Ways of paying

Credit and debit cards are the most popular way for people to pay for things, with these kind of payments totalling £884 billion in 2021.

Debit card

Debit cards are linked to your payment account and take money directly from your account when a purchase is made. To use a debit card, you should have sufficient funds in your account to cover the cost of your purchase (or agreed overdraft facilities) as the money comes out of your account shortly after you make the payment.

Is it a convenient payment type?

• Many debit cards can be used to make contactless payments for purchases up to £100, where you simply tap your card over a reader.

• They’re quick to use in shops and online.

Is it a widely accepted payment type?

• Debit cards are a widely accepted payment type. Retailers pay a charge for accepting card payments and they may reflect this charge in the prices charged to all consumers for goods and services.

How protected are you?

• Payments are managed and processed by card schemes like Visa and Mastercard, who check with card providers if a transaction should be accepted or declined. Unlike with cash, for example, if you lose your card or it gets stolen, there are processes in place to get it cancelled and replaced.
• If there is a problem with the transaction or the goods or services you have bought, you might be able to make a claim for a refund by contacting your card issuer to raise a ‘chargeback’. However, this is a voluntary system operated by card schemes, so you’re not always guaranteed your money back.
  
  

Credit card

Credit cards are not directly linked to your bank account. When you use a credit card to make a purchase, the credit card company pays the retailer and then you are required to pay the credit card company at a later date.

Credit card companies will give you the opportunity to pay off what you owe them in full, or alternatively pay an amount each month. If you choose the latter, the credit card company will generally charge you interest on the amount outstanding.

Is it a convenient payment type?

• Many credit cards can be used to make contactless payments for purchases up to £100, where you simply tap your card over a reader.

• They’re quick to use in shops and online.
• They provide an easy source of available credit. However, it can be easy to run up large amounts of debt using a credit card and a high rate of interest may be charged if you don’t pay the outstanding balance off.
• You may not be able to get a credit card – each credit card company has criteria that you must meet before they will issue a card to you.
• It is possible to withdraw cash from an ATM using a credit card, although charges imposed by many credit card companies for this can make it an expensive way to access cash.

Is it a widely accepted payment type?

• Credit cards are a widely accepted payment type. Retailers face a charge for accepting card payments and they may reflect the charge in the prices charged to all consumers for goods and services.

How protected are you?

• Payments are managed and processed by card schemes like Visa and Mastercard, who check with card providers if a transaction should be accepted or declined. Unlike with cash, for example, if you lose your card or it gets stolen, there are processes in place to get it cancelled and replaced.
• If there is a problem with the transaction or the goods or services you have bought and you spent more than £100, the Consumer Credit Act requires the credit card company to reimburse you.

Prepaid card

Although credit and debit cards are the most popular, there are other types of cards used to pay for things, including prepaid cards.

When you first start using a prepaid card, you load it with money and then top it up when it runs out.

Is it a convenient payment type?

• Prepaid cards are an alternative to using cash, and don’t require you to open a bank account.
• While most prepaid cards don’t have an upfront fee, they charge varying fees, from a charge for each time you use the card to make a purchase to a fee for using it to withdraw cash from an ATM.

Is it a widely accepted payment type?

• Prepaid cards are accepted nearly everywhere debit cards are, since they are often issued by a well-known card network, such as Mastercard, Visa or American Express.

How protected are you?

• Providers of prepaid cards are often not required to be members of the Financial Services Compensation Scheme (FSCS), so you’re not offered that protection. That’s why it’s encouraged to only put the money you need to on your prepaid card, for things like immediate spending on holiday.

Charge card

With charge cards, although you spend in the same way as you would with a credit card, you must pay off your card balance in full every month.

Is it a convenient payment type?

• Because your balance shouldn’t roll over into the next month, charge cards are not advertised with interest rates.
• They have an uncapped spending limit, but typically charge a high annual fee and late-payment fees.
• As with credit cards, each card issuing company has criteria that you must meet before you can get a charge card.

Is it a widely accepted payment type?

• Charge cards are not as widely accepted as credit cards.

How protected are you?

• Charge cards do not offer protection under the Consumer Credit Act, but they may offer their own purchase protection or extended warranty cover instead.

To accept card payments, merchants must pay certain fees which can ultimately impact the cost we all pay for goods and services – we have work underway to examine these fees. We’re also working to make account-to-account payments become a realistic alternative to credit and debit cards. This should mean more competition between payment systems, giving you more choice and improved services.

An increasingly common way of purchasing things is by a "Buy Now, Pay Later" (BNPL) service, such as Klarna. A BNPL service is neither a payment system or a payment service, it is a credit product typically offered by a single provider, allowing you to make purchases and pay for them at a future date.

Is it a convenient payment type?

• It’s usually easier to access BNPL services than to qualify for a credit card.
• As with credit cards, BNPL services provide an easy source of available credit.
• Such services are attractive as they can be free for you to use, with no interest or fees charged. However, there are often fees for late or missed payments.

Is it a widely accepted payment type?

