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The Evolution of Payments

The evolution of payment options has really progressed over the years, back in the day, cash was king – coins and notes were the only payment options available. Over time, this has changed however…

Feb 24, 2020, Read in 4 minutes.

Payment options in the UK are ever evolving, however many consumers still don’t understand the true, long-term cost of each payment method.

The evolution of payment options has really progressed over the years, back in the day, cash was king – coins and notes were the only payment options available. Over time, this has changed however…

As lending became more mainstream, different types of loans were introduced, but the additional faff of having to prove your identity, with photo ID and printed bills, was one of the main frustrations. Retail finance (such as store cards) incorporated the possibility of consumer credit into the customer journey at the point of purchase.

Then came credit cards which offer a chance to pay for your purchases later, however this is along with the debt issues that can accompany them.

Today, many retailers offer consumers the option of using split payment providers or BNPL (buy now, pay later) schemes, but these can also have significant risks and even hidden fees.

As such, AppToPay have pulled together a handy table to summarise the various payment options available in the UK, including the positives and negatives for each, to help consumers to make an informed decision about which is the most suitable option for them and their personal circumstances:

For each payment options, the aspects of cost, transaction speed, flexibility, debt management, Section 75 cover, risk of decline at point of purchase, and risk of damage to credit score were considered.

For more information on each payment option, carry on reading…

Credit Cards

Credit cards offer simplicity, security and, most importantly, a chance to pay for your purchases at a later date. Ultimately, credit cards offer fast transaction and section 75 cover, a UK consumer protection law that means your credit provider takes the same responsibility as the retailer if things go wrong with a purchase.

Yet the trouble is, many consumers don’t understand the true, long-term cost of splashing out with the plastic. Debts tend to persist (people only make minimum payment). Lack of awareness on this is what lands many people in perpetual debt.

Some try to avoid this via ‘card surfing’ (transferring balances on a regular basis to get the best introductory offers), but this tactics can have a negative impact on a consumer’s credit score, causing loan providers to categorise them as ‘lacking in loyalty’. Yet if consumers do stay loyal to one provider, they can often find themselves whacked in the wallet with massive interest rates after the tempting introductory offer has ended.

Traditional Retail Finance

Retail finance (such as store cards) incorporate the possibility of consumer credit into the customer journey at the point of purchase, rather than leaving the customer to seek external finance, or make use of a credit card.

While retail finance is a low cost, easy debt management option with section 75 cover, it also typically includes a tedious transaction as well of the risk of decline at point of purchase. As traditional retail finance providers run a new credit check for each transaction, this creates the potential for a decline at the point of purchase, which is embarrassing for the user and retailer’s staff, potentially causing long term damage to the customer/retailer relationship.

It also requires consumers to set up retail finance with multiple retailers, which can then mean an abundance of store cards taking up space in their wallet.

Split Payment Providers / BNPL Schemes

BNPL schemes operate as non-regulated micro-loan providers, do not reference credit bureau data when running a credit check, and don’t run an affordability check. These micro-loans also do not show on a user’s credit profile, so there is a higher risk of issuing a loan to someone that can’t afford it.

The assessment for the consumer’s eligibility for the micro-loan is done through an algorithm developed by the provider, which doesn’t reference the consumer’s existing credit commitments, and isn’t logged on the consumer’s credit profile. To compound this problem, other micro-loan providers cannot see each other’s activities, so the consumer could have multiple micro-loans running at once creating an unaffordable outgoings commitment, which puts both the consumer and other lenders at further risk.

BNPL schemes will also refer unpaid debts to debt collection agencies who will put negative markers on the users’ credit profiles.

That’s where AppToPay come in…

While it’s all too easy for consumers to overestimate what they can afford with these types of services, particularly when the options to pay later or divide payments allows them to defer thoughts of affordability, AppToPay solves this by taking a long hard look at each person’s credit profile before offering any customers a line of credit.

Furthermore, AppToPay promotes setting up accounts before getting to the checkout of a retailer, where many can feel pressured into taking credit… AppToPay instead aims to be a well-thought out financial decision by responsible consumers.

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