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Alternative payments are payment methods other than cash or major credit cards.[1] Alternative payments include prepaid cards, mobile payments, e-wallets, bank transfers, and "buy now, pay later"-type instant financing.[1] Most alternative payment methods address a domestic economy or have been specifically developed for electronic commerce and the payment systems are generally supported and operated by local banks.[citation needed] Each alternative payment method has its own unique application and settlement process, language and currency support, and is subject to domestic rules and regulations.[citation needed]
A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. A charge card is a plastic card that provides an alternative to cash when making purchases in which the issuer and the cardholder enter into an agreement that the debt incurred on the charge account will be paid in full and by due date. Debit and charge cards are used and accepted in many countries and can be used at a point of sale location or online.
Prepaid or stored-value cards provide payment through a monetary value held on the actual card or on deposit in an account. One major difference between stored-value cards and prepaid cards is that prepaid cards are usually issued in the name of the individual account holders, while stored value cards are usually anonymous. In the United States, prepaid and stored-value cards typically can be processed on the credit card network, but this is not the case for all cards, especially those outside of the United States.
A direct debit or direct withdrawal is an instruction that a bank account holder gives to his or her bank to collect an amount directly from another account. It is similar to a direct deposit but initiated by the beneficiary. Direct debit is available in several countries including the United Kingdom, Germany, Austria and the Netherlands. It was scheduled to be available across the whole Single European Payments Area by the end of 2010. In the United States, where checks are more popular than bank transfers, a similar service is available through the Automated Clearing House network.
A bank transfer (also known as a wire transfer or credit transfer) is a method of transferring money from one person or institution (entity) to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office. A bank wire transfer is often the most expedient method for transferring funds between bank accounts. The transfer messages are sent via a secure system (such as SWIFT or Fedwire) utilizing IBAN and BIC codes. Online bank transfer systems in Europe are popular alternative payment methods, where the bank transfer is authorized by the consumer who logs onto his bank website and authorizes the funds transfer for payment to a merchant.
A digital wallet is an online stored value service where funds are preloaded and made available using the providers online services. Popular providers include Skrill, NETELLER, PayPal.
A giro transfer is a bank transfer payment, whereby order is given by the payer to his or her bank, which transfers funds into the payee's bank account; the receiving bank then notifies the payee. Giro is often used by post offices as well. The term is little used in the United States, although an ACH Transfer or direct deposit is the US electronic version of the giro transfer.[citation needed]
Online Banking ePayments (OBeP) are similar to giro transfers, but are designed specifically for use with online commerce. With OBeP, during the online checkout process, the merchant redirects the consumer to their financial institution's online banking site where they login and authorize charges. After charges are authorized, the financial institution redirects the consumer back to the merchant site. With some services, like Trustly, the merchant can embed an iframe on their site so that the consumer doesn't have to leave the page to make a payment. All network communications are protected using industry standard encryption. Additionally, communications with the OBeP network take place on a virtual private network, not over the public Internet. OBeP systems protect consumer personal information by not requiring the disclosure of account numbers or other sensitive personal data to online merchants or other third parties.[2][failed verification]
Electronic bill payment is a feature of online banking, similar in its effect to a bank transfer, allowing a depositor to send money from his demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific account. The payment is optimally executed electronically in real-time, though some financial institutions or payment services will wait until the next business day to send out the payment. The bank can usually also generate and mail a paper check or banker's draft to a creditor who is not set up to receive electronic payments.
With phone payments, consumers are billed via their regular telephone number, whereby the charges are added to their phone bill. Premium-rate telephone numbers or 900 numbers are telephone numbers for telephone calls during which certain services are provided, and for which prices higher than normal are charged.
Mobile payments is a new and rapidly adopted alternative payment method – especially in Asia and Europe. Instead of paying with cash, check or credit cards, a consumer can use a mobile phone to pay for wide range of services and goods. The charges are then added to their phone bill.
A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
The number of alternative payments has grown exponentially in the last few years due to the need for billing solutions on the Internet. Limited credit card penetration and customary local payment habits, combined with tight credit and security fears to use credit cards for online payments has increased the usage of alternative payments on a worldwide level.
