Methods of payment
The different ways to pay, and when each one fits.
There are lots of ways to move money: cash, cards, transfers, direct debits, digital wallets, even cryptocurrency. Each suits some jobs better than others. The skill is matching the method to the payment, so a regular bill, a one-off online buy and a quick payback to a friend each go the easy, safe way.
So many ways to pay
Paying for something used to mean handing over cash. Now there are many ways to move money, and knowing what each does saves time, money and hassle. The main ones are cash, debit and credit cards, bank transfers, direct debits and standing orders, digital wallets, online payment systems, and cryptocurrency.
None is best for everything. The right choice depends on what you are paying for, how quickly it needs to go, and how much protection you want.
Cards and cash: your money or borrowed money
A debit card spends money you already have in your account. A credit card is different: it is borrowing that you have to pay back, so it is useful, but it is a loan, not free money.
Cash still works almost everywhere, but it carries a risk the others do not. If you lose it or it is stolen, there is no record and no protection, so it is simply gone.
Transfers, direct debits and standing orders
To move money straight between bank accounts, people use a bank transfer. Faster Payments move money between accounts almost instantly, which is why paying a friend back can land in seconds.
For bills, two tools look similar but behave differently. A direct debit lets a company collect a payment that can change each time, which suits bills that vary, like energy. A standing order is a fixed amount you set up and control yourself, which suits something steady like rent. The difference is who is in charge of the amount.
Digital wallets, online systems and crypto
A digital wallet stores your cards on your phone so you can tap to pay. Online payment systems act as a go-between when you buy on the internet, so you do not have to hand your card details to every shop.
Cryptocurrency is a digital currency that is not issued by a central bank or government. It can be used to move value, but its price can change quickly and it comes with weaker protection than normal money, so it carries more risk.
Good for, watch out for
| Method | Good for | Watch out for |
|---|---|---|
| Cash | Simple and widely accepted | Loss or theft can be hard to recover |
| Debit card | Convenient; uses your own funds | Spending can be easy to lose track of |
| Credit card | Flexible borrowing; some purchase protection | Interest and debt if not repaid |
| Bank transfer | Fast and direct | Mistakes and scams can be hard to reverse |
| Direct debit | Useful for bills that change | The amount taken can vary |
| Standing order | You control the amount and date | You have to change it yourself |
| Digital wallet | Quick and convenient | Depends on your device and its security |
| Cryptocurrency | Can move digital value | Volatile price; weaker protection |
- 'A debit card and a credit card are basically the same.' A debit card spends your own money; a credit card is borrowing you must repay, with interest if you do not clear it.
- 'A direct debit and a standing order are the same.' A direct debit lets the company take an amount that can change; a standing order is a fixed amount you control.
- 'Cash is safest because it is real.' If cash is lost or stolen there is no record and no way to get it back, which makes it riskier to carry than a card.
Key terms
- Direct debit
- A payment a company collects, which can vary, once you have authorised it.
- Standing order
- A fixed regular payment you set up and control.
- Faster Payments
- Near-instant transfers between bank accounts.
- Digital wallet
- An app that stores your cards on your phone.
- Cryptocurrency
- A digital currency with no central authority.
Not examined
Check your understanding
- What is the difference between a direct debit and a standing order?
- Give one advantage and one disadvantage of paying by credit card.
- Why can paying with cash be risky?
Show suggested answers
- A direct debit lets a company collect an amount that can change (good for bills that vary); a standing order is a fixed amount you set and control (good for rent).
- Advantage: flexible borrowing and some purchase protection. Disadvantage: interest and debt if you do not repay in full.
- If it is lost or stolen there is no record and no protection, so the money is simply gone.