Payment Methods Explained: A Full Guide to Every Payment Mode & System

The way we exchange money is evolving faster than ever. In 2025, a complex mix of traditional standards and disruptive digital technologies defines the payments landscape. For businesses, offering the right payment methods is a critical driver of growth, while for consumers, choosing the right way to pay impacts everything from budget to security.

This definitive guide provides a comprehensive analysis of the primary payment methods in 2025. We will dissect their mechanics, weigh their benefits, and provide actionable steps on how businesses can meet modern customer expectations.

What are Payment Methods?

A payment method is the specific way a consumer transfers funds to a business or individual to pay for goods and services. They act as the critical bridge in any transaction, facilitating the exchange of value between buyers and sellers. In today’s economy, payment methods encompass everything from physical cash and traditional cheques to sophisticated digital systems like mobile wallets, bank transfers, and cryptocurrencies.

The payment methods a business offers directly impact customer convenience, trust, and a company’s ability to operate efficiently across different channels, including:

• E-commerce stores
• Brick-and-mortar retail shops
• Subscription services
• Service-based industries

Understanding these methods is the first step toward building a seamless and secure financial experience for everyone.

Related Read: What Is Mass Payment And How Does It Work?

What are the Types of Payment Methods?

The top payment methods for 2025 are: UPI (Unified Payments Interface), Digital Wallets, Debit Cards, Credit Cards, Buy Now, Pay Later (BNPL), Bank Transfers (including NetBanking, NEFT, and IMPS), Autopay, Prepaid Cards, Cash, Cheques, and Cryptocurrencies.

Let’s dive into each of these payment methods in detail:

Payment Methods at a Glance: A Comparison

For a quick overview, this table compares the most common payment methods across key features.

Payment Method	Best Use Case	Typical Consumer Cost	Typical Merchant Fee	Transaction Speed
Credit Card	Online, Travel, Large Purchases	Free (if paid in full)	1.5% – 3.5%	Instant
Debit Card	Everyday In-Store & Online Spending	Free	0.5% – 1.5%	Instant
Digital Wallet	Contactless In-Store, 1-Click Online	Free	Varies (Pass-through)	Instant
UPI	P2P & Merchant Payments (India)	Free	~0% – 0.3%	Real-Time
Bank Transfer	B2B, Large Value Transactions	Free / Low Fixed Fee	~0.5% – 1% or Flat Fee	1-3 Days (Standard)
BNPL	E-commerce (Boosting Sales)	Free (if paid on time)	2% – 8%	Instant
Cash	Small, In-person Transactions	Free	Free (Handling costs)	Instant

1. Debit Card Payments

A debit card is a payment card that deducts money directly from a consumer’s bank account in real-time to pay for goods or services.

Best for: Everyday spending, budget management, and ATM cash withdrawals.

Advantages	Disadvantages
Convenience: Easy to use and widely accepted.	Limited funds: You can only spend what’s in your bank account.
Record-keeping: Transactions are recorded, aiding in budgeting.	Limited protection: Limited fraud protection compared to credit cards.
No interest: You don’t accumulate debt as with credit cards.	Limited rewards: Fewer rewards and perks compared to credit cards.

 

To accept debit card payments, businesses need a point-of-sale (POS) terminal for in-store transactions or an online payment gateway for digital transactions. Additionally, compliance with Payment Card Industry Data Security Standards (PCI DSS) is necessary to maintain a secure environment for processing and handling debit card transactions. PCI DSS sets guidelines and security measures to protect cardholder data, thus ensuring safe and reliable payment processing.

Related Read: What is the Point-of-Sale (POS) limit For Debit Cards?

2. Credit Card Payments

A credit card is a payment method that allows consumers to borrow funds from a pre-approved limit to make purchases, which they repay at a later date.

Best for: Online shopping, large purchases, travel, and building a credit history.

Advantages	Disadvantages
Flexibility: Ability to make purchases now and pay later.	Interest: Accumulates debt if not paid in full, leading to high interest rates.
Rewards: Earn rewards points, cashback or air miles.	Overspending: Easy to rack up debt beyond means.
Fraud protection: Strong security measures in place.	Annual fees: Some credit cards charge annual fees.

 

To accept credit card payments, businesses need to establish a partnership with a payment processor, which facilitates the transaction. They must then set up a merchant account, essentially a business bank account that allows for electronic payments. Compliance with PCI DSS is necessary to protect sensitive cardholder information, instilling trust and security in the payment process for both businesses and customers.

