Electronic payment for purchases has become the standard. Nearly nine out of ten Americans use a digital payment method, with 62% using more than two forms of digital payment, according to a 2022 McKinsey report. Tasks that were previously done on paper, such as sending and receiving money, are now primarily completed digitally. Small business owners may ensure their target clients can buy their products and services by being aware of common electronic payment systems and methods. That gives you a competitive edge.
Now, let’s take a closer look at electronic payments, understanding what they are, how they work, and the various types available to simplify your financial transactions.
What are Electronic Payments?
The increasing popularity of internet-based banking and e-commerce has led to a remarkable surge in the acceptance of electronic payments over the last ten years. People are increasingly using electronic payment systems and payment processing devices as more and more people look to transact in this way worldwide. Businesses will use checks and cash much less as these payment methods advance and offer safer online transactions.
Most services offered by electronic payment solutions are typically provided free of charge. Transaction fees may apply to purchases and other activities such as billing, making sizable payments, and international transfers.
How does Electronic Payment Systems Work?
There are various ways that electronic payments work, and there are numerous platforms available. You can use a bank card or bank account to deposit money into an account when you first open one. The amount you spend when shopping online is deducted from this balance. The money will be transferred similarly to an ACH payment if you are selling items. You can always access your bank account with this actual money in your account. The time it takes for the transfer to complete typically ranges from one to two business days, depending on the e-wallet you’re using. The electronic “superhighway” that electronic payments travel through finally directs the money into the bank account of the individual or company being paid. This method is less expensive, more secure than cash or paper checks, and more convenient.
You can still transact if a credit card or bank account is connected to your e-payment platform, even if you feel uneasy keeping money online. The system will immediately access your offline account’s financial information and deduct the necessary funds when you buy something. The e-payments service’s account details are all required to buy or sell.
Types of Electronic Payment Systems:
When referring to the types of electronic payment systems, you can decide how to choose an electronic payment system and the pros and cons of every payment type. Let’s explore various electronic payment methods and their advantages and disadvantages.
1. Payments with credit cards
You and your customers can make purchases using a credit line that a credit card company has provided by using credit card payments. The cardholder either pays off their entire credit card debt after each billing cycle or accrues additional debt in the form of interest on the balance after the credit card company settles the purchase debt with the supplier.
Pros
- Simple to Use: Credit cards are user-friendly when making purchases, and they can assist business owners in setting up their accounting procedures. For instance, you could set up a line of credit for operating costs and give your office manager and chief operating officer (COO) cards, which they could use to settle all of the company’s debts.
- Easy to track and separate expenses: By linking this card to an operating expense account, it becomes simpler to separate and track specific expenses. For business owners, accepting credit cards has additional benefits. Businesses that accept credit cards have an advantage over those that don’t because many customers prefer to use credit cards.
Cons
- Increased Processing Charges: A credit card payment processing fee, typically ranging from 2% to 5% of the total transaction cost, is levied on merchants by most credit card companies for each transaction.
- Costly: In addition, credit cardholders may incur additional costs if they fail to pay off their entire balance after each billing cycle. The average annual percentage rate (APR) for interest on a rollover balance is approximately 16%.
2. ACH Payments
ACH credits, or payments, are a popular kind of electronic payment. The Automated Clearing House (ACH) network, an electronic network that acts as a middleman between financial institutions, is where ACH credits are sent. Either ACH credits (payments) or ACH debits (withdrawals) apply to all ACH transfers. Let’s look at the Pros and cons of ACH Payments.
Pros
- Reduced Transaction Costs: ACH payments are safe and cost little per transaction; they usually range from 20¢ to $1.50, or 0.5% to 1.5% of the total transaction amount. Payroll direct deposits and other transfers are frequently free of charge.
Cons
- Payment Process is Slow: Batch processing is used to handle ACH transactions. While fees are reduced as a result, ACH payments may be processed more slowly than other electronic payment methods.
3. Direct Debit
A direct debit is one type of ACH transfer that uses the ACH network to move money between bank accounts. Many companies take ACH direct debit payments from their clients.
Pros
- Reduced Per Transaction Fee: ACH debit fees are normally between 0.5% and 1.5% of the total transaction cost. This makes ACH direct debits more affordable per transaction than credit card processing fees.
- Companies utilize it to settle invoices: Frequent recurring bill payments can be automated and incur no transaction costs, which eases administrative burdens and helps you pay your bills on time.
Cons
- High Processing Time: Processing an ACH direct debit takes longer than processing other electronic payment methods.
4. Digital Wallet
A user’s devices or the cloud can store various electronic payment methods, including debit and credit card payments, under one umbrella term called “digital wallet.”
Pros
- Simple for small, rapid payments: Customers can pay with their debit and credit cards more easily with digital wallets, providing an extra layer of security because your credit card number is hidden.
Cons
- Need Internet Access: To function, digital wallets require a charged device and occasionally an internet connection. Additionally, not all retailers accept payments made with digital wallets.
5. Wire Transfers
With wire transfers, there is no need for an intermediary like the ACH network to transfer money between banks.
Pros
- Quick Money Transfers: Normally, wire transfers take 24 hours to complete (sometimes instantaneously).
- Transaction Cost: Compared to ACH transfers, they typically have higher per-transaction limits.
Cons
- Increased Fees: The per-transaction fee for wire transfers is higher than that of ACH transfers.
- While wire transfers are a safe way to transfer money between bank accounts, they are also more frequently the focus of fraud since they happen quickly, making it impossible for a bank or company to halt a questionable payment.
Factors for Choosing Electronic Payment Methods
Businesses utilize electronic payments for both receiving and sending money. Before choosing electronic payment methods, consider the following factors:
- Consider your company’s requirements
- Clientele’s spending habits
- Your budget
- Technology of Payment Methods to use and accept money
Simplify Your Electronic Payment Experience with Cheqly!
Electronic payment systems have transformed the way we manage our finances in today’s rapidly evolving financial landscape, offering speed, security, and convenience that traditional payment methods can’t provide.
At Cheqly, we offer a range of payment options, from physical debit cards to virtual ones, wire transfers, and ACH transfers, all with real-time processing and no hidden fees. Sign up for a Cheqly account today and explore the full potential of your finances in electronic payments, where simplicity and security come together to offer a seamless and stress-free financial experience.