Retail Payments Systems Explained

Modern business requires a multitude of options for consumers in order to give them flexibility and a comfortable user experience. For this reason, competitive companies will offer an array of payment methods for both customers and themselves.

Evolving technologies and trends mean that the ability to take mobile payments or not, for instance, could lead to an abandoned checkout cart and further missed opportunities down the road. For this reason, leading businesses often adopt a retail payment system, otherwise known as a point-of-sale (POS) system.

With a comprehensive understanding of retail payments, the options you provide and the varying expectations of customers should become clearer to you. This can enable you to better decide which options meet the needs of your product offerings and customer base. In time, your payment services will remain competitive and able to deliver a seamless customer experience whether it's through electronic payment, store credit or cash payments.

It’s important to first establish how each method of retail payment works in order to gain a complete understanding of when and why your organisation needs capabilities for each one. Read on to find out all you need to know about retail payment systems.

What is a retail payment system?

Retail payments describe transactions between businesses and consumers, as well as public bodies. Usually they take the form of everyday transactions between vendors and customers, but they also encompass taxation, wages and salary payments.

In Europe, the preferred method of payment is credit or debit cards. Put simply, each of these retail payment systems organises and facilitates the transfer of funds from buyers to sellers, enabling the common transaction.

The evolution of retail payments

Most consumers will be aware of the change that retail transactions have undergone in the past two decades, and familiar with the key moments in the development of transaction systems that people may be unaware of. The emergence of the internet spurred an incredible rise of electronic payment processing, introducing the phenomenon of e-commerce while making payment methods such as mail and telephone orders virtually extinct.

The wide availability of electronic payments has led to society’s falling dependency on cash payments. While traditional physical paper money is likely to endure in some shape or form, technological development has allowed chip-based card payments and contactless payments to take the lead – along with an increasing number of cross-border payments (otherwise known as international or remittance transfers). The COVID-19 pandemic intensified the shift towards digital retail payments, as consumers were given a serious health-related incentive to ensure all transactions are contactless.

Verification systems, meanwhile, enabled the fast authorisation of digital payment from a multitude of channels, and eventually the revolution of the smartphone meant that mobile wallets became one of the most widespread preferential payment methods for consumers.

The future of retail payment systems

This period of development in recent years has involved actions from central banks in order to securely regulate payment systems that are modernising. A natural consequence of growing volumes and higher values of financial transactions is greater risk profile for the scale of transactions carried out. Payment systems ordinarily involve a number of potential risks, but financial stability at large is also affected, as the safety and security of financial systems depend on the seamless transaction processes underlying economic activity.

As digital payments become more and more popular, companies and institutions will in turn transform their processes in order to meet the ever-growing modernisation of retail transactions. Some speculate that in the near future we will use a common global payment solution, where digital payments will be as fast and seamless as sending a text message. Payment Orchestration is an example of how comprehensive digital payment can be enabled through consolidated systems that optimise efficiency at each stage of the transaction process.

Not only are these developments likely to improve the ease with which consumers make purchases, optimising technology for retail payment processing can also support merchants raising revenue through higher levels of settled transactions.

What are the different types of retail payment systems?

Cash payments

Cash is the most basic and recognisable method of making or receiving payments – everyone knows how it works and there are no additional fees for paying cash. As we mentioned earlier, however, the pandemic and subsequent global lockdowns led to a decline in cash transactions – ATM withdrawals fell by 50% in the UK at the start of COVID-19, though they have recovered and stabilised since, according to a report from the Bank of England (BoE).

The enduring popularity of cash payments is down to both the convenience and its use as a store of value. Even though people are using less cash in recent years, the BoE noted in the same report that the circulation of cash is at an all-time high. There are few drawbacks to using cash – when customers use it, you are in immediate receipt of the funds, with no overhead processing or other fees involved. The traditional method remains a stable, beneficial retail payment system.

Credit and debit cards

Bank-issued credit and debit cards are by no means new, but the rise in cashless payments has meant that credit and debit payments are the leading alternative, if not the new norm. Safe to say, if a business does not provide credit or debit card payment options, it is unlikely to survive in the modern economy.

There are numerous advantages to these payment systems. Research suggests that consumers generally spend more when making card payments, along with granting them the benefits of avoiding cash flow problems if they do not carry enough cash (or indeed any at all) on them. Since card issuers have been long-established, a brick-and-mortar store that does not offer bank-issued card payments is seen as less authentic and in keeping with modern times than those that do.

Credit and debit payments also have the benefit of being automatically deposited – unlike cash, which must be transferred physically. This gives customers the flexibility in terms of when they shop. The main drawback with credit and debit card systems is that payment processing incurs transaction fees, typically constituting between 1.5% to 3% of each sale, but sometimes these can be up to 6%.

Cheques and e-cheques

In the past, paper cheques were second to cash in terms of the most direct payment method. There were no additional fees or information required to adequately use this retail payment system. According to Statista, the total number of cheques written and settled in the UK decreased nearly 1bn between 2009-2019, corresponding to the decline in cheque payments in the wider European region.

