Methods of payment Flashcards
What is cash?
Notes and coins used to complete transactions immediately
Negatives and positives of cash
Positives
- Convenient
- Widely accepted form
- Customers feel confident when using it
Negatives
- Can be lost or stolen
- Only appropriate on purchases up to a certain amount
- Can’t be used online
What is debit card?
Issued by banks with payments for goods and services being deducted directly from a current account.
Positives and negatives of debit card
Advantages
- No need to carry cash
- Widely accepted
- Suitable for online transactions
Negatives
- Not accepted or appropriate for small transactions
What is a credit card?
Issued by financial institutions allowing customers to delay payments for goods and services
Positives and negatives of credit card
Advantages
- Most cards are widely accepted
- Suitable for online transactions
- Offers a degree of protection on purchases
Negatives
- Interest is charged on cash withdrawls
- Can encourage a customer to overspend and get into debt
What is a cheque?
A written order to a bank to make a payment for a specific amount of money from one person’s account to another account.
Positives and negatives of cheque
Positives
- Widely accepted for face to face and postal transactions
- No need to provide change as can be written for an exact amount
Negatives
- Viewed as old fashioned
- Easy for the consumer to make errors when writing the cheque which will create problems for both the consumer and the recipient.
What is electronic transfer?
Payment is transferred directly from one bank account to another
Positives and negatives of electronic transfer
Positives
- Almost done immediately
- No additional costs incurred
Negatives
- Risk of loss if the transfer is incorrectly set up.
- Not appropriate for face to face transactions
What is direct debit?
An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods or services received e.g pay a gas bill
Positives and negatives of direct debit
Positives
- Easy both to set up and to cancel
- An easy way to make regular payments
Negatives
- If the payer makes a mistake and takes too much it is the payee’s responsibility to claim back the money
What is standing order?
An agreement made with a bank to transfer a fixed sum of money to a third party account on a set date on a regular basis e.g pay £30 for a phone contract every month.
Positives and negatives of standing order
Positives
- The same amount is paid each time making it easier for the payee to plan and budget
- Easy both to set up and to cancel
Negatives
- Payments are taken regardless of the customer’s balance which could lead to the unplanned use of an overdraft facility
What is a pre-paid card?
Money is uploaded onto a card with transactions then being withdrawn to reduce the balance.
Positives and negatives of pre-paid card
Positives
- Can set a budget in advance to avoid overspending
- If lost or stolen the loss is limited to the remaining balance
Negatives
- No protection if lost
- Sometimes requires an initial fee to purchase or set up the card e.g Oyster card
What is a contactless card?
Cards containing antennae allow money to be transferred when the card touches a contactless terminal
Positives and negatives of contactless card
Positives
- Gaining in popularity
- Secure method of making payments
Negatives
- Often only accepted for relatively small transactions
- Still not widely accepted as seen as new technology
What is a charge card?
Issued by financial institutions allowing customers to delay payments for goods and services for a short period of time; the balance must be paid off full when a statement is issued.
What is a store card?
Issued by a retail outlet so that customers can delay payments for goods and services (similar to a credit card but only accepted by stores specified)
Positives and negatives of store card
Positives
- Often offer loyalty schemes, discounts and special promotions or privileges.
- Allows a short period of credit that is interest free e.g one month
Negatives
- Only accepted in issuing store or linked associations
- Interest is paid on outstanding balances.
What is mobile banking?
The ability to carry out financial transactions using mobile devices such as phone or tablets.
Positives and negatives of mobile banking
Positives
- Convenient as can be used at any time and place
- Secure
Negatives
- Features are still limited and hence mobile banking does not offer all of the functionality of internet banking
What is Banker’s Automated Clearing Service (BACS) Faster Payment?
A system that allows the transfer of payments directly from one bank account to another.
Positives and negatives of BACS
Positives
- Faster payment allows almost instant transfers that are guaranteed within 2 hours
- No additional costs
Negatives
- Faster payment is not offered by all banks or branches and the customer may therefore have to default to BACs which can take three days to transfer payments.
What is Clearing House Automated Payment Systems (CHAPS)
A system that allows the transfer of payments directly from one bank account to another.
Positives and negatives of CHAPS
Positives
- Transfers can be made the same day assuming instructions are received prior to a set time e.g 2pm at Barclays
Negatives
- Normally, there is a fixed charge per transaction regardless of the amount transferred.