Related Read: How to Make Credit Card Payments Through NEFT

4. Digital & Mobile Wallets

A digital wallet (or e-wallet) is an application that securely stores a user’s payment credentials—such as cards and bank accounts—on a mobile device for seamless transactions.

Best for: Fast and secure contactless in-store payments and one-click online checkouts.

Advantages	Disadvantages
Superior Security: Uses tokenization and biometrics (face/fingerprint ID) to protect card data.	Merchant Adoption: Not yet universally accepted by all small businesses.
Extreme Convenience: Tap-to-pay functionality is significantly faster than using a physical card.	Device Dependency: Relies on a charged, functional, and compatible smartphone.
Organizational Tool: Can store loyalty cards, tickets, and travel passes.	Privacy Considerations: Involves sharing data with large tech ecosystems.

 

Accepting Digital Wallets: For in-store payments, merchants need NFC-enabled POS terminals. For online stores, wallets like Apple Pay, Google Pay, and PayPal must be integrated as a payment option via your payment gateway.

Related Read: What are the Different Types of Digital Wallets?

5. UPI and QR Code Payments

Unified Payments Interface (UPI) is a real-time payment system, pioneered in India, that facilitates instant inter-bank transfers through a mobile app, often using QR codes.

Best for: Peer-to-peer transfers, retail payments of all sizes, and online checkouts in India.

Advantages	Disadvantages
Instant & Low-Cost: Transactions are immediate and virtually free.	Regional Dominance: Primarily used in India, with limited direct international use.
Simplicity & Accessibility: Extremely easy to use with any Indian bank account and smartphone.	Requires Connectivity: Needs a stable internet connection to function.
High Security: Uses multi-factor authentication for every transaction.	QR Code Fraud Risk: Malicious QR codes (QR-ishing) can be used to scam users.

 

Accepting UPI: Businesses can display a static or dynamic QR code for customers to scan. UPI is also a standard option in all major Indian payment gateways. Its massive adoption, processing over 131 billion transactions in FY 2023-24 according to government data, makes it essential for any business operating in India.

5. Bank Transfers (NetBanking, NEFT/RTGS)

A bank transfer is a method of moving funds directly from a customer’s bank account to a business’s account using online banking or other banking channels.

Best for: B2B transactions, paying for services, and high-value purchases.

Advantages	Disadvantages
Low Transaction Fees: Often significantly cheaper for merchants than card payments.	Slower Processing: Standard transfers (NEFT/ACH) can take 1-3 business days.
High Security: Facilitated directly by secure, regulated banking systems.	Irreversibility: Transactions are often final and difficult to reverse in case of error.
No Chargebacks: Eliminates the risk of costly credit card chargebacks.	Less Convenient for Checkout: Requires customers to log into their banking portal separately.

 

Accepting Bank Transfers: You can provide your bank details to customers directly. However, a more streamlined approach is to use payment gateways that offer bank transfers as an automated checkout option.

6. Buy Now, Pay Later (BNPL)

Buy Now, Pay Later (BNPL) is a form of short-term financing that allows consumers to purchase items immediately and pay for them in a series of interest-free installments.

Best for: E-commerce retailers looking to increase conversion rates and average order value.

Advantages	Disadvantages
Boosts Sales & Conversion: Makes higher-priced items more affordable, reducing cart abandonment.	Higher Merchant Cost: BNPL provider fees (2% – 8%) are typically higher than card fees.
Interest-Free for Consumers: Most plans are interest-free if payments are made on time.	Risk of Consumer Debt: Can encourage overspending and lead to significant late fees.
Seamless Integration: Integrated directly into the checkout flow for a smooth experience.	Credit Score Impact: Missed payments can be reported to credit bureaus.

 

Accepting BNPL: Businesses must partner with a BNPL provider (e.g., Klarna, Afterpay, Affirm, Simpl) and integrate their solution into their e-commerce platform.

7. Autopay (Recurring Billing)

Autopay is a payment arrangement where a business is authorized to automatically deduct payments from a customer’s account on a recurring schedule.

Best for: Subscription services (SaaS, streaming), memberships, utilities, and loan repayments.

