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Understanding the Evolving World of Payments

By: Eric Christensen
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This article was originally published in PaymentsJournal.

Paying for a product or service without physical currency has been around for years, thanks to the introduction of the first universal credit card in 1950. Since then, society’s buying options have exploded, particularly in recent years with the adoption of contactless payments, Buy Now Pay Later (BNPL), and cryptocurrency. With the convenience of online shopping and continuing preference towards cashless options (largely spurred by the pandemic) many digital merchants are accepting or considering a multitude of digital currency options for their online shoppers.

From giants like Walmart and Amazon to small boutiques, merchants of every size are offering their customers access to different payment methods with the hope of increasing sales. While many customers are adopting these alternative payment options with open arms – and wallets – new technology in the ecommerce space can bring confusion, misconceptions, and frequently asked questions.

Here are four top-of-mind questions your customers might ask when considering an alternative payment method for a purchase – and insight into how you can lead them in the right direction to mitigate any potential risks involved.

Will Buy Now, Pay Later payment options hurt my credit score?

The short answer? Probably not. BNPL options are generally categorized as a pay later invoice tied to credit card installments, or a split pay aligned with a regional pay cycle. For example with PayPal, consumers in the U.S. can buy in four installments, while the U.K. can opt for three. These typically carry no interest and are thought of as a closed-end installment loan. A merchant might pull a soft inquiry on your credit, but that will not affect your score. On the opposite end of this, if you are financing installments (a closed-end installment loan at 0%-30% APR) this could trigger a hard-credit check which can lower your score.

Many BNPL providers offer options that fall into both categories. If it is not clearly spelled out in the fine print, or you are just uncertain – give customer service a ring.

Open Banking – What is it and how does it affect me?

With open banking, third-party services gather consumer data from financial institutions through application programming interfaces or APIs. Personal financial data is only shared with your consent. By sharing customer data with trusted providers, there is a presumption that new and better financial services will eventually become available to you thanks to spurred competition. If you want to track your finances on third-party apps, you have more ability to do so via open banking. Other benefits of open banking include the identification of personalized financial products, and better chances for people without a long credit history to qualify for a loan.

Currently, adoption of open banking is much greater in Europe and Asia than in the U.S. due to a primary concern of data protection. Additional risks include privacy breaches, fraud, and cybercrime.

Can zero interest come back to bite me?

The allure of 0% interest payments is strong when buying something over time or if you are consolidating credit card debt. Like everything else, the devil is in the details. You might be getting zero interest, but there is almost always a limit to the length of time you will receive the ultimate low rate. You might get 0% interest on a purchase using your credit card (you should always double-check for how long this rate will last), but there is always the possibility that a cash advance might trigger interest.

Transferring balances from one credit card to another might also result in a great 0% deal, but the gamble is that it could come with a balance transfer fee. A tip for consideration? Read past the headline and look into the details before assuming 0% interest means 0% on every transaction.

Will my card travel well internationally?

Not all cards are created equal when it comes to traveling out of the country. Some carry foreign transaction fees that add up over the course of a trip. Always research your card to determine if you will be paying extra – it is also best practice to check in with your bank for accurate details on purchases overseas. Many banks charge additional fees to access ATMs from another country. One way to avoid unwanted fees is by finding a partner bank where you can make ATM withdrawals without the extra cost.

Bringing your credit card on an international trip requires additional considerations, but does that mean you should leave your card at home? No! One of the best perks of a credit card is that you won’t be on the hook for fraudulent purchases if your card is lost or stolen. As long as you do your homework on potential fees before traveling, you should be a-okay.

The bottom line

Through supported self-education, your customers can easily become fluent in the front and back-end details of today’s many payment options. As more companies and sectors continue to embrace digital transformation, it can be predicted that the purchasing methods available will only increase. The only solution to staying ahead of future potential risk is to remain knowledgeable and up to date with the services available to the people purchasing from you, and which option best fits their financial preference.

Want to learn more about how your brand can optimize your payments strategy? Connect with Digital River today.