Payment Systems

Learning Objectives

  • to understand the methods of payment that are accepted online and in person.

Learning Outcomes

Must – be able to name all the methods of payment that are accepted online and in person.

Should – be able to discuss the advantages and drawbacks of each method of payment.

Could – discuss the impact on society, individuals and business on differing methods of payment for goods and services.

Credit and Debit Cards

A Credit Card is a method of online payment using a customer’s bank account to borrow money. In order to pay with a Credit Card, the customer will need to obtain credit from a bank or building society.  This involves the bank performing a credit check using the customer’s credit file.  The credit file contains all the borrowing, loans and payment history from a customer in the time they have borrowed or obtained credit.

If a customer pays back credit or a loan quickly, they have a good credit rating and are likely to be allowed to have a credit card with a bank.  Once the customer has a credit card, they have a credit limit.  This is the maximum amount they are allowed to borrow (spend) on credit using this card.  Items can be purchased using the credit card, and this is recorded on the customer’s credit card account.  The bank has terms for the credit card, and a minimum payment must be made each month or the bank will apply a rate of interest as a penalty for a late payment.

Credit Cards usually contain a rate of Interest which the bank applies for lending money.

Debit Cards

A Debit Card is different from a credit card in the fact that the customer uses their own money from their own bank account to pay for the item.  Once an item is purchased, the funds are deducted from the customer’s account balance.  If a customer does not have enough funds to purchase the item, they may access their Overdraft.  The Overdraft is excess money that the customer obtains from the bank.  Overdrafts contain daily penalty charges which occur until the balance returns to £0.00.

Making Payments using Debit and Credit Cards

In order to make a payment using a Debit or Credit Card, you will need to type in the 16 digit card number which is displayed on the front of the card.  Each card has a unique number.  The number contains key information about the bank account, account number and customer information.  It is not possible to make up a random 16 digit number.

The second key piece of information needed is the card expiry date.  This is noted in Month/Month, Year, Year format e.g. 09/17, which means September 2017.  Some cards have an issue number and some cards also have a start date.  Some eCommerce sites may require these extra pieces of information.

The final piece of information needed is the CCV number.  See below.

CCV (Credit Card Verification)

The CCV is a 3 digit code which is displayed on the back of a customers Debit or Credit card.  It is a form of security that requires the person to actually have seen the rear of the card, not just the front.

NFC (Near Field Communication)

Debit and Credit Cards now have built in technology which allows contactless payments.  This is called NFC (Near Field Communication).  This allows customers to pay for goods in shops and restaurants without the need to insert the card into the chip and pin terminal and input the 4 digit PIN number.  It is commonly known as Contactless Payments.  There is a £30 maximum limit for contactless payments.  Any amount over £30 requires PIN verification.

NFC is now common in smartphones.  Apple has developed ApplePay, which allows a customer to pay for goods, similar to the cards above using the phone device.

NFC is also used in transportation.  Oyster Cards, which are used as payment on TfL (Transport for London) underground, train, and bus services uses a card with NFC capabilities to deduct payments for journeys by a user touching the points at the start and end of the journey.  Oyster Cards can be topped up with credit either online, at stations or at visitor centres.

Online Bank Transfer

Online Bank Transfers involve customers paying for goods and services by using their bank account to make an online transfer.  The customer needs to set up the company details in their online bank transfer section, this involves them inputting key details such as the sort code, account number, company name and whether the payment is recurring or a one off payment.

Banks take security seriously, so this process usually involves a verification check to ensure the payment has been set up by the customer and not a fraudster.

Third Party Payment Processors

Third Party Payment Processors are organisations which act as an intermediary in terms of allowing a person to pay for a good or service on a website or in person.  When a website is set up, the owner can register for Third Party Payment Processing services.  The most common and well known is PayPal.  When a customer makes a purchase, they have the option to pay via PayPal at the checkout stage.  The customer logs into PayPal puts in their username and password, and clicks submit to make the payment.  PayPal then marks the payment has been made and returns the customer to the website to confirm payment and order confirmation status.

In return, PayPal makes a small charge to the business for the transaction, but having PayPal on the site is hugely popular for the customer as it is a well known and easy to use service.

Online Coupons/Gift Vouchers/E-vouchers

Online Coupons and Gift Vouchers/E-vouchers are becoming quite a popular method of payment as they allow people and organisations to transfer credit to friends and customers without having to physically give them cash.  Amazon offers a popular service which allows Amazon account holders the opportunity to purchase Gift Vouchers which can be sent in the form of a redeemable code, to offer as a gift to celebrate a birthday, anniversary or Christmas.  In order to be sent online, you need to recipients email address.  This code is then sent to the recipient’s email address, and the Amazon account holder is billed for the amount sent in the redeemable code email.  Other organisations such as iTunes, Tesco and eBay offer online coupons for sale.

Task

Ensure you understand all the online and in person payment systems on this page.

For each payment system, discuss in detail the benefits and drawbacks of each payment method.  Remember to link your answers back to security and the impact on businesses, society and individuals.