Although it may seem like a payment method that has had its day, cheque payments similarly possess the same advantages of more traditional forms of currency – including, like cash, the absence of fees incurred by credit and debit card transactions. Conventionally cheques have been used for larger amounts than cash, and since cheques go directly to the recipient’s bank account, there are fewer limits on the transaction value, or the risk of customers being unable to finalise payment due to them damaging their credit rating or reaching their debit limit.

E-cheques have emerged with the rise of digital payments. These use an Automated Clearing House (ACH) to transfer money from a buyer’s checking account. The funds are then deposited into the merchant bank business account, serving as a direct form of payment like a bank transfer, incurring a fee that is one of the lowest of retail payment systems.

Mobile payments

As we outlined earlier, the rapid rise of mobile and smartphone (contactless) payments is one of the most widely recognised evolution in retail payment systems. Through payment services like Apple Pay or Google Pay, users can carry out transactions faster than using a credit card, often with the added security capability of touch or face identification (evading the risk of stolen contactless credit or debit cards).

Statistics show that in 2022, 77% of UK consumers are shunning physical wallets in favour of mobile payments, with a surveyed 61% of customers confident enough to leave their wallet at home (77% for Generation Z respondents). According to market research, 64% of consumers prefer mobile wallets precisely because of the in-built security features they provide. Retailers who accept mobile payments – this capability is normally the same for contactless card payments – give customers a quicker and simpler way to pay for items.

Stores that are mobile wallet enabled also offer customers greater flexibility in terms of their cash flow, as there is ordinarily a delay between authorising the transaction and the funds being taken from the buyer’s account. Beyond this, smartphone transactions offer merchants the opportunity to analyse customer data in terms of frequency and volume of transactions with your business, as well as using data to send updates on sales and discounts etc.


Possibly the most confusing and divisive form of retail payment, the constant rise and fall of cryptocurrency has dominated the news cycle for years, ever since the birth of BitCoin. The newest and most radical form of payment option, cryptocurrency, trades on being a decentralised alternative to traditional financial systems using blockchains, meaning that it cannot be influenced by a central bank or government.

A digital currency, cryptocurrency (often abbreviated to ‘crypto’) is protected by cryptography – enabling a secure, encrypted transmission of payment information. The inherent benefit here is that cryptocurrency is far harder to counterfeit than conventional currency.

Beyond this extra layer of security, the additional benefits of crypto include lower transaction fees (along with no charge for international transactions, as cryptocurrencies are not associated with any one country). Cryptocurrencies also give additional power to businesses in terms of refunds, as customers are unable to cancel the payment or alter their card details, allowing merchants to better monitor their cash flow.

The future of crypto is uncertain, as it is hard to anticipate how much further it will be incorporated into mainstream payment methods. However, its current market capitalisation is estimated at $1.76 trillion, and an increasing number of UK businesses are accepting cryptocurrencies.

Cross-border payments

Cross-border payments are an umbrella term for numerous transaction types, including international retail payments. Here a buyer and seller exchange funds from separate countries, even if for just a single consumer purchase. Retail cross-border transactions are normally person-to-person, person-to-business and business-to-business. Typically these will be eCommerce purchases, card payments, bank transfers, mobile or digital wallet payments and remittances.

These international retail transactions are a newcomer in the ACH landscape, but their global value is nonetheless forecasted to reach $250 trillion by 2027. One reason for this is because of the benefits they offer businesses and consumers, reducing costs for international transfers. As companies grow their presence in different markets, their supply chains expand across borders, requiring safe and efficient transfers of funds – particularly in lower-income economies that benefit from greater exports.

Challenges remain, however. International retail transactions are slower, and still less transparent than domestic payments. They take longer to reach settlement, and although they reduce some costs of bank transfers between different countries, they remain more expensive than domestic payments. You can read more about the pros and cons of cross-border payments in a separate article from our blog.

Store credit and gift cards

Store credit is well-known, but is less renowned in terms of its value as a retail payment system. Some argue that gift cards and offers of credit are a strong way to build customer loyalty for long-term relationships with consumers. This is often because store credit encourages more spending since it serves as a discount. Gift cards, on the other hand, offer value for consumers particularly around the holiday seasons or birthday – people gift their friends and family with dedicated cards for them to spend with you, effectively introducing new customers to your brand and strengthening retention for existing customers.

They also present an opportunity to retain revenue by offering them in place of refunds. For instance, if a customer is unhappy with their purchase for any reason, you can offer them a cash refund or alternatively a store credit with a higher valuation, encouraging them to use their funds at your store once more for what they perceive is a better deal.

CellPoint Digital’s Payment Orchestration platform helps retailers by enabling them to synthesise numerous retail payment options, in times where consumers need flexibility and support. Get in touch today to find out how we can support you.