Topic 3

People tend to use cash for everyday, low-value transactions
when they are in face-to-face situations with the sellers.

Although payment cards are used in more transactions than ever before, cash is still

used in just under a quarter of UK transactions (UK Finance, 2020), though this figure

continues to fall.

Disadvantage of cash;The transaction is not made face-to-face with the seller◆ Some sellers prefer other payment methods –

convenient for the payer (as long as they have enough notes and coins with

them);

◆ readily accepted by people selling the goods or the service;

◆ instant; and

◆ low risk at low values.

Standing orders are instructions to pay the same amount of money to another
account on a regular basis, such as the 5th of every month.
Direct debits are another type of automatic payment that can be set up for a current
account
Online banking enables account holders to give instructions for account transactions
via the internet.
Faster Payments is an electronic payment service offered by all UK banks and building
societies
CHAPS (Clearing House Automated Payment System) is a same-day automated
payment system used for very high value payments.
Mobile banking enables account holders to give payment instructions on their mobile
phone using the internet
Online payment services, such as PayPal, enable people to pay each other without
exchanging current account details.
The advantages of electronic payments are that they are fast, safe and convenient to
make.

People can give their provider instructions to transfer money electronically from their

account to another account on a specific date. Instructions can be given on paper,

online or over the telephone.

The main disadvantage of electronic payments is security. Online fraud and identity

theft mean that account holders have to be very careful to follow security procedures

and keep their passwords and pass numbers safe.

A cheque is 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.

The advantages of cheques are that they are a secure way of paying money (they can

only be paid into an account with the same name as the person / organisation

specified on the cheque).

Providers cannot honour cheques (that is, make the payment specified

on the cheque) if the person who wrote the cheque does not have enough money in

their current account to pay the transaction.

The disadvantages of cheques and the advantages of alternative ways to pay mean

that the numbers of cheques written and received has been falling every year since

1990.

Banker’s drafts look similar to cheques and are processed through the clearing
system

Plastic payment cards are another payment mechanism that enables account holders
to give their provider instructions to pay money from an account.

Cash cards allow account holders to withdraw cash from their account at a branch
or using an ATM. Debit cards allow account holders to access cash from their accounts and also to pay
for goods in stores, over the internet, by telephone and by post.

Pre-paid cards are like electronic purses.

Pre-paid travel cards operate like an electronic purse and can be topped up with
additional money.

These are pre-printed cheques for set amounts of currency, such as 50, 100 or 500
US dollars.

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The choice of payment method usually depends on:

◆ how convenient the payer finds different methods;

◆ which methods the seller accepts;

◆ how quickly the transaction can be completed; and

◆ how safe the method is perceived to be.