Cashless Payments: Meaning, Types, Pros, and Cons

In the dynamic digital environment that we live in, offering customers convenience is a must for generating more sales and achieving customer satisfaction.

Regardless of whether we’re talking about online purchases or in-store shopping, consumers nowadays have a preference for paying in the most quick, easy, and convenient way.

Enter cashless payments – a trend that is helping small and medium businesses transition to a more modern realm where cash is a thing of the past.

What is a cashless payment, and how does it work?

To fully understand how to shift towards cashless payment methods it’s essential to first define what they are.

Cashless payments are all digital payment methods that don’t feature cash as part of the process. 

Cashless payments are often used interchangeably with contactless payments. However, although they can be contactless (like in the case of Apple Pay and QR codes payments), in some situations you can have a cashless payment that’s not contactless. An example of this is using a card terminal to accept card payments.

Such financial transactions can take different types of virtual forms, including:

• Credit card payments;
• Debit card payments;
• Mobile payments via digital wallets like Apple Pay and Google Pay;
• Online payment solutions;
• Buy Now, Pay Later.

And others.

We’ll go into more detail on the available cashless payment types in this article.

Cashless transactions work by going through several phases.

First, the customer pays for a product or service, initiating the transaction. The payment mechanism is selected based on the available options provided by the business. 

Next, an internet connection is established with the merchant’s point-of-sale (POS) system. The transaction is authorised using methods such as PINs, passwords, biometrics, two-factor authentication, and others. 

Once the payment is authenticated, the data is transmitted to the payment processor or bank for verification. The payment is authorised if the customer’s account has available funds to cover the requested amount. 

The funds are then sent from the customer’s bank account to the business’s account.

Types of cashless payments

There are eight main types of cashless payment options that you can explore as a business.

Here’s what they are:

• Credit and debit cards;
• Mobile payments;
• Digital wallets;
• Bank transfers;
• Buy Now, Pay Later; 
• Cryptocurrency;
• Peer-to-peer payments; 
• Central bank digital currency.

Here’s what you need to know about each one.

Credit and debit cards

Debit and credit cards are among the most popular types of cashless payments. 

Via this method, shoppers can make the payment in person via magnetic strip or EMV chip cards that work with NFC technology. Alternatively, they can input their payment details on an online payment page.

Mobile payments

Nowadays, many consumers prefer to use their mobile phones to make payments, as an easy and simple alternative. 

Through mobile payments, shoppers can use smartphones, tablets, or other smart devices to initiate transactions through solutions like Apple Pay, Google pay, PayPal, QR code payments, and others.

Digital wallets

While mobile payments are similar to digital wallets, they differ in their essence.

Both methods rely on tokenization and allow shoppers to store their payment information for future use. However, digital wallets are only suitable for online payments. On the contrary, mobile wallets can also be used in-store via apps.

Bank transfers 

In short, bank transfers represent electronic transactions conducted between bank accounts. 

In this case, the customer can create a one-time payment or choose to set up recurring payments for subscription-based products or services.

Buy Now, Pay Later 

Buy Now, Pay Later is a cashless payment type that is ideal for pricier products or services, which usually require splitting up the payment in instalments.

For example, purchasing an electric scooter may require an investment that’s beyond your current capabilities. Through this form of payment, you can create instalments over an agreed period. 

Cryptocurrency

Cryptocurrency, it has started gaining popularity. It allows consumers to pay with digital currency like Bitcoin or Ethereum. 

This form of payment method relies on blockchain technology and provides a vast range of security and transaction tracking mechanisms.

Peer-to-peer payments 

Peer-to-peer payments are also considered a form of cashless payment. 

In this case, the payment takes place between those who rely on their personal bank accounts or cards via a mobile number or a mobile app.

Central bank digital currency

Last but not least, cashless payments can come in the form of central bank digital currency.

With this method, a country’s central bank provides digital tokens. These tokens represent the country’s actual currency in digital form and are valued the same as fiat money.

The importance of cashless payments for business today

As smartphones and digital devices dominate the scenes, cashless payments have naturally outperformed cash payments. 

They’re more preferred, offer convenience to shoppers, and are a quick and easy way to accept payments as a business.

In addition, the wide array of cashless payment options to choose from further increases their use in the UK and around the world.

Considering all of these factors, failing to accept cashless payments as a business can have a negative impact on your customer experience, brand reputation, competitiveness, and overall performance.

Pros and cons of cashless payments

Just like any other type of payment, cashless payments have several advantages and disadvantages that are worth addressing.

Pros

Cashless payments are increasingly popular thanks to the diverse benefits they provide, both for customers and businesses.

