Payment methods- page 19

Question 1

Name the different types of payment methods

Answer 1

• Debit card
• Credit card
• Cash (notes and coins)
• Direct debit
• Payment technologies
• Cheque

Question 2

What is a debit card?

Answer 2

Issued by banks to their customers (account holders), card is linked directly to cardholders bank account

Question 3

What is a credit card?

Answer 3

A credit card acts as an agreed loan from the credit card company. Customers can then spend up to the credit limit and make monthly repayments to pay it back

Question 4

What is cash (notes and coins)?

Answer 4

Cash in money in a physical form of currency such as banknotes and coins

Question 5

What is a cheque?

Answer 5

A written order to pay a sum of money from a bank account to the enterprise

Question 6

What is payment technologies?

Answer 6

This is any system used to settle financial transactions for example PayPal and CHAPs

Question 7

Advantage of debit cards

Answer 7

• Payment taken directly from cardholder’s bank account at time of transaction
• No need for cash
• Can be used for payment up to the amount in the cardholder’s bank account

Question 8

Disadvantages of debit cards

Answer 8

-Can be stolen

Question 9

Advantages of credit cards

Answer 9

• Card issuers (bank) pays at time of transaction- a loan to the cardholder
• Can be a flexible way of borrowing money

Question 10

Disadvantages of credit cards

Answer 10

• Card issuer charges interest on the balance outstanding after the interest-free period
• Seller pays a fee to credit card company each time customer pays by card

Question 11

Advantages of cash

Answer 11

• Accepted in most places

- More appropriate method if the buyer or seller doesn’t have technology available

Question 12

Disadvantages of cash

Answer 12

• Not suitable for online purchases
• Can be lost or stolen
• Mistakes can be made during transactions, such as incorrect change being given

Question 13

Advantages of direct debit

Answer 13

• Simple way to pay regular bills as the money will be taken automatically from customer’s bank account
• It spreads the costs for the customer so makes it more manageable to make a large payment

Question 14

Disadvantage of direct debit

Answer 14

Customer must have sufficient money in their bank account to cover payment, otherwise payment will not take place

Question 15

Advantages of payment technologies

Answer 15

• Companies such as PayPal allow the general public and businesses to transfer money between buyers and sellers
• Online payment services can be directly linked to a bank account, which means funds are transferred from one party’s bank account straight into another.

Question 16

Disadvantage of payment technologies

Answer 16

Some payment technologies such as PayPal and CHAPS charge a fee

Question 17

What is direct debit?

Answer 17

An arrangement made with a bank that allows you to transfer money to someone else, usually a business on an agreed date, typically in order to pay bills like electricity

Question 18

Describe the differences between a credit card and a debit card

Answer 18

• A debit card is money taken directly out of a person’s bank account but a credit card is a form of instant loan
• Debit card is the amount owing is taken from the persons current account immediately but a credit card is the amount borrowed attracts interest after a certain period of time
• Debit card do not carry the same protection as credit cards. A stolen credit card holds greater liability

Question 19

Advantage of cheque

Answer 19

More secure than cash

Question 20

Disadvantage of cheque

Answer 20

• Needs to be paid directly into a bank so can be an inconvenience
• Takes several days to clear
• Cannot be used remotely or online
• Most banks charge businesses for paying in cheques

Question 21

What factors influence customers choice of payment methods?

Answer 21

• Convenience
• Ability to pay
• Safety and security
• Cost
• Technology
• Lifestyle

Question 22

Why does convenience impact payment choice?

Answer 22

Most customers choose a method of payment that suits their personal circumstances.
Older people may prefer to pay by cash or cheque while younger customers are likely to use payment technologies

Question 23

Why does safety and security impact payment choice?

Answer 23

Customers want to k know their money if safe when making a purchase. For example some customers prefer not to carry cash or cards as they may be stolen

Question 24

Why does cost impact payment choice?

Answer 24

Some methods, such as credit cards may require customers to pay a fee or rate of interest

Question 25

Why does technology impact payment choice?

Answer 25

Some methods require access to technology such as smartphone, tablet or computer

Question 26

Why does lifestyle impact payment choice?

Answer 26

The ability to pay remotely means goods or services can be purchased from almost anywhere in the world at any time of day

Question 27

Why does ability to pay impact payment choice?

Answer 27

Some customers may overspend and get into debt e.g using a credit card allows cardholder to delay payment and then have difficulty to pay bill when its due

Question 28

Why do enterprises need to offer a range of payment options?

Answer 28

They realise this is the way to maximise sales of products

Question 29

Impacts of cash on enterprise…

Answer 29

• May be stolen

- High levels of security

Question 30

Impacts of debit and credit cards on enterprise…

Answer 30

• Card readers are required

- Fees are payable by enterprise on credit card sales

Question 31

Impacts of direct debt on enterprise…

Answer 31

-Customer may not be able to keep up with regular payments, resulting in loss of sales revenue

Question 32

Impacts of payment technologies on enterprise…

Answer 32

-Requires investment in technology and enterprise to become a member of ecommerce scheme