Understanding different types of digital payments

Digital payments are becoming more common every year. In fact, according to the 2024 McKinsey Digital Payments Survey, 9 in 10 American consumers have used digital payments of some kind. But with so many digital payment solutions available to consumers and businesses, someone new to digital payments may want some guidance on where to start.

Read on to learn more about the various types of digital payments and the benefits they can provide.

What you’ll learn:

• Digital payments are transactions that can be made without exchanging cash.

• Some examples of digital payments include credit or debit card transactions, online or in-store purchases with digital wallets, and various methods of electronic bank transfers.

• Digital payments can be convenient and fast, sometimes occurring almost instantly.

• Some digital payment options can provide extra security against fraudulent transactions, thanks to data encryption, tokenization and authentication methods.

Sometimes called an electronic payment or e-payment, a digital payment is a transaction that’s conducted without cash. 

Multiple parties are involved behind the scenes to carry out these types of transactions in a matter of seconds. For instance, swiping a card when checking out in store will involve the payment processor at the point of sale (POS), the credit card network and the financial institutions of both the cardholder and merchant.

There are many ways to make digital payments, from swiping a physical credit card to tapping a mobile wallet with wearable technology.

Several types of digital payments are commonly used.

Whether it’s swiping, dipping or tapping a physical card in person at a store’s POS or using a card number to make a purchase online, credit and debit cards are common forms of payment that don’t involve exchanging cash. 

When shopping online, you may choose to use a virtual card number instead of entering your physical card’s number at checkout. A virtual card is linked to your credit card account but uses a unique number to help protect your account information.

Eligible Capital One cardholders can easily get a virtual card using one of these methods:

• Online or through the Capital One Mobile app: Sign in to your account on the Capital One website or use the Capital One Mobile app. Choose the Get Your Virtual Card button under your card balance. This virtual card can be used at multiple merchants.

• On Google Chrome or in Android apps: After enrolling an eligible Capital One credit card, select the option to pay with a virtual card from the autofill dropdown menu during checkout. 

• The Eno browser extension: After you sign in and enroll with an eligible Capital One credit card, Eno can generate store-specific virtual cards for you to use at checkout.

Digital wallets such as Google Wallet and Apple Wallet are applications that allow you to store payment information electronically. You can then use your digital wallet to make purchases online or in stores without a physical form of payment. 

Mobile wallets are a subset of digital wallets used specifically on mobile devices. A mobile wallet may allow you to tap your device to pay at POS systems in store. And in some cases, digital wallets may work with quick response (QR) codes. You would scan the QR code with your phone’s camera and be automatically directed to the digital payment method to complete the transaction.

Paze^SM is the first-of-its-kind online checkout solution offered by participating banks and credit unions, including Capital One. But unlike traditional digital wallets, Paze isn’t a third-party application you’ll need to install and add cards to. Instead, all your eligible cards will be available for you at checkout when using the email address associated with your bank account. Plus, Paze doesn’t share your actual card numbers with merchants, so you can shop online with added security.

P2P payments allow one user to quickly send money from their bank account to another user’s bank account—even if their accounts are at different financial institutions. This can be a convenient alternative to dealing with cash and making change. Examples of P2P services include Zelle® and PayPal®. 

There are other methods for moving funds from one bank account to another, including Automated Clearing House (ACH) payments and wire transfers. 

ACH payments can transfer money between banks and credit unions and are often used for regular transactions such as direct deposits and online bill payments. Wire transfers, on the other hand, are a more direct way to transfer funds as they don’t rely on intermediary networks, such as payment processors or clearinghouses, to process the transaction. 

There are several reasons why digital payments have become increasingly popular over the years. Here are a few of the benefits that digital payments have to offer:

• Convenience: All forms of digital payment forgo the use of cash, eliminating the need to go to the bank or an ATM to replenish your funds before making a purchase. Plus, digital payments can be as easy as tapping your phone and can process quickly—sometimes in mere seconds.

• Security: Both credit and debit cards offer protections against fraudulent use, whereas cash can be used freely if stolen. Payments made with digital wallets can also help protect credit card accounts through tokenization, generating unique numbers for transactions. And if you’re making a payment with a mobile device, there may be additional layers of security, such as two-factor authentication.

• Control: Digital payments can enable you to easily set up automatic payments for recurring charges. And mobile apps give you the flexibility to initiate and track payments anytime, even when on the go.

Whether you’re checking out at a store or online, paying bills or sending money to a friend, there are many options for paying digitally. Some examples of digital payment methods are credit cards, digital wallets and various methods for bank account transfers. Digital payments can be convenient and fast while also offering security and control for consumers.

Ready to get started making your own digital payments? Learn more about Capital One’s digital payment options and their benefits.