Card payments: Credit cards and debit cards

Credit and debit cards are the most widely used online payment method in the US. These cards allow consumers to make purchases by entering their card details on merchant websites. Credit cards allow consumers to make purchases on credit, up to a predetermined limit set by the issuing bank. Debit cards are linked directly to the user’s bank account, and funds are deducted immediately upon making a purchase.

Card payments are regulated by the PCI DSS established by the five major card networks, Visa, Mastercard, JCB, Discover Financial Services, and American Express. Card payments are the most popular form of online payment methods, with 54% of Americans preferring to use credit cards, and 49% preferring debit cards, according to a recent YouGov study profile.

Here’s a more detailed look at how they work.

• Issuing bank: The cardholder's bank, which provides funds for the transactions from the cardholder's account.

• Acquiring bank: The bank that receives credit or debit card payment transactions for the merchant.

• Payment processor: Facilitates the transaction by communicating with the banks involved and the card networks.

• Card networks: Major card networks such as Visa, Mastercard, JCB, Discover Financial Services, American Express, and the like provide the infrastructure for secure card transactions.

When a consumer makes a purchase through the merchant's online store, the payment processor authenticates and processes the request by sending it to the acquiring bank. Then, the card network and the issuing bank verify the account details and process the payment. The funds are finally deposited into the merchant's account through the processor. Robust fraud protection measures, such as tokenization and encryption, are used to safeguard cardholder data.

Bank transfers: ACH and wire transfers

Bank transfers usually include ACH (Automated Clearing House) transfers and wire transfers.

ACH transfers

ACH transfers are electronic payments made through the ACH network, commonly used for payroll, direct deposit, and recurring bill payments. ACH transfers are overseen by the National Automated Clearing House Association (NACHA) and the Federal Reserve. They offer a reliable and secure way to transfer funds, typically taking one to two business days to process. ACH transfers are popular among businesses of all sizes, particularly for recurring transactions due to their low cost and reliability. A significant advantage is their cost-effectiveness compared to wire transfers.

Wire transfers

Wire transfers are electronic transfers of funds from one bank account to another, often used for large, one-time payments. They are typically faster than ACH transfers, processing within a few hours to a day, but can be more expensive. Wire transfers are preferred for their ability to transfer large amounts of money quickly, making them suitable for high-value transactions. They are commonly used by large corporations and businesses that require immediate fund availability. Despite their speed and reliability, wire transfers are less popular for everyday transactions due to higher fees.

Digital wallets

Digital wallets, such as Apple Pay, Google Pay, and Samsung Pay, store payment information on mobile devices, enabling users to make online and in-store purchases with a tap or click. These wallets often use Near Field Communication (NFC) technology for contactless payments and are regulated by various financial institutions and technology companies.

These wallets offer enhanced security features, including biometric authentication and tokenization, making them a secure and convenient payment method. They have gained popularity due to their ease of use and the additional layer of security they provide. A distinct feature that sets digital wallets apart is their ability to integrate loyalty programs and discounts seamlessly into transactions.

Other online payment methods

Some other payment methods include cryptocurrency, gift cards, and prepaid cards. Cryptocurrency is a form of digital currency that runs on blockchain technology. It enables users to make online payments through secure transactions encrypted with cryptography. Gift cards can be used online by entering the card number and PIN during checkout, making them a flexible payment option for consumers. Prepaid cards are loaded with funds in advance. Additionally, buy now, pay later (BNPL) services like Klarna and Afterpay are gaining traction, allowing consumers to split purchases into interest-free installments.