Digital Payments
Digital payments are payments in which money moves electronically and is initiated through a digital channel — an online checkout, a card tap, a mobile wallet, a banking app or a QR code — rather than with cash or cheques. They run on card networks, bank transfer systems or e-money balances, each with its own costs, speed and risks.
- Also known as
- Electronic payments, E-payments, Cashless payments
- Main rails
- card networks, account-to-account transfers (including instant-payment systems), e-money and wallet balances, and increasingly stablecoins
- Instant schemes
- India's UPI was launched in 2016 by the National Payments Corporation of India; Brazil's Pix, launched by the central bank in November 2020, overtook card transactions by 2023; the EU's Instant Payments Regulation required banks to receive euro instant transfers from January 2025 and to send them from October 2025
- EU rules
- the second Payment Services Directive (PSD2, Directive (EU) 2015/2366) sets licensing, open-banking access and strong customer authentication for electronic payments
- Revenue
- a card payment pays fees to the issuer, the network, the acquirer and the processor; an account-to-account payment earns far less per transaction, so its spread changes the economics of the whole chain
- Parties
- payers and payees, banks and e-money issuers, card networks, acquirers, payment service providers, wallet providers, central banks and regulators
How digital payments work in practice
Behind a single tap or click, messages and money move separately. In a card payment the merchant's payment provider sends an authorisation request through the card network to the issuing bank, which approves or declines within seconds; the money follows later through clearing and settlement, net of interchange, scheme and acquiring fees. In an account-to-account payment the payer's bank sends funds directly to the payee's bank over a payment system — in seconds on an instant scheme — with no card network in between.
Which rail wins depends on the market. Where cards were established early, digital payments mostly mean cards moving from plastic to phones and online checkouts. Where central banks built fast, cheap instant-payment systems, account-to-account payments by QR code or phone number became the everyday way to pay; in Brazil, Pix overtook cards within three years.
For a fintech, the choice of rail sets both revenue and risk. Card acceptance brings fees but also chargebacks and scheme rules; account-to-account payments are cheaper but usually final, which shifts fraud from chargebacks to scams in which customers are tricked into authorising a transfer. For an investor, a digital-payments business is valued on its payment volume, its take rate on that volume, its losses to fraud and chargebacks, and how exposed that take rate is to cheaper rails.
Example
An online retailer in the EU takes €50 million a year, 85% of it by card at an all-in cost of 1.6%, or €680,000. It adds a pay-by-bank option using open-banking payment initiation at €0.25 per transaction. With an average basket of €70, a quarter of card customers switch within a year: €10.6 million of volume moves, costing about €38,000 instead of €170,000 on cards. Refunds now go out as manual bank transfers, and two disputed orders a month that would have been chargebacks become customer-service cases. The retailer's payment provider, which earned 0.4% on the card volume that moved, loses a quarter of its card revenue from the account.
Common mistakes
- Treating digital payments as one market; card, account-to-account and wallet economics differ sharply. - Assuming instant payments can be reversed like card payments; most cannot. - Forecasting a take rate without allowing for customers moving to cheaper rails. - Counting a wallet as a rail when most wallets sit on top of cards or bank accounts. - Overlooking authorised push-payment fraud, which strong customer authentication does not stop.