What are digital payments?

As a business owner, it’s essential to provide a range of digital payment options. Your local and international customers have their favourite ways to pay – for example, Singapore has one of the highest credit card penetration rates in Asia¹ while digital wallets AliPay and WeChatPay account for over 90% of mobile payments in China.²   

The Airwallex research report by Edgar and Dunn found ‌that 77% of consumers will abandon their cart if their preferred digital payment method is unavailable.³ Let's dive into what digital payments are and how to select the best option for your business.

What are digital payments?

Digital payments involve the transfer of funds through digital channels without the need for physical cash or checks. This process is facilitated by digital payment processing, which relies on sophisticated systems to verify, authorise, and execute transactions in real time. The rise of new payment methods, such as mobile wallets, digital currencies, and contactless cards, has further accelerated the adoption of digital payments worldwide.

The benefits of digital payments extend far beyond convenience. By reducing the reliance on cash and paper-based processes, digital transactions can help businesses lower costs, mitigate fraud risks, and improve financial transparency. By understanding the fundamentals of digital payments and partnering with trusted digital payment companies, organisations around the globe can unlock new payment methods for growth, efficiency, and customer satisfaction in an increasingly connected world.

How do digital payments work?

The process of executing a digital payment involves a complex interplay of technologies, networks, and financial institutions. While the specifics may vary depending on the payment method and platform, the core steps of a digital transaction typically include:

1. Initiation: The digital payment process begins when a user initiates a transaction, either through a website, mobile app, or physical payment terminal. This step involves providing payment details, such as credit card numbers, digital wallet credentials, or bank account information. 

2. Authentication: Once the payment details have been entered, the system must verify the user’s identity to prevent fraud and unauthorised access. This authentication process may involve a variety of methods, such as:

• Password or PIN entry

• Biometric verification (e.g., fingerprint or facial recognition)

• Two-factor authentication (2FA) via SMS or email

• Tokenisation, which replaces sensitive data with a unique digital identifier 

3. Authorisation: After the user’s identity has been confirmed, the payment system communicates with the relevant financial institutions to authorise the transaction. This typically involves the following steps:

•  The payment gateway securely transmits the transaction details to the acquiring bank (the merchant’s bank).

• The acquiring bank forwards the information to the issuing bank (the user’s bank) through the appropriate card network (e.g., Visa or Mastercard).

• The issuing bank verifies the user’s account status, checks for sufficient funds, and either approves or declines the transaction.

• The decision is communicated back to the payment gateway and the merchant.

4. Processing: If the transaction is approved, the payment system initiates the transfer of funds from the user’s account to the merchant’s account. This process, known as clearing and settlement, involves the exchange of funds and transaction data between the acquiring bank, issuing bank, and card network. The specific timeline for this step varies depending on the payment method and the policies of the financial institutions involved.

5. Confirmation: The user and the merchant receive a confirmation notification once the transaction has been successfully processed. This may come as a digital receipt, an SMS message, or an email, providing a record of the transaction details for future reference.

Advanced security measures are employed throughout the digital payment process to safeguard sensitive financial data and prevent unauthorised access. These measures may include:

• Encryption: Converting data into a coded format that can only be read with a specific decryption key.

• Tokenisation: Replacing sensitive data with a unique digital token without intrinsic value.

• Fraud detection: Using machine learning algorithms and real-time monitoring to identify and block suspicious transactions.

• PCI DSS compliance: Adhering to the Payment Card Industry Data Security Standard to ensure the secure handling and storage of cardholder data.

As digital payment technologies evolve, these security measures become increasingly sophisticated, providing users with greater peace of mind and protection against cyber threats. By staying at the forefront of these advancements, digital payment companies can help businesses and consumers navigate the complexities of the digital economy confidently and efficiently.

What is an example of a digital payment? 

Digital payments encompass a wide range of transaction types, from everyday purchases to complex international transfers. One common example of a digital payment in Singapore is using a mobile wallet, such as GrabPay, to make an in-store purchase. In this scenario, a customer would scan a QR code at the point-of-sale, and the funds would be securely transferred from their digital wallet to the merchant’s account. This process eliminates the need for physical cash or credit cards, offering a more convenient and secure payment experience.

Another example of a digital payment in Singapore happens when a customer shops on an eCommerce website. They can typically choose to pay via credit card, digital wallet, or direct bank transfer. The website’s payment gateway processes the payment and transfers the funds from the customer’s account to the merchant’s account without entering sensitive information like credit card numbers.

Different types of digital payments in Singapore

Singapore is home to a thriving digital payment ecosystem, shaped by a combination of consumer preferences, technological advancements, and supportive government initiatives.

