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Rise of digital and alternative payment methods
Imagine running out for a quick coffee and realizing that you've forgotten your wallet. No problem, you can grab your phone and complete the purchase in seconds. Convenient, right? Or, let's say you just finished adding items to your cart while shopping online, and you can pay instantly through UPI, cards, or even digital wallets. Convenient, right?
Digital payments aren't just conveniences any more, they’re the new standard. They have become so deeply enmeshed in daily life that operating without them now can feel almost impossible. Digital payments are more than just transactional tools, they’re reshaping industries, expanding markets, and redefining how commerce operates.
Rise of digital and alternative payment methods
What are digital and alternative payment methods?
Digital and alternative payment methods refer to electronic forms of payment that move money between parties without the need for physical cash or checks. These methods leverage technology to facilitate quick, secure, and convenient transactions.
The shift towards digital transactions
Businesses and consumers alike are gravitating toward digital payment methods due to their speed, security, and efficiency. While cash might have traditionally been the foundation of commerce, its dominance is steadily declining. In the US, while cash remains in use, there's a notable decline in its prevalence. A 2023 study revealed that 53% of Americans used digital wallets more frequently than traditional payment methods, with 64% using digital wallets at least as often.
Similarly, in India, the Unified Payments Interface (UPI) has driven a digital payment revolution, facilitating billions of transactions monthly and enabling direct bank-to-bank transfers with ease. It has become the most used digital payment method, and even processed over 16 billion transactions in October 2024 .
This shift isn’t just about convenience; it’s about economic transformation. Digital transactions are reducing costs for businesses, enhancing financial inclusion, and streamlining cross-border trade.
Exploring digital and alternative payment methods
As the financial ecosystem evolves, several alternative payment methods have gained prominence.
Digital wallets
Platforms like Apple Pay, Google Pay, and PayTM securely store users' payment information, enabling swift, one-tap transactions online and in-store. These wallets link directly to bank accounts, cards, or stored balances, facilitating seamless payments without the need for physical cash or cards.
By 2025, digital wallets are projected to account for over 50% of global ecommerce transactions, up from just over 40% in 2021. A popular use case is ride-hailing services, where customers pay instantly via their linked wallets without needing to enter payment details for each ride.
Contactless payments
Near Field Communication (NFC)-enabled debit and credit cards allow users to make secure payments with a simple tap, reducing transaction times compared to traditional chip-and-PIN methods. This technology has surged in adoption, especially in post-pandemic retail settings, with about 90% of consumers preferring contactless cards for in-person transactions. This method is particularly useful in high-traffic environments like metro stations and fast food chains, where speed and hygiene are priorities.
Buy Now, Pay Later (BNPL)
BNPL services, like Klarna and Affirm, allow consumers to split purchases into interest-free installments, making it easier to afford high-ticket items without upfront full payments. These services work by integrating directly with merchants at checkout, offering installment options instantly. In India, ecommerce platforms and marketplaces increasingly cater to consumers who prefer flexible credit options, particularly in the B2C segment. A common use case is online fashion retailers, where customers can purchase products immediately and pay over time without incurring interest.
Account-to-Account (A2A) payments
A2A payments involve direct bank-to-bank transfers, eliminating intermediaries like card networks and reducing transaction costs while offering faster settlements. This method powers real-time payment systems (RTPS), Automated Clearing House (ACH) transfers, and National Electronic Funds Transfer (NEFT) transactions.
Globally, A2A payments are projected to grow from 60 billion transactions in 2024 to 186 billion by 2029, a 209% increase. A2A is widely used in business-to-business (B2B) transactions, such as supplier payments, where companies benefit from lower fees and instant fund transfers.
QR code payments
QR code payments enable users to scan a merchant's code using their smartphone to initiate a transaction, linking directly to bank accounts or wallets. In India, platforms like PhonePe and Google Pay have popularized QR payments through UPI, contributing to the country's high fintech adoption rate of 87%, compared to the global average of 64%. This method is commonly used by many small businesses and street vendors, allowing them to accept digital payments without requiring expensive point of sale (POS) terminals.
Cryptocurrencies
QR code payments enable users to scan a merchant's code using their smartphone to initiate a transaction, linking directly to bank accounts or wallets. In India, platforms like PhonePe and Google Pay have popularized QR payments through UPI, contributing to the country's high fintech adoption rate of 87%, compared to the global average of 64%. This method is commonly used by many small businesses and street vendors, allowing them to accept digital payments without requiring expensive point of sale (POS) terminals.
Transforming payment acceptance for businesses
Digital transactions are doing more than just making payments convenient; they are altering how businesses operate. Subscription models, ecommerce businesses, and online storefronts have thrived because instant, automated payments make them viable. eCommerce, SaaS companies, and even traditional industries like healthcare and education have pivoted their business models to capitalize on seamless digital payments.
For businesses, the ability to accept multiple payment modes from their customers is a necessity, hence choosing appropriate payment providers is important. For example, in India, Zoho Payments enables payment acceptance through cards, UPI and netbanking, functioning as an online payment aggregator, officially authorized by the Reserve Bank of India (RBI). In the US, businesses can accept payments through ACH, and cards, in 135+ currencies.
Conclusion
Digital payments are defining the future of commerce, with transaction volumes projected to reach $20.37 trillion globally by 2025. Businesses that embrace digital payments and provide various modes of payment acceptance to their customers will have a competitive edge. Whether it’s through digital wallets, A2A transfers, or contactless payments, the ability to offer flexible and secure payment options is essential for businesses. While cash remains in use, the convenience, speed, and security of digital payments are driving their adoption across various sectors. As technology evolves and consumer preferences shift, these methods are poised to become the new norm in global commerce, shaping the way the world transacts.