• The BNPL market is rapidly growing, with these service providers working with thousands of retailers and having millions of customers. You’re able to use these services both online and in stores, though some retailers work exclusively with one BNPL provider, meaning there could be limited choice about which to use depending on where you shop.

How protected are you?

• BNPL services do not currently offer protection under the Consumer Credit Act, but they may offer their own purchase protection or extended warranty cover instead.
• The Government has proposed that BNPL providers are regulated by the Financial Conduct Authority (FCA), with complaints to be handled by the Financial Ombudsman Service (OFS). Proposals also include BNPL providers having to carry out similar checks to other lenders, like when applying for a credit card or loan.

Also known as ‘pay by bank’, ‘interbank’ or ‘account-to-account’ payments. These types of payments, which can be made using open banking, move money directly from one account to another, like when you're transferring money to a friend for instance.

Is it a convenient payment type?

• You can easily transfer money to your friends and family using their name, account number and sort code. These payments are usually sent instantly and received within a few hours, depending on the amount and location of the recipient’s account.
• The instruction to move money always comes from you - this means you can decide when and how much money is taken from your account.

Is it a widely accepted payment type?

• While bank transfer works well for people making payments using digital banking to other individuals, it is less commonly used for retail transactions.

How protected are you?

• More banks are adopting Confirmation of Payee (CoP), which was designed to help stop fraud and accidentally misdirected payments by checking whether the name of a payee’s account matches the name and account details provided by a payer.
• As the use of bank transfers increases, certain consumer protection concerns are growing. For example, Authorised Push Payment (APP) scams, where fraudsters are targeting UK consumers and tricking them into agreeing to make payments, is becoming more sophisticated.
• There are no ‘chargeback’ style protections, as there are with debit card payments. Instead, the Contingent Reimbursement Model (CRM) is a voluntary code in place which UK banks can sign up to. The CRM code aims to give customers who have fallen victim to APP scams the confidence that they will be reimbursed if they have acted appropriately.

We want to make account-to-account payments easier to use for retail transactions so that everyone benefits from increased competition and fairer prices. We’ve identified areas which could be improved to make this happen, including around making sure people are suitably protected and feel safe when making account-to-account payments, and that systems in retail transactions have the correct functional capability to allow for account-to-account payments to take place.  

Meanwhile, our work to fight fraud continues. Under our plans, banks will be required to reimburse the majority of customers who have fallen victim to APP fraud, which is likely to be a significant increase on current reimbursement rates at around 56%. We are also leading on a wider set of changes to reduce APP scams, including improved intelligence sharing to spot and prevent fraudulent transactions, the publication of data on how well firms are protecting customers from scams, and the continued widespread rollout of CoP.

Direct debit

With direct debit, you authorise money to be collected by a company directly from your bank account whenever a payment is due. Direct debit payments can vary in frequency and amount and are controlled by the organisation you’re paying.

Is it a convenient payment type?

• Direct debit can be time-saving and convenient when it comes to bills for example, potentially helping you avoid late payment fees. If you decide to switch accounts, the Current Account Switch Service also automatically transfers all payment instructions to your new account.

• Direct debit could lead to missed payments or an account overdraft if sufficient funds aren’t available.
• Can be problematic if there are billing errors or other extra unexpected costs.
• Direct debits are sometimes not flexible enough to meet everyone’s needs. To cancel a direct debit, you must tell the recipient or your bank.

Is it a widely accepted payment type?

• Direct debit payments are popular in the UK, with thousands of organisations using it to collect bills of all kinds. Several utility companies also incentivise customers to use direct debit by offering them a small amount off their payments.

How protected are you?

• Direct debit offers you protection under the Direct Debit Guarantee – for example, you’re protected if a payment is taken on the incorrect date, or the wrong amount is collected.

Standing order

A standing order is an instruction you give to your bank to pay a fixed amount at regular intervals – for example, when making monthly rent payments or charity donations. You set up the standing order and are in control of it.

Is it a convenient payment type?

• A standing order is easy to set up. Anyone with a current account can set up a standing order, either online, over the phone or in person at a branch of their bank.
• With standing orders, your bank sends the money into the beneficiary’s account and only you can alter the payments. That’s why it’s important that you stay on top of any changes to the bank account details you give, the amount and the payment date.
• Standing orders could lead to missed payments or an account overdraft if sufficient funds aren’t available.
• You can cancel a standing order at any time yourself, or you can ask your bank.

Is it a widely accepted payment type?

• Standing orders are commonly set up by consumers for payments which are the same each month – so a rent payment or charity donation. For payments that vary each month, you’d use a direct debit – this might be a phone or gas bill for example.

How protected are you?

• Standing orders don’t offer the same protections that Direct Debit does. In the case of needing to get your money back, once the standing order leaves your bank account, you can’t stop it. You will need to request a refund from the recipient, so you aren’t guaranteed a refund. If you believe someone’s made a fraudulent standing order from your account, you should get in touch with your account provider.