Alternative payments are offered by domestic banks and payment processors that offer merchants a variety of billing solutions. Most alternative payments have online applications and are integrated into electronic shopping carts used by online merchants.
Several billing solutions have been devised specifically for web-based merchants to accept alternative payments online and to support and access distant markets. Alternative payments are used throughout North America, Europe and Asia, and have penetration levels of sixty percent or more in various countries. Language, currency and support, including trust and familiarity, often contribute to the success of a domestic alternative payment solution.
Debit cards and charge cards are accepted worldwide as alternative payment and in some cases, debit cards are designed exclusively for use on the Internet, and there is no physical card only a virtual card. Certain systems also require the use of a PIN when a debit is used for online purchases.
Crypto debit cards have become increasingly popular with the rise of digital currencies like bitcoin. These cards operate on traditional card infrastructure, but use digital currencies as the exchange of value.
European online direct debit solutions are particularly popular due to the lower use of credit cards in Europe as compared to other countries like the United States. Transactions can be approved in real-time and funds in 1 to 3 business days. Chargebacks remain a risk inherently when debiting a consumer's bank account, however, using additional verification systems reduces the risk significantly and many payment processors maintain an extensive fraud database that mitigates the risks.
Using bank transfers to accept payments does not carry any inherent risk to the merchant, which makes it particularly attractive to both high and low risk merchants seeking to reduce chargebacks. The drawback to this approach from a merchant's perspective are that re-billing cannot be made automatic and billing does not occur quickly, as their customers must manually transfer the funds.
Electronic checks allow funds to be withdrawn directly from the consumer's account. Recurring payments can be set up and the consumer's personal information can be verified instantly. Merchants that opt to accept electronic checks enjoy convenient processing that reaches a large number of consumers that do not own credit cards or do not wish to use credit cards to make payments. Electronic checks are known to have long clearing times of up to five business days and carry an inherent risk of charge-backs. Checks that have been verified may come back after the clearing time as “insufficient funds”, meaning that the consumer does not have sufficient funds in their account to pay the balance of the transaction.
Phone payments describe a system of allowing consumers to purchase products or services using their phone number. In most cases, the charge is verified via phone or SMS messaging before the transaction is approved. The resulting charge is then added to the customer's phone bill.
Phone billing is accepted in many countries and offers a flexible way for merchants to accept payment, especially online, where the risk of fraud is elevated. While convenient for the consumer, phone billing has several inherent issues for merchants. Payment processors that support phone billing typically charge a higher rate because the payments must go through an additional party, the phone provider, before reaching the merchant. The clearing time on funds is also exceptionally high because the funds are not collected until the consumer pays their phone bill.[citation needed]
Merchant advantages
Alternative payments have increasingly become more popular with merchants, as more options means more sales, and because nearly all alternative payments offer a variety of service specific features that addresses a global online marketplace. Geolocation software, automatic language translations, instant currency exchange and worldwide support are generally included to allow foreign buyers to make use of their domestic payment solution, while shopping outside of their country at a foreign based web merchant.
Unlike traditional credit card transactions, many alternative payments often provide additional security features that protect the merchant from fraud and returned transactions, because the funds availability is verified and payment is made directly from a bank account. The banks guarantee the funds and because there are no chargebacks, merchants are often not required to provide collateral or keep a reserve. Furthermore, accounts are validated in real-time and fraud modules scrub transactions, similar to the approval process with credit cards.[citation needed]
Consumer advantages
Alternative payments have, in many areas, become the dominant form of online payment for consumers. Alternative payments gives consumers more options to pay and allows them to select payment methods that they are comfortable with. Language, domestic applications and familiarity with the payment method, coupled with the trust they place in their own bank, increases usage. Furthermore, consumers may simply elect to use alternative payment methods due to security concerns with credit card purchases. Many alternative payments often require additional security steps, such as a user name, password or personal identification number (PIN) to further protect the consumer.[citation needed]
A debit card is a payment card that can be used in place of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase must be in the cardholder's bank account at the time of a purchase and is immediately transferred directly from that account to the merchant's account to pay for the purchase.
