Digital payments: A small business guide

Preparing your small business to process digital payments is more important than ever. Did you know 58% of people believe card payments are the payment method most likely to encourage higher spending?

Digital payments, or electronic payments, are becoming one of the most common types and have the potential to make your business more efficient and accessible to customers. 

These include all noncash and noncheck methods, while mobile payments are made using mobile devices. Read our small business guide below to learn how digital payments work:

• Types of digital payments
• Mobile payments
• Benefits of digital payments
• Challenges of digital payments
• Frequently asked questions

Types of digital payments

Digital payments come in a variety of cashless and contactless forms. Although most digital payments are interchangeable, each type of digital payment has its own use case, pros, and cons that we’ll explore further.

Debit and credit cards

Choosing not to accept a common form of payment can put small businesses at a competitive disadvantage. Accepting card payments requires a payment system, including a merchant account for your business and a point of sale (POS) or payment portal to facilitate transactions. 

Payment gateways provide a secure pathway for payments to move from your customer’s bank account to your merchant account and, eventually, your small business bank account. 

So, what are the pros and cons of accepting credit or debit cards?

Mobile payments

Mobile payments are transactions that use a mobile device, such as a smartphone or a smartwatch, to pay for goods or services. You can make payments in different ways, such as using a mobile app, a QR code, a contactless card, or biometric authentication.

Digital wallets

A digital wallet is an application that allows you to store and use your payment information on a smart device, such as a phone or a tablet. You can use a digital wallet to pay online, in stores, or at ATMs without carrying your physical cards. 

A digital wallet may also hold other digital payment methods, tickets, or coupons.

QR code payments

QR code electronic payments are a method of transferring money using a two-dimensional barcode that you can scan via smartphone. You can use QR codes in various applications, such as online shopping, mobile banking, and loyalty programs.

The QR code is one of the new payment methods that strive to be more inclusive and accessible, as they do not require a bank account or a credit card. Pair a QR with a digital wallet, or lead the buyer to another form of digital payment processing.

eChecks

An electronic check, or eCheck, is another form of digital payment. Money gets withdrawn from the buyer’s checking account, transferred over the ACH network, and deposited into the business’s account. 

This differs from taking a picture of a paper check and depositing it using your mobile device. With an eCheck, the buyer must authorize payment transactions via a contract, accepting terms and conditions.

Small businesses that could benefit from accepting eChecks include those that accept recurring payments. Think of landlords or daycare providers who receive payments monthly. All the customer has to do is authorize recurring eCheck payments, and those fees can get taken out automatically each time.

Cryptocurrencies

Cryptocurrency is a type of digital currency that operates on a decentralized network of computers, using blockchain technology to secure transactions and verify records. 

Crypto is a part of the decentralized financial movement and supports peer-to-peer transactions without the need for centralized banks or financial institutions. You should consult with your financial advisor to see if accepting digital assets is suitable for your financial situation.

Benefits of digital payments

Digital payments can be an important tool in helping business owners get paid faster and more efficiently—improving cash flow. Digital payments are convenient solutions for businesses and customers because they can:

• Promote financial inclusion by creating more accessible payment methods for your customers.
• Get paid faster by reducing the time it takes for your payments to be processed.
• Enjoy the convenience of cashless transactions while improving the buying experience for your customers.

While digital payments offer a range of advantages for businesses, it's also important to consider potential drawbacks, such as:

• Exposure to security risks, as digital payments can make businesses vulnerable to cybersecurity threats
• Dependence on technology, which can be disrupted by payment system failures
• Service fees or transaction costs charged by many digital payment providers

Digital payment services can provide you with live payment records in real-time and pair well with live bookkeeping services to ensure that you always have the latest information at your fingertips.

Challenges of digital payments

Digital pay might seem like a no-brainer solution for your small business. Although digital payment services can potentially be more convenient and cheaper alternatives to physical payment methods, they also have drawbacks such as:

• Security risks: Like all electronic functions, digital payments are subject to cybersecurity risks and fraudulent activity.
• Technical issues: Digital payments usually require a charged electronic device with an internet connection.
• Service charges: You may have to pay an extra fee for the convenience of cashless transactions.

Remember these extra fees and risks as you work with your business advisor to implement a digital payment system into your small business. Consider a payment processing cost calculator to determine how much it could cost your business before choosing a provider.

Choose the best payment setup for your business

The next time your small business processes a payment, think about how digital and contactless transactions could enhance the experience.

Whether your focus is B2B or B2C, electronic payment methods can help reduce costs and increase customer engagement. Consider integrating cashless payment options into your existing payment methods. 

While many effective accounting methods are available, QuickBooks lets you streamline and automate managing digital payments.

QuickBooks Payments: QuickBooks Payments account subject to eligibility criteria, credit, and application approval. Subscription to QuickBooks Online required. Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services. For more information about Intuit Payments' money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/.