Methods of payment Flashcards
what is cash
Physical money available eg.notes and coins
give 2 advantages of using cash
Widely accepted: Cash is widely accepted as a payment method by most merchants and service providers.
No fees: Cash transactions generally do not involve fees, unlike credit card transactions that may have various fees.
Budgeting: Cash can be a useful tool for budgeting as it allows you to keep track of your expenses more easily as you wont need an electronic device
give 2 disadvantages of using cash
Security: Carrying cash can be risky as it can be lost or stolen, and there is no way to recover the money once it’s gone.
Inconvenient: Carrying cash can be inconvenient as it requires you to have the right amount of money on hand for purchases.
Limited protection: Unlike credit cards or debit cards, there is no fraud protection for cash transactions. If your money is lost or stolen, you have no recourse to recover it.
No rewards or cashback: Cash transactions do not offer any rewards or cashback incentives.
what is a debit card
A card where payments are deducted from a current account
give 2 advantages of using a debit card
they eliminate the need to carry cash. You can easily make purchases at stores, online or pay bills without worrying about carrying cash (convenience)
Debit cards are more secure than carrying cash. If your card is lost or stolen, you can report it to your bank and have the card blocked, preventing unauthorized use. Additionally, most banks offer fraud protection, which can help protect you in case of unauthorized transactions.(security)
Debit cards can help you manage your finances better. Since you are using your own money, you can easily track your expenses and avoid overspending and going into debt
give 2 disadvantages of using a debit card
May have minimum spend limits
Potential to go into an overdraft
what is a credit card
A form of borrowing which is issued by a financial provider.
give 2 advantages of using a credit card
Convenience: Credit cards are very convenient to use. You can easily make purchases at stores, online or pay bills without worrying about carrying cash.
you build a credit history. Timely payments and responsible use can help improve your credit score, which is essential for obtaining loans, mortgages, and other credit facilities in the future.
Fraud protection: Most credit cards offer fraud protection that helps protect you in case of unauthorized transactions. If you report fraud promptly, you are generally not liable for any losses.
give 2 disadvantages of using a credit card
High-interest rates: Credit cards have high-interest rates compared to other types of loans. If you do not pay the balance in full every month, the interest charges can accumulate, making it challenging to pay off the debt.
Overspending: It’s easy to overspend when using a credit card as the credit limit may be higher than what you can afford. This can lead to debt and financial stress.
Fees: Credit cards may have various fees such as annual fees, late payment fees, balance transfer fees, and others. These fees can add up and make using the card more expensive.
Can negatively impact credit score: If you use your credit card irresponsibly and do not make timely payments, it can negatively impact your credit score. Late payments, high credit utilization, and other factors can reduce your credit score, making it harder to obtain credit in the future.
what is cheque
A written order to a bank to pay a stated amount from an individual’s account to another.
give 2 advantages of using cheque
Safety: Cheques are a secure payment method as they require a signature and are traceable, making it difficult for others to misuse them.
Record-keeping: Cheques provide a record of the transaction and can be used for accounting and record-keeping purposes.
Convenience: Cheques can be used to make payments without the need for cash, and they can be mailed or sent electronically.
give 2 disadvantages of using cheque
Delayed processing: Cheques can take several days to clear, which can delay payment and cause inconvenience.
Fraud risk: Cheques can be subject to fraud, including forgery or alteration. If you are not careful, you may be at risk of losing money.
Fees: Some banks may charge a fee for processing cheques, which can make them more expensive to use than other payment methods.
Not widely accepted: Cheques are not as widely accepted as other payment methods, and many businesses prefer cash or electronic payments.
what is electronic transfer
electronic ayment transferred from one account to another
give 2 advantages of using electronic transfer
Convenience: can be done from anywhere, at any time, using a computer or mobile device.
Speed: fast and efficient, with transactions typically processing within seconds or minutes.
Security: uses encryption and other security measures to protect sensitive information.
Record-keeping: provides a record of the transaction, which can be used for accounting and record-keeping purposes.
No fees: may not involve any fees, or the fees are generally low, compared to other payment methods like cheque or credit card.
give 2 disadvantages of using electronic transfer
Technical difficulties: may be subject to technical difficulties such as system outages or connectivity issues that can prevent or delay payments.
Fraud risk: can be subject to fraud, such as unauthorized access to your account, phishing scams, and other types of fraud.
Limited acceptance: Not all merchants and service providers accept electronic transfer as a payment method.
Transaction limits: Some banks or financial institutions may impose transaction limits on electronic transfer, which can be inconvenient for large payments.
what is direct debit
An agreement allowing a third-party to withdraw funds on a set day
give 2 advantages of using direct debit
Convenience: it eliminates the need for manual payments, which can be time-consuming and inconvenient.
Automated payments: Direct debit allows for automated payments, which ensures that bills are paid on time and eliminates the risk of late fees or penalties.
Cost-effective: Direct debit is often a cost-effective payment method as it may not involve fees or may involve lower fees than other payment methods.
Record-keeping:
give 2 disadvantages of using direct debit
Needs monitoring to ensure correct amounts are being collected
Payee(third party) may vary amounts making it difficult for payer to plan expenditure
Insufficient funds: If there are insufficient funds in your account, direct debit can result in overdraft fees or penalties, which can be costly.
What is standing order
allows you to set up a regular, fixed payment to be made from your bank account to another account, usually on a monthly or weekly basis.
Give 2 advantages of using standing order
Convenient: allow you to automate regular payments, saving time and hassle.
Predictable: provide predictable payments, which can help with budgeting and cash flow management.
Cost-effective: cost-effective payment method as they may not involve fees or may involve lower fees than other payment methods.
Flexibility: Standing orders can be easily adjusted or cancelled if your circumstances change.
Give 2 disadvantages of using standing order
Lack of control: require you to trust the recipient to withdraw the correct amount each time, which can be a disadvantage if there is an error or if the recipient is not trustworthy.
Payments are taken regardless of customers bank balance which may result in overdraft
Payments continue unless cancelled
What is a pre-paid card
Cash loaded onto a card which be used to make purchases.
You top them up when they run out
Give 2 advantages of using pre-paid cards
Widely accepted by retailers
Convenient: allow you to make purchases and withdraw cash without carrying cash.
Control: provide a way to limit spending and control your budget as you can only spend the amount of money loaded onto the card.
Security: they are not linked to your bank account, which can help protect against fraud and identity theft.
Accessibility: can be used by people who do not have a bank account or who have limited access to banking services.
Give 2 disadvantages of using pre-paid cards
Fees: can be subject to fees, such as activation fees, monthly fees, and transaction fees, which can be costly.
No credit building: Prepaid cards do not help build credit as they are not linked to a credit account.