As online shoppers increase, so do their payment options. According to a 2015 article by Gallup, 35 percent of all American adults said they did more online shopping than in the previous year. Online payment methods range from traditional credit card form entry to mobile apps for peer-to-peer services such as Paypal, Popmoney and Dwolla.
Credit or Debit Cards
Despite the increased popularity of Paypal, manually typing credit card information into a digital form remains the primary way consumers make payments online. Credit cards, backed by banks and federal laws, offer consumer protection that limits your liability in case of unauthorized purchases. Visa USA and MasterCard International also extend a "zero liability" policy to unauthorized debit card transactions on their networks. Prepaid debit cards that carry the Visa or MasterCard logo may be used to make online payments just like bank-issued cards. However, usage fees may apply.
Peer-to-peer payment systems, also known as person-to-person or P2P, allow consumers to pay individuals, businesses and organizations directly. Paypal, owned by Ebay, leads this category. However, a growing list of companies such as Dwolla, Google Wallet and Popmoney offer similar services. Wells Fargo, Bank of America and JPMorgan Chase joined forces to offer their own P2P service, ClearXchange. Risks in using these services depend on the payment method linked to your peer-to-peer account. If your Paypal account is linked to a credit card, your purchases are covered by all credit card protections.
ACH and Electronic Checks
Government agencies have long used the Automatic Clearing House payment system for collecting and disseminating funds. It's also used by employers to distribute payroll via direct deposit. Consumers mainly use ACH to pay mortgage, utility or tuition bills. With ACH, a customer enters checking account and bank router numbers into an online form. Treated as an electronic check by banks, ACH transactions can be authorized for a one-time or recurring payment. Some banks charge a small fee to use this payment method.
Wire transfer, in which funds are exchanged from one financial institution to another, is a secure way to make major purchases online. Some credit and debit cards and peer-to-peer services impose limits on purchase amounts. Significant transactions, such as putting a down-payment on a house, buying a car or paying tuition, can be made by using a wire transfer. This eliminates security concerns, such as handling large amounts of cash or a carrying around a cashier's check. Banks used to require customers to make written, in-person request for wire transfers. Now more banks allow consumers the convenience of making these transactions online.
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