Electronic funds transfer at point of sale is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS technology was developed during the 1980s. In Australia and New Zealand, it is also the brand name of a specific system used for such payments; these systems are mainly country-specific and do not interconnect. In Singapore, it is known as NETS.
A stored-value card (SVC) is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. This means no network access is required by the payment collection terminals as funds can be withdrawn and deposited straight from the card. Like cash, payment cards can be used anonymously as the person holding the card can use the funds. They are an electronic development of token coins and are typically used in low-value payment systems or where network access is difficult or expensive to implement, such as parking machines, public transport systems, closed payment systems in locations such as ships or within companies.
A direct deposit, in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' accounts, but the facility can be used for payments for any purpose, such as payment of bills, taxes, and other government charges.
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.
Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash office.
A giro transfer, often shortened to giro, is a payment transfer from one bank account to another bank account and initiated by the payer, not the payee. The debit card has a similar model. Giros are primarily used in Europe; although electronic payment systems exist in the United States and Canada, it is not possible to perform third-party transfers with them. In the European Union, there is the Single Euro Payments Area (SEPA), which allows electronic giro or debit card payments in euros to be executed to any euro bank account in the area.
A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where the money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.
An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.
A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds instructs their bank to collect an amount directly from another's bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically.
Payment cards are part of a payment system issued by financial institutions, such as a bank, to a customer that enables its owner to access the funds in the customer's designated bank accounts, or through a credit account and make payments by electronic acc transfer and access automated teller machines (ATMs). Such cards are known by a variety of names including bank cards, ATM cards, client cards, key cards or cash cards.
Authorization hold is a service offered by credit and debit card providers whereby the provider puts a hold of the amount approved by the cardholder, reducing the balance of available funds until the merchant clears the transaction, after the transaction is completed or aborted, or because the hold expires.
The Green Dot Corporation is an American financial technology and bank holding company headquartered in Austin. It is the world's largest prepaid debit card company by market capitalization. Green Dot is also a payments platform company and is the technology platform used by Apple Pay Cash, Uber, and Intuit. The company was founded in 1999 by Steve Streit as a prepaid debit card for teenagers to shop online. In 2001, the company pivoted to serving the "unbanked" and "underbanked" communities. In 2010, Green Dot Corporation went public with a valuation of $2 billion. Since its inception, Green Dot has acquired a number of companies in the mobile, financial, and tax industries including Loopt, AccountNow, AchieveCard, UniRush Financial Services, and Santa Barbara Tax Products Group.
Payment and settlement systems in India are used for financial transactions. They are covered by the Payment and Settlement Systems Act, 2007, legislated in December 2007 and regulated by the Reserve Bank of India and the Board for Regulation and Supervision of Payment and Settlement Systems.
An issuing bank is a bank that offers card association branded payment cards directly to consumers, such as credit cards, debit cards, contactless devices such as key fobs as well as prepaid cards. The name is derived from the practice of issuing cards to a consumer.
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt. The card issuer creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance. There are two credit card groups: consumer credit cards and business credit cards. Most cards are plastic, but some are metal cards, and a few gemstone-encrusted metal cards.
Neteller is an e-money transfer service used to transfer money to and from merchants, such as forex trading firms, social networks firms. It can withdraw funds directly using the Net+ card or transfer the balance to their own bank accounts.
A payment processor is some sort of transactor for financial calculations, technically an invertible currency exchange appointed by a merchant to handle transactions from various channels such as credit cards and debit cards for merchant acquiring banks. They are usually broken down into two types: front-end and back-end.
Rede known as Redecard is a Brazilian multi-brand acquirer with 25 brands in its portfolio, for credit, debit and benefit cards. Its activities include merchant acquiring, capturing, transmission, processing and settlement of credit and debit card transactions, prepayment of receivables to merchants, rental of POS terminals, check verification through POS terminals, credit card machine and the capture and transmission of transactions using benefit-voucher, private-label cards and loyalty programs such as Multiplus. The company is the first largest in its sector. The company was traded in BM&F Bovespa and disclosed in 2012, 24, September.
Online Banking ePayments (OBeP) is a type of payments network, developed by the banking industry in conjunction with technology providers. It is specifically designed to address the unique requirements of payments made via the Internet.
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