Card subscription payments

Subscription payments are different to direct debits and standing orders. They’re also sometimes known as ‘recurring payments’ or ‘continuous payment authorities’, and you need your card details, rather than your bank account number and sort code, to set one up. The organisation providing the service you’re using takes a payment from your debit or credit card when they think it’s due.

Is it a convenient payment type?

• Subscription payments are easy to set up and can be time-saving. Once you have authorised a subscription payment, it can become a recurring payment until you cancel it. 
• It's recommended that you inform both the company taking the payment and your card issuer when cancelling a subscription payment.

Is it a widely accepted payment type?

• This type of payment can be used for many reasons, including gym memberships, music and movie streaming platform subscriptions, or payday loan repayments.

How protected are you?

• Card subscription payments do not offer the same guarantee as direct debits and give the company taking the payment more flexibility about when and how much it takes from your account.
• Any related payments taken after you ask for a subscription payment to be stopped are considered to be unauthorised transactions. Your card issuer should refund these payments and any related charges.

Physical notes and coins used to buy goods and services. Although the use of cards and other digital payment methods are increasing, a significant number of people still rely on cash, including some of the most vulnerable in society.

Is it a convenient payment type?

• Immediate access to funds.
• Benefits people with limited digital or financial access and skills.
• Some people prefer cash for budgeting reasons because physically handling it makes them more aware of their spending. This is especially useful for those who are financially vulnerable or have an uncertain income. 

Is it a widely accepted payment type?

• Fast-growing and changing market in digital payments, as well as the COVID-19 pandemic, have caused fewer businesses to accept cash.  
• There are no transaction fees for retailers at the point of sale, although there are costs associated with accepting and handling cash.

How protected are you?

• Carrying cash comes with the risk of loss or theft.
• While this also applies to carrying a credit or debit card, you have the added benefit of being able to cancel these or claim a refund in cases of fraud.

We are keen to ensure that people who want to continue to use cash can do so, and that they can get hold of it easily. Our priority is ensuring LINK - the UK’s main ATM network - remains sustainable and resilient, and continues to provide access to those who need it. We welcome the Government’s proposals to ensure that the FCA has the right responsibilities and powers to oversee the cash system. We and the Bank of England will continue with our existing roles overseeing LINK to support the delivery of cash access for consumers and Small and Medium Enterprises.

We've also published a report from the PSR Panel, highlighting the challenges to the take-up of digital payments and what the potential solutions and regulatory actions could look like. Despite being unable to tackle the causes of digital exclusion, we do have a role in challenging payment systems to consider people with limited digital and financial inclusion when designing and implementing digital payment services. That is where we’re focusing our attention.

These are linked to your bank account, often through debit and credit cards. You're able to access multiple forms of payment from a single app, just as you would hold multiple credit cards in a physical wallet. Some also store additional information like boarding passes and loyalty cards. Examples of these wallets include Apple Pay and Google Pay.

Is it a convenient payment type?

• Everything is stored on your phone in one central location. 
• Can be used to make contactless payments, where you simply tap your card over a reader. With digital/mobile wallets, the £100 limit may not apply when used for contactless payments.
• They’re quick to use in shops and online.

Is it a widely accepted payment type?

• Can be used at most retailers and online stores. Most locations that accept cards as a payment type will allow you to pay with your digital or mobile wallet. However, this can depend on the wallet you choose.

How protected are you?

• With digital/mobile wallets, all important financial details are fully encrypted and often only accessed with your personal password, PIN, or biometric details. However, it’s possible to lose your device or for it to be stolen so it’s important to take steps to protect yourself.

Paying by cheque has been on the decline for many years. A cheque is a written document that instructs a bank or building society to pay a person or an organisation using funds from a current or company account. There must be enough money in the account for it to clear and payment to go through.

The Image Clearing System was launched in 2019, changing the way that cheques are deposited. Instead of exchanging physical cheques, through the system, digital images of cheques are exchanged between UK banks and building societies for faster clearing and payment. This allows for quicker and more convenient ways of depositing cheques, including through mobile banking.

Is it a convenient payment type?

• Processing only begins when your payee deposits the cheque, so you may be able to agree some flexibility with the people you pay to, if something unexpected happens and you need to stop the payment for example.
• The payment amount doesn’t leave your account until the recipient cashes the cheque, which could make budgeting more difficult for you.

Is it a widely accepted payment type?

• Cheques are not a widely accepted payment type.

How protected are you?

• Cheques can only be deposited by those they’re addressed to.
• If the cheque has not been deposited and you later realise the payment should not be made you may be able to contact your bank to stop a cheque payment. If you suspect a cheque has been lost or stolen, you should notify your bank as soon as you can.  

With cryptoassets, and specifically cryptocurrencies, recently gaining more popularity, as well as the Treasury setting out its plans to "make the UK a global cryptoasset technology hub", this presents the potential for new ways of paying. 

Although not currently designated as a payment system to the PSR, we believe that crypto-based payment systems could provide additional choice for consumers and businesses. We need to ensure that appropriate and robust regulation is applied to any newly designated payment systems and we are developing guidance on how we would regulate new payment systems to make sure you're protected.