Some of the most widely used digital payment platforms in Singapore include:

• Contactless Cards: Contactless payment cards have gained widespread adoption in Singapore, with millions of consumers using them for everyday purchases. These cards use near-field communication (NFC) technology to allow users to make payments by simply tapping their card on a compatible payment terminal. Contactless payments are fast, convenient, and secure, with transaction limits in place to prevent unauthorised use. For online purchases, credit and debit cards remain a popular choice.These payments are processed via payment gateways like Visa, Mastercard, American Express, and UnionPay, often integrated with platforms like Airwallex. Many online merchants also offer one-click checkout for a smoother shopping experience.

• Mobile Wallets: There are approximately 1.8 million users of mobile wallet apps like Grab Pay, Apple Pay, and Google Pay.⁴ These platforms allow consumers to store their payment card information securely on their devices and make contactless payments using NFC technology.

• Instant Payments. PayNow allows customers to make SGD payments directly from their bank account by scanning a PayNow QR code or entering your UEN. In 2021, PayNow processed 89 million transactions.

• Buy Now Pay Later (BNPL) lets customers make purchases and pay for them in small interest-free instalments over time, instead of paying the full amount upfront. In Singapore, around 1.9 million people use BNPL, with most users being between 18 and 34 years old.⁵

As Singapore continues to embrace digital payments, new and innovative systems are likely to emerge to meet the evolving needs of consumers and businesses. By staying informed about the most popular digital payment options and their unique features, users can choose the platforms that best suit their preferences and requirements.

Looking ahead: The importance of digital payments in 2025

Businesses need to keep up with digital payments in 2025 and continue to offer payment methods their customers prefer. Keeping up with payment trends builds consumer trust and drives sales. In fact, nine in 10 small businesses in Singapore reported retaining more customers and getting more sales when they adapted new payment methods in the last 6 to 12 months.⁶

One key factor boosting the importance of digital payments in 2025 will be the continued growth of eCommerce. The number of Singaporean eCommerce users is projected to reach 4.9 million by 2029 with an average revenue per user of USD 1.45k.⁷ By offering the payment methods your customers prefer, you can grab a bigger slice of the growing eCommerce market.

The importance of digital payments in 2025 will also be underscored by the need for greater efficiency and cost savings in the business world. By streamlining payment processes and reducing the reliance on manual, paper-based transactions, digital payment solutions can help businesses lower costs, improve cash flow management, and enhance overall financial transparency. This will be particularly crucial for small and medium-sized enterprises (SMEs) in Singapore, which often face significant challenges in managing their financial operations.

Finally, the Monetary Authority of Singapore (MAS) will continue to support the growth and regulation of digital payments. By end-2025, the MAS will phase out corporate cheques and replace them with 2 new e-payment methods, EDP and EDP+, which will help businesses make post-dated payments.⁸ By fostering innovation and collaboration, MAS strives to create a seamless and inclusive digital payment ecosystem that benefits both businesses and consumers.

Offer the payment methods your customers prefer with Airwallex 

In the rapidly evolving world of digital payments, choosing the right service provider can make all the difference in efficiency, security, and global reach. 

Over 150,000 companies worldwide use Airwallex to securely accept customer payments and simplify their financial operations. Our powerful payment gateway has the following features that'll give you an edge in local and international markets:

• Accept 160+ payment methods in 180+ countries, such as AliPay and WeChatPay in China, GrabPay in Southeast Asia, and AfterPay in North America.

• Like-for-like settlement in 11 currencies. Airwallex is the only payment gateway in Singapore that offers like-for-like settlement in USD, GBP, and 9 other leading currencies. This means you can accept payments in these currencies without converting them to SGD, which saves you from paying unnecessary conversion fees.

• Seamless integrations with eCommerce platforms like Shopify and accounting software like Xero. Airwallex works with your existing infrastructure and saves you time on manual tasks. 

• Gold standard security. Safeguard funds and customers’ payment data with end-to-end encryption, tokenisation,  and real-time fraud protection that’s PCI-DSS compliant.

Airwallex is more than a payment gateway; we’re an end-to-end payments solution that helps you streamline global business operations. With our all-in-one Business Account, you can open Global Accounts with local bank details, make low-cost international payments, issue multi-currency debit cards, automate bill payments, and more.

Stay future-ready with Airwallex. Create a free account now, or view case studies that show how Airwallex has fuelled the growth of local businesses like yours.

Sources

1. https://www.statista.com/topics/9794/digital-payments-in-singapore/#topicOverview

2. https://www.statista.com/statistics/1271130/mobile-wallet-user-forecast-in-china/

3. https://www.airwallex.com/newsroom/cross-border-ecommerce-2024-report

4. https://www.statista.com/statistics/1445919/singapore-mobile-wallet-users/

5. https://www.statista.com/statistics/1445925/singapore-number-of-bnpl-users

6. https://www.smehorizon.com/digital-payment-trends-exploding-in-singapore/

7. https://www.statista.com/outlook/emo/ecommerce/singapore

8. https://www.mas.gov.sg/news/media-releases/2024/mas-and-abs-announce-launch-of-edp-solutions-in-mid-2025