Advantages	Disadvantages
Predictable Cash Flow: Ensures timely, consistent revenue for businesses.	Requires Customer Trust: Customers must authorize access to their payment details.
Convenience & Retention: Reduces churn by eliminating the need for manual payments.	Payment Failures (Dunning): Requires systems to manage failed payments from expired cards.
Reduced Admin Costs: Automates the entire invoicing and collections process.	Cancellation Friction: A difficult cancellation process can severely harm brand reputation.

 

Accepting Autopay: Requires a subscription management platform integrated with a payment gateway that can securely tokenize and store customer payment information.

8. Cash

Cash is physical currency (banknotes and coins) issued by a government that is exchanged directly for goods and services.

Best for: Small, in-person transactions, tipping, and use in areas with poor connectivity.

Advantages	Disadvantages
Universally Accepted (In-Person): No technology or third party is required.	Security Risks: Highly susceptible to theft, loss, and counterfeit currency.
No Fees: Free to use for consumers and to accept for merchants.	Handling & Security Costs: Businesses face costs for counting, storage, and bank deposits.
Anonymity: Offers complete transaction privacy.	Impractical for E-commerce: Cannot be used for any online purchases.

 

Accepting Cash: Requires a secure cash register or drawer and robust internal processes for handling, counting, reconciling, and depositing cash.

9. Cheques

A cheque is a written, dated, and signed paper instrument that directs a bank to pay a specific sum of money to the bearer.

Best for: Very large B2B payments, rent collection, and official government disbursements.

Advantages	Disadvantages
Record-keeping: Provides a paper trail of transactions.	Processing time: Cheques may take time to clear.
Security: Reduced risk of theft compared to cash.	Fraud risk: Possibility of bounced or forged cheques.
Credit extension: Allows delayed payment for goods and services.	Manual processing: Requires manual handling and deposit.

 

To accept cheque payments, businesses need to have a bank account and follow the bank’s procedures for depositing and processing cheques.

10. Cryptocurrencies

Cryptocurrencies are digital or virtual tokens that use cryptography for security on a decentralized network called a blockchain.

Best for: Tech-forward businesses, international transactions, and brands targeting a niche, crypto-savvy audience.

Advantages	Disadvantages
Decentralisation: Operates on a decentralised ledger.	Volatility: Cryptocurrency values can fluctuate significantly.
Security: Strong encryption and blockchain technology.	Limited acceptance: Not all businesses accept cryptocurrencies.
Global accessibility: Can be used for international transactions.	Regulatory uncertainty: Government regulations vary.

 

Accepting cryptocurrency payments involves setting up a cryptocurrency wallet, providing customers with your wallet address, integrating cryptocurrency payment gateways, and managing exchange rates and security. Businesses should also stay aware of changing regulations.

Related Read: Different Types of Electronic Payment System

Things to Consider While Selecting Payment Methods

When selecting payment methods for financial transactions, consider factors such as security, convenience and cost-effectiveness. Assess the specific needs of your transaction to determine the most appropriate choice.

Location

• Geographic Accessibility: Ensure the selected payment method is accessible and widely accepted in the location where the transaction takes place.
• Currency Compatibility: Verify if the payment mode supports the local currency to avoid currency conversion fees.

Purchase Mode

• Online vs. In-Person: Choose between digital options for online purchases and physical methods like cash or cards for in-person transactions.
• Subscription vs One-Time: Select a payment mode that aligns with the frequency and nature of your purchases, whether they are one-time or recurring.

Business Model

• Merchant Acceptance: Check if the businesses you deal with accept the chosen payment method to avoid inconvenience.
• Merchant Fees: Understand any fees or charges associated with the supported payment method, as it can impact the overall cost of your transactions.

Retail stores, on the other hand, require dependable point-of-sale (POS) systems to process card payments efficiently. Service-based businesses can enhance operations by integrating online payment gateways for appointment bookings and reservations.

The Solution: A Unified Payment Gateway like Razorpay

Instead of building separate integrations for each payment type, a modern payment gateway like Razorpay consolidates everything into a single, powerful platform.

With one integration, Razorpay allows your business to:

• Accept All Major Payment Methods: Instantly offer your customers the ability to pay via UPI, Credit & Debit Cards, NetBanking, Digital Wallets, and Buy Now, Pay Later (BNPL) options from all major providers.
• Streamline a Secure Checkout: Provide a seamless and secure checkout experience that is optimized for both mobile and desktop, increasing customer trust and conversion rates.
• Manage All Transactions in One Place: View and reconcile payments from every method on a single, unified dashboard, saving you time and reducing administrative work.

