 merchants, handling more than 1 billion transactions. As the largest payment processor, it integrates with various POS (point of sale) hardware and various business software. 

Furthermore, Authhorize.net also provides several tools to merchants to be PCI DSS compliant for processing. 

What Are the Other Best Enterprise Software?

Below are some of the other best enterprise software that help enterprises manage tasks efficiently, automate mundane tasks, eliminate human errors, and increase efficiency.

#1. Salesforce

Salesforce is an all-in-one e-commerce solution that allows you to create a personalized and seamless customer experience across all channels. It provides AI personalization and integration capability with technologies like ERP, OMS, CRM, and marketing automation. Salesforce offers API integration for custom software. The platform manages the traffic and can scale the resources up and down effectively. 

#2. SAP Hybris

SAP Hybris is an omnichannel commerce platform that manages marketing, commerce, and sales operations. Its USP lies in centralizing the data and analytics to help enterprises with various tasks such as order management, product management, personalization, and customer management. It integrates with other SAP products and third-party platforms such as Salesforce, Adobe Experience Manager, and Marketo. 

#3. HubSpot Sales Hub Enterprise

HubSpot Sales Hub Enterprise enables managing sales analytics, forecasting, sales engagement tools, advanced permissions, and conversation intelligence for enterprises. It stands out for its ability to create custom objects specific to a business goal for effectively monitoring and tracking the information.