Payment methods- page 19 Flashcards
Name the different types of payment methods
- Debit card
- Credit card
- Cash (notes and coins)
- Direct debit
- Payment technologies
- Cheque
What is a debit card?
Issued by banks to their customers (account holders), card is linked directly to cardholders bank account
What is a credit card?
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
What is cash (notes and coins)?
Cash in money in a physical form of currency such as banknotes and coins
What is a cheque?
A written order to pay a sum of money from a bank account to the enterprise
What is payment technologies?
This is any system used to settle financial transactions for example PayPal and CHAPs
Advantage of debit cards
- 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
Disadvantages of debit cards
-Can be stolen
Advantages of credit cards
- Card issuers (bank) pays at time of transaction- a loan to the cardholder
- Can be a flexible way of borrowing money
Disadvantages of credit cards
- 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
Advantages of cash
- Accepted in most places
- More appropriate method if the buyer or seller doesn’t have technology available
Disadvantages of cash
- Not suitable for online purchases
- Can be lost or stolen
- Mistakes can be made during transactions, such as incorrect change being given
Advantages of direct debit
- 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
Disadvantage of direct debit
Customer must have sufficient money in their bank account to cover payment, otherwise payment will not take place
Advantages of payment technologies
- 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.
Disadvantage of payment technologies
Some payment technologies such as PayPal and CHAPS charge a fee
What is direct debit?
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
Describe the differences between a credit card and a debit card
- 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
Advantage of cheque
More secure than cash
Disadvantage of cheque
- 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
What factors influence customers choice of payment methods?
- Convenience
- Ability to pay
- Safety and security
- Cost
- Technology
- Lifestyle
Why does convenience impact payment choice?
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
Why does safety and security impact payment choice?
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
Why does cost impact payment choice?
Some methods, such as credit cards may require customers to pay a fee or rate of interest
