Topic 3 - Payment Methods

Question 1

Advantages of cash

Answer 1

• convenient for payer/ for low value transactions
• readily accepted by ppl selling goods + services
• quick
• some retailers only accept cash (e.g. for low value transactions)
• some believe it helps ppl budget

Question 2

Disadvantages of cash

Answer 2

• can’t use cash when buying online, by mail order or telephone
• cash not convenient when transactions must be paid on same/similar dates each month (standing order/direct debit more convenient)
• carrying large amounts of cash = risky (lost/stolen)
• some sellers don’t like to receive cash due to responsibility of looking after it

Question 3

How does online banking help account holders?

Answer 3

• make one off transfers to organisations + others using online banking
• set up a standing order
• set up a direct debit

Question 4

Types of electronic payments

Answer 4

• standing order
• direct debit
• one off online transfers to individual/organisations
• faster payments
• CHAPS

Question 5

What is a standing order?

Answer 5

• instructions for a regular payment (same amount) to another account

Question 6

What is a direct debit?

Answer 6

• gives bank permission to pay regular bills (different amounts)
• payments covered by a guarantee

Question 7

What is mobile banking?

Answer 7

• account holders download an app from their provider: gives access to services + includes security

Question 8

What is an advantage of online payment services?

Answer 8

• enables ppl to pay others w/o exchanging current account details (more secure)

Question 9

Advantages of electronic payments

Answer 9

• fast, safe + convenient
• standing orders/direct debit can be set up: helps bills be paid on time w minimal effort from account holder

Question 10

Disadvantages of electronic payments

Answer 10

• security
• problems of fraud
• account holder may make a mistake (amount for a transfer, account number, sort code)

Question 11

Advantages of cheques

Answer 11

• secure way of paying money
• easy to carry + use
• suitable where speed of payment not important

Question 12

Disadvantages of cheques

Answer 12

• usually takes 3 business days for cheque to clear
• if sender of check not got sufficient funds, cheque gets sent back by the bank to account holder
• receiver has to pay money into their account (trip to bank)

Question 13

What are bankers drafts?

Answer 13

• look similar to cheques + processed through clearing system but signed by provider rather than an individual
• payment guaranteed

Question 14

What are cash cards?

Answer 14

• allows account holders to withdraw money from an ATM
• given to young ppl who can’t borrow

Question 15

What are debit cards?

Answer 15

• money instantly taken from account holders account
• branded as Visa Debit, MasterCard or Solo

Question 16

Advantage of payment cards

Answer 16

• some direct cards are contactless: payment can be made w/o a PIN number
• usually for transactions <£30

Question 17

Ways to make payments abroad

Answer 17

• cash in local currency
• debit card
• prepaid travel card
• travellers cheques

Question 18

What to consider when comparing payment methods

Answer 18

• how convenient the payer finds different methods
• which methods the seller accepts
• how quickly the transaction can be completed
• how safe the method is perceived to be