Guide to Payment Types

My Greeting to Functional people! My name is Piyush Srivastava, and I’m working as in functional/Automation for more than 5 years on various projects with respect to Banking and payment domain as a Senior Consultant and SME. Now I’m working in *Luxoft * where I got great chance to upskill myself in better way. I wanted to share some Banking concepts for the Functional people.

With the help of this article, I wanted to encourage you to start using this basic concept in your daily work or at least give it a try it will increase your Banking and payment domain concepts for sure once you start using and looking deep dive with this basic as I will keep adding my knowledge with this type of post which I gathered with my experience in this domain.

What Is a Payment?

Payment is the transfer of money, goods, or services in exchange for goods and services in acceptable proportions that have been previously agreed upon by all parties involved. A payment can be made in the form of services exchanged, cash, check, wire transfer, credit card, debit card, or cryptocurrencies.

KEY TAKEAWAYS

1. Payment is the transfer of money or goods and services in exchange for a product or service.
2. Payments are typically made after the terms have been agreed upon by all parties involved.
3. However, payment may be required before, during (installment payments) or after goods or services have been provided.
4. A payment can be made in the form of cash, check, wire transfer, credit card, or debit card.
5. More modern methods of payment types leverage the Internet and digital platforms. ** Understanding Payments**

Today's monetary system allows for payments to be made with currency. Currency, which has simplified the means of economic transactions, provides a convenient medium through which payments can be made, and it can also be easily stored.

Before the widespread use of currency and other payment methods, barter payments were used in which one product or service was exchanged for another. For example, if an egg farmer with a large surplus of eggs wanted milk, the farmer would need to find a dairy farmer who would be willing to take eggs as payment for milk.

In this case, if a suitable dairy farmer weren't found in time, not only would the egg farmer not get the milk, but the eggs would spoil, becoming worthless. Currency, on the other hand, maintains its value over time. However, bartering is still practiced today when companies want to exchange services between one another.

Payments can be the transfer of anything of value or benefit to the parties. An invoice or bill typically precedes a payment. Payees usually get to choose how they will accept payment. However, some laws require the payer to accept the country's legal tender up to a prescribed limit. Payment in another currency often involves additional foreign exchange transaction fees, usually around 2–3% of the total payment being made, but could be quite a bit higher depending on the bank or card issuer and country of purchase.

**
Types of Payments**

Payments are made using various methods. Throughout history, these types of payments have changed and evolved, and new payment methods are likely to appear in the future. Here are the most common types of payments used today.

Credit Cards

Today, credit cards are widely used for purchases and payments. Credit cards work by offering its user a line of where where an individual can draw credit up to a certain limit. When you attempt to use your credit card, your account information is sent to the merchant bank. The merchant bank then receives authorization from the credit card network to process the transaction.

Many businesses accept credit cards, though many that accept cards charge a fee from the merchant that provides the machine and payments infrastructure as well as their financial institution. This fee is often a percentage of the transaction amount and/or a flat fee for each payment.

Credit Cards

Pros

1. Help an individual build a credit history that can used to make more major purchases in the future
3. Reduce risk as it is easier to carry a single plastic card as opposed to cash.
5. Produce revenue opportunities through rewards and airline miles
7. Delay when an individual actually needs to use personal capital to pay for something.

Cons

1. Create the potential to overextend credit and incur unpayable debt.
3. Charge processing fees by many merchants, making a purchase more expense than other methods.
5. Charge high interest (~15% to ~25% APY) on unpaid balances.
7. Impact a credit report negatively when too many cards are opened.