By partnering with a payment gateway, you move from the complex question of “Which payment methods should I support?” to the simple, powerful solution of supporting them all through one trusted partner.

Frequently Asked Questions

1. What are the 4 main categories of payment methods?

The four primary categories that cover most payment types are:

• Card-Based Payments: Includes Credit Cards and Debit Cards.
• Digital Payments: Includes Digital/Mobile Wallets and UPI.
• Bank Transfers: Direct account-to-account transfers like NEFT, IMPS & RTGS.
• Cash: Physical currency.

2. In India, what is the most popular payment method?

As of 2025, UPI (Unified Payments Interface) is by far the most popular and dominant payment method in India for both person-to-person and merchant payments, thanks to its instant, low-cost, and mobile-first nature.

3. What is the difference between UPI and a Digital Wallet?

The key difference is how they handle money.

• UPI is a payment system that transfers money directly from your bank account to another bank account in real-time. You are not storing money in the UPI app itself.
• A Digital Wallet is a prepaid instrument where you must first load money into the wallet from your bank or card. You then spend the money stored in the wallet.

4. What is the most secure payment method for online shopping?

For online shopping, Digital Wallets (like Apple Pay or Google Pay) and Credit Cards are generally considered the most secure. Digital wallets use tokenization, which hides your actual card number from the merchant. Credit cards offer robust fraud protection and chargeback rights, giving you a strong safety net against unauthorized transactions.

5. What is the difference between a Payment Gateway and a Payment Processor?

• A Payment Gateway is the customer-facing technology that securely captures and encrypts your payment details on a website or app. Think of it as the digital version of a credit card terminal.
• A Payment Processor is the service that works in the background to communicate the transaction information between your bank, the merchant’s bank, and the card networks (like Visa or Mastercard) to actually move the money.

Many companies, like Stripe and Razorpay, offer both services as an all-in-one solution.

6. For a small business, what are the most essential payment methods to accept?

To maximize sales in 2025, a small business in India should prioritize accepting:

• UPI and QR Codes: Essential due to their massive adoption and low cost.
• Debit and Credit Cards: A fundamental requirement for many customers.
• Digital Wallets: Caters to a large, tech-savvy consumer base.

7. What is the future of payment methods?

The future of payments is trending towards being more instant, invisible, and integrated. Key trends to watch include:

• Real-Time Payments: Systems like UPI and FedNow are becoming the global standard.
• Biometric Authentication: Paying with your fingerprint or face scan will become more common.
• Voice-Activated Payments: Making payments through smart home devices.
• Embedded Finance: Payments will be seamlessly integrated into non-financial apps (e.g., booking a cab and paying within the same app without a separate checkout).

8. How do I add, remove, or edit a payment method?

Managing your payment methods is essential for seamless online transactions. The exact steps vary depending on the platform (e.g., e-commerce site, app store, UPI app), but the general process is similar. Here is a guide for major platforms used in India.

On an E-commerce Site (like Amazon.in)

1. Log in to your Amazon.in account.
2. Go to “Account & Lists” and select “Your Payments.”
3. Here you will see options to “Add a payment method” (like a new card or UPI handle) or manage existing ones.
4. Click “Edit” on any saved card to update its expiry date or billing address. To delete it, click “Edit” and then “Remove from wallet.”

In the Google Play Store (for Android)

1. Open the Google Play Store app and tap your profile icon in the top-right corner.
2. Go to “Payments & subscriptions” → “Payment methods.”
3. You can “Add payment method” (Card, UPI, etc.) directly.
4. To edit or remove, tap “More payment settings.” This opens your Google Payments profile where you can select any saved method to “Edit” or “Remove.”

On a Subscription Service (like Netflix)

1. Using a web browser, log in to your Netflix account.
2. Go to your “Account” page from the profile menu.
3. Under “Membership & Billing,” click “Manage payment info.”
4. Here you can “+ Add Payment Method,” “Edit” your current one, or “Remove” a backup method. (Note: You must always have at least one valid payment method on file to keep the subscription active).

On a UPI App (like PhonePe or Google Pay)

You manage linked bank accounts rather than individual cards.

1. Open your UPI app and tap your profile icon.
2. Find the “Payment Methods” or “Bank Accounts” section.
3. You can “Add New” or “Add Bank Account” and follow the verification process.
4. Tap on any existing linked account to see options like “Set as Primary” (for receiving funds) or “Remove Account.”