Remember when you used cash to make your purchases? People today have more ways than ever: Apple Pay, Venmo, credit cards, debit cards and dozens of other ways. And yes, there are important differences. What you choose might matter as much as the purchase itself.
Each of the different payment methods provides various conveniences, perks and protections from fraud. Credit cards have long been the “go to” method of payment, but outrageous interest rates have now raised the cost of carrying a credit card balance.
Money transfer apps like Venmo and Zelle provide easy instant payments, usually for free. The downside is that they offer fewer protections from scams and unfilled orders, and they have access to your spending habits. (Remember, if the app is free, you are the product!) Payment apps are the fastest growing sources of fraud reports and losses, according the Federal Trade Commission.
Here are some simple tips on how to weigh the convenience, security and benefits of each payment method:
Credit and debit cards
When you use a credit or debit card, the merchant’s bank communicates with your bank through a card network such as Mastercard or Visa ask permission to withdraw a certain amount. Your bank then decides whether to approve the transaction based on your available funds or credit and the likelihood the transaction is fraudulent. If approved, your bank puts a hold on the funds until they are sent to the merchant’s account, usually within a business day.
Credit cards can be the most rewarding way to pay online. Card issuers use the revenue from transaction fees to provide cash back or other perks for customers and fraud protection.
But a credit card can be expensive if you don’t pay your balance in full each month. And higher interest rates have now raised the cost of carrying a credit card balance. An annual percentage rate of 25% to 30% is not unusual these days.
Debit cards don’t offer the same rewards as credit cards since their issuers make less money from each transaction. They do come with similar fraud and payment protections as credit cards.
Digital wallets
Digital wallets such as PayPal or Apple Pay are among the safest and easiest ways to pay online. Checking out with a wallet is typically faster than paying with a credit card directly since you don’t have to re-enter your billing information and shipping address.
All of the protections and benefits associated with the underlying card are still in effect for wallet transactions, so it’s a good idea to connect these wallets to a credit card directly to maximize your protection.
If a digital wallet gives you the option to link a bank account directly, you should read the policy agreement to make sure you understand what is protected. For example, PayPal offers an extra level of purchase protection, but Apple Pay and Google Pay don’t.
Peer-to-peer payment apps
Apps like Venmo, Cash App and Zelle were designed to help people send money to friends and family, but they are now used for paying contractors or for purchases on Craigslist. They move money quicker than card payments because they don’t wait for the bank to approve the transaction. But that means it’s almost impossible to get money back once it has been sent.
These payment methods aren’t regulated as heavily as cards, so you might still be on the hook for unauthorized payments if a swindler gets control of their accounts.
Bank transfers
People should be selective in sharing their bank information with merchants since wire transfers don’t have the same protection guarantees as cards. If a business requests a direct bank transfer instead of a card payment, choosing a slower option over the newer instant methods such as Zelle might be best. ACH transfers typically take a few days to settle, giving you a few more days to try to stop the transaction before the money leaves your account.
If you’ve been scammed and can’t get your money back, sometimes the only option is a bankruptcy filing. I have helped many people deal with these kind of situations. I can help you too!
Ralph Guenther