Total transaction value in the digital payment market is projected to reach US$37.45 trillion in 2026. For businesses, this means it's never been more important to offer customers a variety of digital payment methods so they can easily pay on their phones, laptops, or at physical terminals that accept contactless cards.

A digital payment system handles each part of that transaction, ensuring the money moves from buyer to seller. It’s a complex process that occurs in seconds, and it shapes a core aspect of commerce.

Whether your business is online or a physical store, you should understand how digital payments are processed and how they shape your daily operations. Below, we'll explain how digital payment systems work, how to set them up, and how Stripe helps businesses handle digital payments.

Key takeaways

• Digital payment systems handle the electronic transfer of funds between a payer and a payee, replacing cash, cheques, and other physical payment methods.

• Total global digital payment transaction value is projected to reach US$36 trillion by 2030, and 92% of US consumers used digital payments in some form in 2024.

• There are three categories of digital payments: partially digital (in which some part of the flow is still cash), primarily digital (starts electronic but ends in cash), or fully digital (end-to-end electronic).

• Common digital payment methods include credit and debit cards, digital wallets (such as Apple Pay, Google Pay, Link), bank transfers (such as ACH, SEPA, wire), instant payment networks (such as Pix, UPI, FedNow), P2P apps, QR code payments, Buy Now Pay Later, mobile money, and stablecoins.

• Stripe supports 100+ payment methods across 60+ countries, handling the full digital payments stack from acceptance to fraud prevention to global payouts.

What is a digital payment system?

Digital payment systems facilitate digital payments, from paying online with a debit card to using your phone to send money to a friend. These systems have made payments faster, easier, and more trackable for businesses and customers. In 2024, 92% of customers in the United States made some form of digital payment over the previous year.

Digital payments generally fall into one of three categories, depending on how much of the transaction happens electronically.

Partially digital payments combine a digital element with a physical or manual step – for example, writing a paper cheque that a bank later processes through an electronic clearing system, or using a payment app to split a bill before settling up with cash.

Primarily digital payments are initiated and processed electronically but still involve some nondigital component, such as a card swipe at a point-of-sale terminal that requires a physical card or a signature.

Fully digital payments involve no physical or manual steps: the entire transaction, from initiation to settlement, happens electronically, as with a mobile wallet transfer, an in-app purchase, or an online bank transfer. As technology advances, more payments are moving in this direction, reducing friction and processing time for businesses and consumers.

What are the types of digital payments?

Digital payments cover a range of methods for moving money electronically. Common types include:

• Bank-to-bank transfers: Direct transfers between accounts, including wire transfers and electronic cheques (eCheques), often used for larger or recurring transactions.

• Peer-to-peer payment apps: Apps such as Venmo, Zelle, and Cash App let individuals send money directly to one another from a linked bank account or card.

• Digital wallets: Apple Pay, Google Pay, and Samsung Pay store card or bank details on a phone or device, letting users pay by tapping or scanning instead of swiping a physical card.

• Virtual and digital-issued cards: Credit, debit, or prepaid card numbers issued straight to a digital wallet or app, without a physical card ever changing hands.

• Contactless payments: Tap-to-pay transactions using NFC-enabled cards or devices, along with wallets that rely on magnetic secure transmission (MST) to work with traditional card readers.

• Buy now, pay later (BNPL): Services like Klarna and Afterpay let shoppers split a purchase into instalments at checkout, often with no interest if paid on schedule.

• Cryptocurrency payments: Transactions made using blockchain or other distributed ledger technology, allowing two parties to exchange digital currency without a bank as an intermediary.

How do digital payment systems work?

The process begins when the payer initiates a transaction, either in person or online. They select a payment method (e.g., credit card, digital wallet) and input the necessary details such as card information and a password, depending on the method.

Once the customer clicks "pay," the information is sent to a payment processor. This processor is a third party that routes the data and ensures it's legitimate.

The payment processor relays the message to the customer’s bank or card network, which checks the account balance, credit limit, and any other relevant constraints. If everything is in order, the bank sends back an approval. If there’s a problem, the bank sends a decline.