The most significant benefits are:

• Time savings – businesses that offer cashless payments can enjoy significant time savings as a result of not having to handle cash. Through cashless payments, you can process the payments of more customers in less time, but also avoid the necessity to hire staff, implement security measures, and even invest in a cash register machine.
• Higher sales numbers – the beauty of digital payments is that they enable businesses to accept payments at any time, from any location. You don’t have to rely on checkout counters. All you need is a smartphone to increase sales. Cashless payments also allow you to prevent lost opportunities in case your customers don’t carry cash on them regularly.
• Increase customer satisfaction – cashless payments make shopping extremely convenient, flexible, and quick. Through payment apps like digital wallets, customers can simply wave their mobile phone over the provided card machines or other payment device taps. Their payment information can be automatically stored and used, making spending money easier than ever.
• Security – when it comes to payments, security is a top concern. However, cashless payments are considered safe as they use a range of different security measures to protect sensitive information and prevent data theft. Some of the popular security measures put in place are fingerprint or facial recognition for limited access, two factor authentication, and others.
• Transaction history and record keeping – with cashless payments, you can enjoy access to insights on spending, bank accounts balance, and more. You can also collect valuable data on recurring payments, amounts received, and others.  

All of these advantages help improve performance and some can even contribute to lower costs for your business.

Cons

Although there are plenty of advantages of cashless payments, there are also a few potential drawbacks to consider:

• Dependencies – unlike cash payments, cashless transactions are entirely dependent on internet connection and technological solutions. In situations where you don’t have access to the internet or are exposed to unexpected situations like natural disasters, your business may be vulnerable. 
• Fraud concerns – although cashless payments are secure, as noted above, there are still some concerns around hacking and data theft. 
• Implementation challenges – implementing cashless payment systems can be a difficult endeavour, especially for smaller companies with limited resources. 

Luckily, in a strategic approach and planning, you can take advantage of cashless payments without experiencing these negative effects.

How to increase revenues and expand your business through cashless payments

You run a small business, and so far, you have only accepted cash payments, so you are providing only one payment option to your customers. Presumably, the more advanced a payment processing system is, the better conversion and revenues it generates.

However, this is not just an assumption, as going towards a cashless society, consumers seek to utilize the most automated payment methods. In order to adopt cashless payments into your business model, there are few important steps that should be taken.

Make the necessary research

The transition from cash payments, towards card and contactless ones, must be a smooth one. 

We recommend performing a little bit of research on what would be the best path to take. 

The first and easiest thing is to find out whether your customers would prefer to pay in any way, besides via traditional cash transactions. You can either ask them directly, or research the market and the trends in the area of your establishment. 

This is important for you to know, because you wouldn’t want to go ahead with cashless payments only to find out that your clients stick with cash. Also, the right moment should be chosen, a moment of hunger for change and innovations.

Choose a processing platform

When you make this choice, you must gather information and learn more about the top platforms that operate in your country. 

Not all providers offer the same features when it comes to cashless transactions. There are certain ones that might help you and your business in particular. 

For example, myPOS is designed specifically for the micro enterprise, and all components and software are most helpful for merchants with small businesses. So, our advice would be to go into details and really find out which functionalities will best match your expectations and needs, before choosing a platform.

Calculate your expenses and ROI

There is an investment that needs to be made, before integrating a new cashless payment system into your already existing routine. 

First, one should calculate the expenses, what are the chances for a return of investment and how long it might take, even with standard daily revenues. 

Would it be worth it – of course. But it will definitely require some getting used to, and depending on your current payment arrangement, it will take some time. It is good that all possible card payment systems are checked in detail and prices are compared, so you don’t end up overspending on something that will not be useful to you.

Make sure you accept not only card payments, but also NFC ones

Most modern POS devices are designed to accept not only standard card payments with mag-stripe cards, but also Chip&PIN and contactless ones. 

If the device works with Near Field Communication or NFC technology and accepts NFC payments, you are in luck, because this means that you will be able to get paid via mobile devices, wearable devices and contactless cards. 

Make sure you integrate such a system, as this type of cashless payment is currently being widely spread throughout Europe. Contactless payments are gaining popularity mainly in countries, which have almost forgotten about carrying cash and paying with physical money whatsoever.

Instead, you can enhance customer experience at your retail store or e-Commerce shop and allow shoppers to make payments quickly via cashless systems through the use of mobile wallets. 

Familiarise your customers

Ensure your customers are aware that you are not accepting only cash anymore. Spread the word on social media, make some leaflets, even place a sign on the window of your building that you now accept payments through cashless payment systems. 

If they do not know, they might not ask for it and this is a potential loss of sales. Tell them, place your POS machine somewhere it will definitely be seen and spread the word. The news will most certainly bring new customers to you, and people are known to spend more when paying via card, so this is the perfect chance for you to grow your business.

How to set up cashless payments

At myPOS, you can discover a range of opportunities and reliable solutions that can help you go cashless and set up cashless payments for your business.

All you have to do is select a cashless payment type and a suitable machine or implementation method, open a merchant account, and inform your customers about the new and exciting changes at your business.

In addition, all merchants who sign up with myPOS receive a free IBAN and business VISA card, where all received payments are settled in your account instantly. Say goodbye to waiting for days to access your funds. 

Ready to take the next step? 

Get in touch with our team and find out more about our cashless payment solution.