Card versus cash: The safest way to pay for goods

We’ve never been so spoiled for choice when it comes to the different ways we have to pay for things.

Despite predictions of its demise, cash is still widely used by the public (and will be for the foreseeable future).

A huge 185 million cheques were also written in 2020, proving that the cheque book hasn’t been banished to dusty drawers just yet.

But while some payment methods provide us with greater consumer rights when things go wrong, others could leave you paying more.

This becomes particularly important if you are attempting to get a refund from a business due to a dispute.

Here’s my guide on what to watch for.

Bank transfers

Online banking has become so universal that nowadays we think nothing of transferring money to friends and family using smart devices.

Bank transfers are easy to do and the introduction of ‘two-step verification’ means there are extra checks in place to ensure that the money is going to the right account.

Most banks will alert you to common scams during this process. Read these and make sure you’re satisfied before making any payment.

One type of bank transfer is through the Faster Payment System, introduced in 2008, which allows money to go to the other person’s account more or less instantly.

While bank transfers are convenient, they can pose a problem; scammers know that the transfers are hard to recall without raising a formal fraud dispute. This can take anything from minutes to weeks to go through.

As a result, fraudsters will often use the bank transfer method when tricking people into transferring their life savings.

As soon as the money hits the sham account, the cash is siphoned off in smaller chunks to other accounts where it ultimately it vanishes. There is an exceptionally tight window to call the bank and get this cash back.

Generally speaking, when you pay someone by bank transfer, the cash can’t usually be recalled. That’s because the bank has no way of knowing if there isn’t a dispute between you and the other party.

For example, you could have purchased an item from a seller, then tried to recall the cash after receiving the goods. In these circumstances, the bank will usually decline to get involved.

However, if you’ve made a mistake and transferred money to the wrong account, the bank should at least try to get the money back.

With this in mind, you should only use bank transfers to pay money to people you know.

Find out more on financial scams and the most common tricks to watch out for.

Credit cards

If you’ve spent over £100 and under £30,000 on your credit card and the goods or services don’t turn up or are ‘misrepresented’, you may be able to claim the money back from your credit card provider.

This is known as making a Section 75 claim under the Consumer Credit Act 1974. We often mention Section 75 claims in our guides. Through it, the card provider is jointly responsible if something goes wrong with your purchase and you paid using a credit card.

If you are in dispute with a business that has sold you goods or services that don’t work, don’t turn up or aren’t as advertised then you should complain first. If this doesn’t work out to your satisfaction, make a claim to your credit card provider.

When making a claim you should spell out what you thought you were getting and why you are unhappy.

The card provider will then investigate and give you an answer. You can escalate your complaint to the Financial Ombudsman Service for free if you are unhappy with a decision.

Useful though it is, the Consumer Credit Act is an old piece of legislation based on a very different era of spending. The way we live and shop now means there are lots of gaps in the law and how it works.

For example, there is an incredibly complicated section in the act on what are called “debtor-creditor-supplier” agreements.

What this clause means in practice is that your rights to claim money back from the card provider only apply if you buy direct from the supplier.

Sounds straightforward? What about using an online travel marketplace to buy hotels and flights? Or if you are using PayPal to make a payment for goods?

In theory, both of these transactions are not covered by the act, though some card providers might agree to intervene. I’d give it a go if you’re not sure – but buy direct wherever possible.

Find out more on who should refund you when a purchase goes wrong.

Debit cards

If you make a payment on your debit card and something goes wrong, then your card provider may be able to ‘charge back’ the money.

This is an industry scheme (not a law) where your debit card provider recalls your cash. This also works with credit cards. The card issuer may attempt a chargeback before looking at a Section 75 claim because it’s easier.

Chargebacks are not guaranteed in every case though. In very general terms, if your purchase has gone wrong, chargeback may be able to reverse the transaction.

There are time limits for making a claim, usually 120 days from the date you make your purchase). But disputes over the quality of goods can be subjective and you may be told to deal with the retailer instead.

Chargebacks are especially useful if you read in the news that a business is looking likely to go bust.

If this happens after you’ve ordered goods or services, contact your card provider and ask them to recall your cash.

Cases like this can usually be processed there and then on the phone (time is of the essence). In many cases though, you’ll be asked to fill out a short form explaining what has gone wrong.

PayPal and e-payments

Millions of people use online ‘e-payment’ services like PayPal. These e-payment services are essentially third parties that act as a conduit between you and the retailer.

E-payment services are regulated and generally offer some degree of consumer protection – albeit through their own dispute resolution schemes.

I hear an equal number of complaints from buyers and sellers about these schemes and there are a couple of rather random and arbitrary timescales for some types of disputes.

But paying using an e-payment business gives you more protection than you’d get from making a bank transfer.

You can also go to the Financial Ombudsman for free if you’re still unhappy with how a business has addressed your complaint. But on the downside, because these firms are ‘third parties’ so you can’t make usually make successful Section 75 claims.

Of course, fraudsters are always looking for the cracks in the system.

One recent scam involved fraudsters posing as retailers asking consumers to send money using PayPal’s ‘friends and family’ option, as a way to reduce fees.

However, this type of payment works in the same way as a bank transfer. So the payment it’s not covered by PayPal’s dispute resolution service, leaving you nowhere to turn.

Find out more on paying on a credit card versus online services such as buy now, pay later.

Cash, cheques and money transfer services

If you pay by cash or use an international transfer service like Western Union, the money is not ‘recallable’ if something goes wrong.

So be wary if you are asked to use these methods of payment. The same goes for cheques. The clearing system for cheques has changed significantly over the years, but there are still ways to ‘game’ the system.

Be cautious about paying a stranger by cheque for this reason – or accepting one.

Cash is still king for many people, particularly as the cost-of-living crisis has focused people on keeping a closer eye on their spending.

Needless to say, paying by cash poses some problems if disputes arise further down the line. So getting receipts for your purchases remains your best route to protecting your consumer rights.