Business Studies

Methods of Payment: Credit Cards and Debit Cards

len Alfred Ajibola - Sun, 16th June, 2019 @ 16:10: PM

Topics in Business Studies

Business Studies: What is Business Studies and Business? Management: Elements of Management What is Management? Importance of Management Advantages and Disadvantages of Air Transport Advantages and Disadvantages of Rail Transport Methods of Payment: Cheque - What is a Cheque? Cheque: Types of Cheque Cheque: Characteristics of Cheque Advantages and Disadvantages of Cheque Advertising and Types of Advertising Advantages and Disadvantages of Road Transport Advantages and Disadvantages of Water Transport Consumer Protection - Agencies of Consumer Protection Consumer Right and Protection Methods of Payment: Credit Cards and Debit Cards Methods of Payment: Bank Notes and Coins | Characteristics of Legal Tender Scope and Importance of Business Studies Business Structures: Sole Proprietorship, Advantages and Disadvantages Clerical Staff: Grades, Qualities and Functions of a Clerical Staff Principle of Double Entry: Characteristics, Advantages, Disadvantages

Academic Questions in Business Studies

Please check out our Test Your Knowledge page to see all Questions and Answers

Which of the following is not a Right of Consumer Protection?

  • A. Right to Education
  • B. Right to Choose
  • C. Right to Safety
  • D. Right to the Good things of Life
  • E. Right to be Assured
  • F. Right to Compel

Which of the following is NOT a government agency of consumer protection?

  • A. Ministry of Sports
  • B. Ministry of Commerce
  • C. Consumer Protection Council
  • D. Ministry of Health
  • E. Ministry of Environment
  •  F. National Drug Law Enforcement Agent

Define Consumer Protection.

In buying and selling, the retailer will usually operate from the stall while the wholesaler operates from the _____.

  1. chain store
  2. hyper market
  3. hypo market
  4. warehouse
  5. mobile shop
  6. supermarket

Methods of Payment through Commercial Banks:

In this article, we will look at credit cards, debit cards, travellers cheque and bank drafts as methods of making payments through commercial banks. In addition, we highlight on their advantages, disadvantages, similarities and differences.

Note: In a previous article, we looked at 2 methods of making payment through commercial banks. These were:

  1. Bank notes and Coins
  2. Cheques

Please read on Cheques, Bank notes and Coins as methods of Payment here.

  • Credit cards and Debit Cards

Although both cards look similar, Credit card and Debit card are NOT the same thing.

A credit card as the name implies allows the holder to purchase goods or services on credit, as the payment is immediately made by a third party on their behalf.

Note: The third party involved is the card holder's financial institution.

In simple terms, when one uses a credit card for purchases, it will mean that they are buying on credit; and their bank (issuer of the credit card) will pay on their behalf.

Note: It is the responsibility of the card holder to refund or pay back the money to their bank. To this end, the bank sends a bill of the amount paid to the credit card holder via an email or SMS or other means.

Please read more on Deferred Payments here.

The credit card holder may pay back with interest.

The interest structure may vary or can even become non-applicable in some cases. For instance, if the credit card holder pays back within a month, interest may not be charged but when payments are delayed, interest will be charged accordingly.

Below is an image of a credit card:

Credit Card - Len Academy
Image Credit: First Bank of Nigeria


A debit card is a card that allows the holder to purchase goods and services with an immediate debit on their bank account.

The term debit means that money is immediately deducted from the owners account after the purchase is made.

The issuer of the debit card (commercial bank or financial institution) may charge some fee whenever the card is utilized in making payments.

The debit card has become very popular because it is used in Automated Teller Machines (ATMs) and Point of Sale (PoS).

The debit card is also used in the purchase of goods and services online, transfer of funds, internet banking and so on.

Please read on Bank Wire and Wire Transfer here.

Below is an image of a Debit Card:

Debit Card - Len Academy
Image Credit: First Bank of Nigeria


Similarities between Credit card and Debit Card

  1. Both cards are made of plastic with magnetic strips that contains the account details of the holder.
  2. They offer the convenience of NOT carrying a large amount of money when making purchases.
  3. Both cards carry a 3 digit Card Verification Code called "CVC". This code can be seen at the back of both cards and could be 4 digits in some cases. Purchases made over the internet will require the CVC code.
  4. Both cards may require payment of fees after purchases have been made.
  5. Both cards are issued by a commercial bank or financial institution.
  6. Both cards have got similar risk when lost or stolen. The first line of action is usually to contact the issuing bank immediately.
    Please read on the Agencies of Consumer Protection here.


