Topic 3 - Payment methods

Question 1

What are the advantages of using cash?

Answer 1

• convenient for the payer
• readily accepted by people selling goods/services
• instant transaction
• low risk at low values
• helps people budget by controlling the amount they spend

Question 2

What are the disadvantages of using cash?

Answer 2

• transactions must be made face to face with sellers
• transactions must be made on the same/similar dates each month
• less convenient than other methods
• carrying large amounts can be risky
• some sellers prefer using other payment methods

Question 3

What is a standing order?

Answer 3

An instruction to pay the same amount of money to another account each month in a regular basis e.g. the 5th of each month

Question 4

What are direct debits?

Answer 4

Automatic payments that give permission to one’s provider to pay the regular bills that an organisation will present for payment

Question 5

What is online banking?

Answer 5

Online banking is where account holders can give instructions for account transactions via the internet

Question 6

What is ‘Faster Payments’?

Answer 6

An electronic payment service is where payment arrives in the destination account within 2 hours of the provider receiving instructions to do so (done via online, phone or standing order)

Question 7

What is CHAPS?

Answer 7

A same day automated payment system used for very high value payments

Question 8

What is mobile banking?

Answer 8

where account holder give payment instructions on their mobile phone using a banking app via internet

Question 9

What are online payment services?

Answer 9

These allow people to pay one another without exchanging current account details, e.g PayPal

Question 10

What are the advantages of electronic payments?

Answer 10

• fast
• safe
• convenient to make
• free of charge as long as there are sufficient funds to carry out transactions
• there are many types of electronic payment methods to meet customers needs

Question 11

Disadvantages of electronic payments

Answer 11

• online fraud and identify theft can occur
• requires checking accounts frequently
• risk of an account holder making a mistake with the account e.g. a mistaken transaction

Question 12

What are cheques?

Answer 12

Payment mechanisms that allow account holders to instruct their provider to pay a specific amount of money to a person or organisation.

Question 13

Advantages of cheques

Answer 13

• a secure way of paying money
• Easy to carry and use

Question 14

Disadvantages of cheques

Answer 14

• uncertainty of receiving money paid immediately
• cheques can’t be honoured by providers if the account holder has insufficient funds
• cheques are not accepted everywhere, some businesses refuse to accept them

Question 15

What are banker’s drafts?

Answer 15

These are similar to cheques and processed through clearing systems, and are signed by the provider instead of the individual.

Question 16

What are debit cards?

Answer 16

These allow account holders to access cash from their accounts and pay for goods in stores, over the internet, by telephone and post. These cards are branded by Visa or Mastercard.

Question 17

What are cash cards?

Answer 17

These allow account holders to withdraw cash from their account at branches or using an ATM, and are branded by Visa or MasterCard

Question 18

What are pre-payment cards?

Answer 18

These act as electronic purses where cardholders can add money and use it to pay for goods and services

Question 19

What are contactless cards?

Answer 19

These are debit or prepaid cards that can be used to make transactions holding the card near a reader.

Question 20

What are traveller’s cheques?

Answer 20

These are pre-printed cheques that have set amounts of currency which can be used to pay in shops and hotels. They can also be exchanged at banks for local currency

Question 21

What is cashback?

Answer 21

This is where some retailers gives the customer cash when they pay for goods by card

Question 22

What is a mandate?

Answer 22

A paper or online instruction to a provider to make a payment from an account