The payment processing landscape has continued to evolve at a rapid pace, and businesses of all sizes must adapt to navigate these changes—including the rise of cashless payments. By understanding cashless payment solutions, businesses can better serve their customers and improve the payment processing experience, which benefits both business and consumer.
In this guide to cashless payment methods, we’ll dive into the basics of cashless payments and the different types of cashless payments, as well as how cashless payment processing can impact your business.
Key Takeaways
- Cashless payment methods, also called cashless, are any payment method that does not involve physical cash.
- Common types of cashless payment methods include credit cards, debit cards, mobile payments, ACH payments, cryptocurrency, peer-to-peer payment apps, and Buy Now, Pay Later.
- Businesses should consider which cashless payment methods work best for their customers in order to deliver the most convenient, seamless payment processing experience.
Cashless Payments in a Digital World
Cashless payment methods, also called cashless, are any payment method that does not use cash. In the United States, many consumers think of digital payments when they refer to “cashless,” despite credit card payments and other merchant services falling under the cashless payment umbrella.
The COVID-19 pandemic greatly accelerated the digitization of payment processing, with many brick-and-mortar businesses shifting toward cashless payment solutions to minimize the spread of illness. Modern businesses must decide which types of cashless payment methods they will accept, with the list of cashless payment types seemingly growing every year.
Popular cashless payment types include:
- Credit cards
- Debit cards
- Mobile payments
- Mobile wallets
- ACH
- Cryptocurrency
- Peer-to-peer (P2P) payment apps
- Buy Now, Pay Later
Cashless payment solutions are not going anywhere, with the financial sector identifying plentiful opportunities for growth. For example, UCLA Anderson explains, “A simple and reliable record of earnings—a byproduct of cashless payment systems sweeping the globe—can help marginal borrowers obtain credit, spurring growth of household incomes and of the overall economy.”
6 Key Types of Cashless Payments
Any payment type that does not utilize cash can be considered cashless. Let’s break down some of the most common types of cashless payment solutions.
Merchant Services
Traditionally, cashless payments have included those credit card and debit card transactions that are managed by a merchant service provider. Merchant services traditionally referred to credit card payment processing services, but, today, the term has evolved to support a wide range of cashless payment methods and financial processes that modern businesses use.
Examples of merchant services include:
- Making a credit card payment at a point-of-sale terminal
- Completing an ecommerce transaction via a secure payment gateway
- Tapping to pay on a handheld point-of-sale device at a restaurant
While considerably less common today, payments by paper check can also be considered cashless. Businesses who want to accept check payments without the hassle often look to lockbox banking services to process those payments.
Mobile Payments
Mobile payments refer to those payment methods that occur on the consumer’s phone. For example, a customer may receive a text to pay SMS message or scan a QR code in order to place an order and make a payment.
Mobile payments is an umbrella term for any payment method that can be completed on any smartphone or smart device. Thus, mobile wallet payments can be considered one type of mobile payment.
The proliferation of smartphones has led to many consumers preferring to pay on their own devices. Mobile payments are a key component of modern mobile financial services (MFS).
Mobile Wallets
Sometimes called digital wallets, mobile wallets refer to apps like Apple Pay, PayPal, and Google Pay, which securely store credit card or debit card information and make that information available to easily complete a transaction. These mobile wallets can be used to complete mobile payments.
Mobile wallets are most frequently used for contactless payments in conjunction with near-field communication (NFC) technology to allow customers to pay by bringing their mobile device within range of an NFC reader, which is typically on a point-of-sale terminal. The customer can confirm the purchase on their phone, and the payment information is transferred via secure radio frequencies.
Mobile wallets like Apple Pay can store more than just credit card information, allowing users to store ticket information, bank information, and more. Mobile wallets can leverage powerful security features including tokenization and encryption, making them an even more secure cashless payment option than a traditional credit card or debit card.
Text to Pay
Text to pay is a form of mobile payment that uses SMS technology to let your customers complete payments on their smartphones, all with a few simple clicks. Text to pay can be customized to your customers with established payment accounts to allow them to confirm a payment via text, or it can use secure payment links to let customers access a payment gateway via their mobile browser.