Differences between a Credit card and a Debit Card

The table below shows the differences between a Credit Card and a Debit Card:



The holder buys on credit and the bank that issued the credit card pays on his behalf

This holder buys directly with the money in their bank account

The credit card holder does not need to have a bank  account with the issuing bank

The debit card holder must have an account with the issuing bank

Interest are charged with the credit card if the holder fails to pay their credit bill within 30 days

A debit card holder may be charged immediately by the issuing bank after purchases are made

The maximum limit of withdrawal on a credit card will depend the Credit Rating

The debit card holder will continue to withdraw as long a money is present in their bank account

Credit cards may require signature for purchases

Password pins are generally required for purchases with a debit card

A credit card may not be usable where a debit card can be used. For instance, ATMs.

A debit card is usable wherever a credit card can be used

A credit card is preferred for hotel reservations and car rentals because it guarantees for damages. (The bank will pay).

A debit card is preferred if one intends to adhere to a daily financial budget


For security reasons, we must always protect the 16 digits written in the form of “XXXX  XXXX XXXX   XXXX” in the front of our credit and debit cards. 

At the back of both cards is a 3 digit number called Card Verification Code or CVC; which must also be protected.

A lot of people pay for goods and services online through the use of debit cards. This implies that you can purchase a product from Amazon or Jumia or Konga online and pay with your debit card.

One can also pay for professional examination online via the use of a debit card.

For those who run adverts on various websites, they can pay for these adverts via their debit card also.

Please read on Marketing here.

The use of credit and debit cards is one of the ways of fostering a cashless economy


Advantages of Debit and Credit cards

  1. The seller will make more sales whenever they accept both credit and debit cards along side with cash.
  2. The seller is guaranteed of payment from a variety of buyers.
  3. The owner of a credit or debit card has a better financial security since they don’t go around carrying cash.
  4. The debit card offer additional security through password pins while the credit card uses the holder's signature for additional security.


  • Travellers' cheque

This is another method of making payment through commercial banks.

A travellers' cheque is a type of cheque issued by a bank with the aim of accrediting or permitting its various branches to pay the amount of money indicated by the bearer or holder.

Note: If the bank has a branch in another country, the traveller may receive their stipulated sum of money in foreign currencies. (That is; the country’s currency where the branch is present).

An individual travelling from one country to another is required to purchase the traveller's cheque.

The purchaser (of the travellers' cheque) will immediately sign the cheque in the presence of a personnel from the issuing bank.

Note: The purchaser is one who buys the traveller's cheque.

When the purchaser gets to their destination country, they will be required to sign a second time on the travellers’ cheque to prove their authenticity. (This second signature will be compared to the first on the traveller's cheque). Payment will be made via traveller's cheque only if both signature of the holder (purchaser) matches.

Note: Traveller's cheque are also accepted in hotels and shops as a means of payment.

Please read on the Elements of Business and Management Studies here.

Advantages of Travellers' Cheque

  1. It provides a form of security since the traveller do not need to carry cash.
  2. They are easily replaced when lost or stolen.
  3. Travellers' cheque does not expire.
  4. They can be used for making purchases or cashing out foreign currencies.

Disadvantages of Travellers' Cheque

  1. They may not be accepted everywhere you go.
  2. In some places, they may not be accepted for purchases.
  3. A traveller's cheque must be purchased and they may attract commission.
  4. Commissions may also be paid when they are exchanged for cash.


  • Bank drafts

A bank draft is also called a bank cheque or a cashier's cheque.

Through a bank draft, payments can be made from one bank to another.

Note: A bank draft is normally prepared by a commercial bank.

A bank draft can be defined as a written order for money to be paid by a bank.

A bank draft is a form of guarantee by the issuing bank. The holder of a bank draft is therefore guaranteed of payment.

Please read on the Meaning, Scope and Importance of Business Studies here.

For transactions involving a very large amount of money, cheques may be denied or bounced. In the case of bank draft, the transaction will be guaranteed and payments are more likely to be successful.

Ideally, a genuine bank draft cannot be dishonored and such money is paid at sight, provided the bank drafts are not crossed.

A bank draft is safe, fast and ideal for large transactions.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.

Amazing facts in Business Studies

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NOTABLE POINTS IN Business Studies

Consumer protection refers to the ways or methods through which consumers enjoy maximum satisfaction from the goods they buy and services rendered to them.

The agencies of consumer protection assists in protecting the consumer rights. These agencies may also be referred to as the organs of consumer protection. Basically, we have three of them, they are:

  1. Government agencies
  2. Independent agencies
  3. Legislation

Please read on Consumer Protection here

One of the responsibilities of the government of every nation is to set up agencies or organizations that will protect the interest of the consumers and invariably, the people.

Below are some of the Government Agencies of consumer protection

  • National Drug Law Enforcement Agency (NDLEA)
  • National Agency for Food, Drug Administration and Control (NAFDAC)
  • Consumer Protection Council (CPC)
  • Rent Tribunal
  • Ministry of Health
  • Ministry of Commerce
  • Ministry of Transportation
  • Ministry of Environment
  • National Wages and Salaries Commission

Please read on the Government Agencies of consumer protection here