The approval or decline travels back to the seller’s system. If approved, the transaction is queued for settlement. The customer sees a payment confirmation message, and the business is informed that the purchase went through.

After a certain period – minutes, hours, or sometimes a couple of days – the money is transferred from the customer’s bank account (or credit line) to the business’s designated bank account. Different payment methods have different settlement timelines.

What are the advantages of digital payment systems for businesses?

A digital payment system has many benefits for sellers, whether they’re giant online marketplaces or local vendors starting out in e-commerce. Consistent, predictable payment operations can reduce guesswork, facilitate revenue tracking, and lay the groundwork for growth.

Here's how digital payment systems can benefit businesses:

• Faster transactions: There's no need to wait for a cheque to arrive in the post or clear at the bank. Digital payments transfer money on a shorter timeline, which is better for cash flow planning.

• Easier recordkeeping: Storing data in a digital format creates clean transaction histories. Everything is organised in one dashboard, which simplifies matching payments to orders, handling refunds, or tracking trends.

• Broader customer reach: Shoppers can pay with their preferred digital payment methods, from major credit cards to digital wallets. Accepting digital payments can open your business to a broader audience.

• Better customer experience: A good payment system makes checkout easier and faster for online shoppers. This can reduce cart abandonment and lead to repeat purchases.

• Security: Tools such as encryption and tokenisation help stop unauthorised access to sensitive payment information.

• Automation potential: Businesses can link payment tools to invoicing or accounting software. This means less time spent on manual data entry and fewer mistakes caused by human error.

• Expansion opportunities: Online transactions allow you to serve customers in many different locations, even internationally, without needing to open additional physical stores.

How do you set up a digital payment system for your business?

Different businesses have different needs. Some businesses choose an all-in-one solution, where hosting, shopping cart functionality, and payment acceptance are offered by the same provider. Other businesses use different services together, with one vendor for site hosting and another for payments. The best system depends on how you operate (e.g., online, in-person, subscription-based) and your specific budget, desired features, and level of tech expertise.

Here’s what you should consider when you establish a digital payment system:

• Primary sales channels: Do you sell mostly through a website, a mobile app, or a brick-and-mortar shop? An online boutique might need a checkout page that handles multiple card brands and digital wallets, while a corner store might use a point-of-sale terminal that accepts contactless taps.

• Technical needs: Some businesses have web developers on staff who can build a custom solution. Others prefer a plug-and-play approach where they embed ready-made payment buttons on their sites. If you're not tech-savvy, you might want a platform with user-friendly dashboards, minimal coding, and thorough documentation.

• Desired payment options: Look for specific payment features that make sense for your business model. Do you want one-click checkout or subscription billing? Do you need support for multiple locations or foreign currencies?

• Security measures: The provider you choose should incorporate strict security measures to protect customers' financial data. Tokenisation and two-factor authentication are two common options that can help prevent fraud.

Once you’ve chosen a provider, run a handful of test transactions to ensure everything is working properly. Watch for user experience feedback: do customers find the checkout easy to complete or do they abandon their carts? For a physical store, ensure your employees are fully trained on how to accept payments and handle refunds in person. For an online shop, you and your team should know how to use the backend dashboard to issue refunds, manage orders, and handle chargebacks.

What are the fees associated with digital payment systems?

Different providers will charge different kinds of fees for digital payments. These can include:

• Transaction or processing fees: These are typically a small percentage of the transaction plus a flat fee.

• Monthly fees: These are charges for monthly access to payments services. These are especially common if the provider bundles services with advanced features such as analytics and invoicing tools.

• Chargeback fees: Some providers charge you every time a customer disputes a transaction, even if you successfully fight the dispute.

• Currency conversion fees: These are extra fees for currency conversion services included with payment processors.

Compare providers on more than cost to find the best fit. Some providers might charge slightly more but include better fraud protection, a more flexible interface, or better reporting. Ensure you’re clear on your volumes, your average transaction size, and the countries you’ll be selling to, then consider which fee structure makes the most sense for your business model.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments or get started today.

FAQs about digital payment systems