T3 Payment Methods Flashcards
How to compare methods of payment
- how convenient for the the payer
- which method the seller accepts
- speed of transaction
- safety
What is transaction need?
The need to make payments, with each payment being a seperate transaction
What is cash genuinely used for?
- everyday, low value transactions
- face to face situations
What % of transactions are cash in the uk?
30 %
Advantages of cash
- convenient for payer (as long as they have enough notes and coins with them)
- readily accepted by people selling goods or the service
- instant
- low risk at low values
- allows people to budget
Disadvantages of cash
- cannot pay by cash over the internet
- transaction must be made regularly - e.g. paying rent or utility bills - easy to miss payments
- less convenient
- carrying large amounts of cash can be risky
- some sellers prefer other payment methods
Why do sellers prefer not to be paid in cash?
- seller has responsibility of looking after cash until it can be deposited into their bank account —> risk the money could be lost or stolen
- larger retailers have to employ security services to transport money
- suspicious of customers who pay for high value items in cash
What do you give to providers to transfer money electronically?
Instructions
What are mandates?
- instructions given on paper or online by completing a form to set up a one off payment or regular payments from their account
Types of electronic payment
- standing order
- direct debits
- online banking
- faster payments
- mobile banking
- online banking services
What’s a standing order?
- Instructions to pay the same amount of money to another account on a regular basis
- standing orders can be set up and cancelled by giving instructions to the current account provider in writing, over the phone or online
- can be cancelled anytime and costs nothing
What are direct debits?
- Automatic payment set up for a current account
- Giving permission to their provider to pay regular bills that an organisation will present for payment
- payments can be for different amounts of money each time
- can be set up and cancelled by giving instructions to provider in writing, over the phone or online + free of charge
How’s are direct debits protected?
By a guarantee that providers that accept instructions by direct debit agree to refund the account holder if an error is made with a transaction
What’s online banking?
- account holders give instructions for account transactions via the internet
- to access online banking, an account holder must first register for the service
- complete an online form - set up passwords and pass numbers
What does online banking allow?
- set up regular payments - standing orders and direct debits
- one off transactions - paying organisations or individuals
What are faster payments?
- an electronic payment service offered by all UK banks and building societies
- prior to May 2008, electronic payments were made via Bacs - could take up to 3 business days to transfer money
- Fast Payment services only takes up 2 hours
Is there a maximum value for Faster Payments?
Yes
What does CHAPS stand for?
Clearing House Automated Payment System
What is CHAPS?
- same-day automated payment system used for very high value payments
- to make transaction a form needs to be completed for the provider + there is a charge
What does CHAPS guarantee?
- that the transaction is secure + payed into the recievers account the same day
What’s mobile banking?
- enables account holders to give payment instructions on their mobile phone using the internet
- account holders download a mobile banking app from their provider that includes security measures
What does mobile banking allow account holders to do?
- check balances
- pay in cheques digitally
- set up direct debits + standing orders
- transfer money between accounts
Can you use faster payment service with mobile banking?
Yes - since 2014, using a service called Paym
- account holders must nominate the account to which Paym service will be linked and register their mobile number with their provider
What are online payment services?
- enable people to pay each other without exchanging current account details
- e.g. PayPal - withdraws money from current account
Why are online payment services safe?
- sellers never see the buyer’s personal financial details
- protects users from any unauthorised payments made from their account
Advantages of online payment
- fast, safe, convenient
- most are free of charge (as long as account holder has enough money in current account to make transaction)
- automated payments can be set up to make recurring transactions - bills are payed on time without further effort from account holder
Disadvantages of electronic payments
- online fraud + identity theft - account holders have to be careful to follow security measures + keep passwords and pass numbers safe
- risk of account holders making mistakes - wrong payment amounts due to displaced decimal or wrong number for the account they are paying
How can you reduce risk of fraud?
Check account statements - report suspicious transactions
What is a cheque
- a payment mechanism that enables an account holder to instruct their provider to pay a specific amount of money to a specific person or organisation
- providers give current account holders preprinted cheque books
What are cheques often used for?
- to pay money to family + friends
- to pay bills from tradespeople
Advantages of using cheques
- secure - money can only be paid into the account with the same name as the person
- easy to carry + to use
Disadvantages of using cheques
- people or organisations can’t be certain they will receive the money immediately
- providers can not honour cheques if person who wrote the cheque doesn’t have enough money in their current account to pay it - provider marks check as ‘unpaid’ —> check bouncing
- cheque guarantee scheme was withdrawn in 2011
- some businesses refuse to accept cheques - risk of cheque being returned as ‘unpaid’ + cost of processing cheques greater than the cost of processing payment card transactions
What are Banker’s drafts?
- look similar to cheques + process through the same system
- however - signed by provider rather than individual
- this means the payment is guaranteed
What are Banker’s drafts used for?
- used for paying large sums of money
- money is transferred faster than a cheque
- there is a charge
What are payment cards?
Payment mechanism that enables account holders to give their provider instructions to pay money from an account
What are cash cards?
- Allows the withdrawal of cash from an account at a branch or ATM
- they cannot be used face to face or over the internet
- providers offer cash cards to under 18s or those on low incomes to enable them to access their cash easily
- branded as Visa or Mastercard
What are debit cards?
- allow account holders to access cash from their accounts + also pay for goods in stores, over the internet, by telephone and by post
- payments taken directly from the account immediately
What does authorisation mean? (Debit cards)
- The seller is guaranteed to receive the payment - sellers therefore encourage customers to use it
- sellers have to pay their bank a small fee for accepting debit cards
What’s cash back service?
Rewards program where customers can earn back a percentage of the money they spend while shopping - up to £50
What are pre-payment cards?
- Cardholders load the card with money and then use it to pay for goods and services
- e.g. Oyster card for journeys on the London bus or tube system
What’s a contactless card?
- used for contactless payments of up to a specified limit per transaction
- doesn’t require inserting card + entering pin
Using debit cards abroad
- transactions made in local currency - provider will use exchange rate to translate amount into pounds
- cardholders may be charged a fee
- debit cards can also be used in ATMs to withdraw cash in local currency
Using pre-paid travel cards
- loaded with money + used to make payments in other countries
- can be used to withdraw cash from ATMs
- can be topped with additional money
Main two producers of travel cards?
Traveled and Caxton FX
Why are pre-paid travel cards safe?
If the card is lost or stolen, the card can be blocked and the remaining balance is refunded
What are travellers cheques?
- pre printed cheques for set amounts of currency
- when bought, you must sign the cheque twice so the seller can make sure the two signatures match before accepting the cheque
What happens if a travellers cheque is lost or stolen?
The issuing company (e.g. American Express) will replace them
How to get a traveller’s cheque?
- show photographic identification when buying
- prevents money laundering