Text to pay payments are a fairly flexible type of cashless payment processing, working well for those businesses that may need to send their customers reminders to complete payments. Text to pay messages can also be customized based on the customer, enhancing that aspect of the payment experience.
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Peer-to-Peer (P2P) Payment Apps
Peer-to-Peer (P2P) payment apps allow users to quickly and easily send payments to other individuals, often with no fee or low fees. P2P payment apps may also be called money transfer apps. Popular examples include Venmo, Zelle, Cash App, and PayPal.
P2P payment apps are typically not used by businesses, although they are continuing to evolve and develop new features that may make them more business-friendly. Small businesses may find it beneficial to offer their P2P account information on invoices to get speedier payments.
Buy Now, Pay Later
According to the Consumer Financial Protection Bureau, Buy Now, Pay Later (BNPL) is “a type of installment loan that typically allows you to purchase something immediately with little or no initial payment and pay off the balance over four or fewer payments.”
BNPL payments are rising in popularity, with this type of cashless payment typically offered as a part of an online purchase. Many consumers do not realize that a Buy Now, Pay Later purchase is actually a loan, as there are often no fees when payments are made on time. Common BNPL providers are Klarna and Affirm.
Buy Now, Pay Later cashless payments can be considered by ecommerce businesses as a way to offer increased flexibility and convenience for your customers.
Contactless Payments vs. Cashless Payments
The language of the payment processing industry can often feel disordered, with new products and methodologies cropping up monthly and changing the way both businesses and customers discuss payment processing. With that in mind, it’s worth taking a moment to establish the difference between cashless payments and contactless payments, as these two terms may be mixed up by your customers and even your employees.
Cashless payments are any transaction that does not utilize cash. Contactless payments are those transactions that use near-field communication (NFC) to accept payments from RFID devices including credit cards, debit cards, mobile wallets, or fobs. Contactless payments may be called “tap to pay” or “tap and go.”
Contactless payments can include mobile wallet payments, tap to pay card payments, and RFID device payments, such as a tap to pay wristband at a festival or theme park. Contactless payments are a form of cashless payment.
Benefits of Going Cashless
Whether your business goes completely cashless or just offers some cashless payment options, there are many benefits to this form of payment processing.
The New York Times described the shift to cashless payments in July 2023, explaining, “Small-business owners increasingly are making the switch to cashless payments for several reasons, including rising consumer demand, faster checkout, lower labor costs and increased security.”
Cashless payments allow for highly efficient transactions, fewer errors, increased security, and better accounting. Many customers expect to be able to make cashless payments, often not even carrying cash.
The question for most businesses is which types of cashless payments to accept. This can be determined by working with a close financial partner like FirsTech to explore your customer expectations along with your business needs.
Are We Heading Toward a Cashless Society?
In the financial sector and beyond, the idea of a “cashless society” is often discussed—but what is a cashless society?
A cashless society is a society in which all money and payments are digital, with no physical banknotes or currency used. While no society today is cashless, there are various examples along the cashless continuum around the world, and many financial industry experts note the continuing trend toward cashless payments.
Making a Cashless Society Work for Everyone
It is important to note that a cashless society does pose its challenges, including for those unbanked and underbanked members of the population.
According to the Library of Congress, people who are unbanked do not have a checking or savings account at an FDIC-insured bank or financial institution. People who are underbanked may have a bank account but primarily rely on alternative financial services like loans and credit cards.
Before a cashless society can flourish fully, these unbanked and underbanked individuals will have to be addressed and made comfortable with cashless payment options.
For your business, it’s important to consider if any of your customers are unbanked prior to going fully cashless, although many cashless payment options can still work for some unbanked and underbanked households.
Manage Your Complete Payment Processing Ecosystem with FirsTech
Cashless payments are a necessary component of payment processing for modern businesses, although the implementation of those cashless transactions looks different based on the industry, business, and consumers.
At FirsTech, we offer a complete suite of configurable payment processing solutions to meet all of your business needs and customer expectations. Cashless payments are one key component to your payment processing ecosystem, and we can help you select the right payment channels for your business.
To learn more about cashless payment solutions for your business, or to explore other services from FirsTech, get in touch with our team today.