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Banking Part 2

O Level Banking 02

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Shelton
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15 views5 pages

Banking Part 2

O Level Banking 02

Uploaded by

Shelton
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Means of Payment for Home

1. Cash
Definition: Physical currency in the form of banknotes and coins.
Advantages:
(a) Widely accepted and easy to use for small payments.
(b) No risk of non-payment unless counterfeit money is used.
Disadvantages:
(a) Risky for large payments due to theft.
(b) High security risk when carrying large sums.
2. Cheques
Definition: A written order to a bank to pay a specified amount from the writer's
account to the person named on the cheque.
Advantages:
(a) Can be made out for any amount and used to withdraw cash.
(b) Safer than cash, especially if crossed, as it must be paid into an account.
Disadvantages:
(a) Not universally accepted, delays in clearing, and administrative costs.
(b) Can be dishonored for various reasons, such as insufficient funds or
discrepancies in details.
3. Credit Transfers/Bank Giro
Definition: A service allowing the payment of multiple payees using a single
cheque.
Advantages:
(a) Time-saving and safer than handling multiple cheques.
(b) Reduces administrative costs with a clear track record of payments.
Disadvantages:
(a) Only possible if the payee has a bank account.
(b) May incur high bank charges.
4. Standing Orders/Banker's Order
Definition: An instruction to a bank to make regular payments of a fixed amount
from an account to a specific payee.
Advantages:
(a) Safe, automatic payment method that ensures commitments are paid on time.
(b) Saves the cost of writing and posting cheques.
Disadvantages:
(a) Only suitable for fixed amounts and intervals.
(b) Payments may fail if the account lacks sufficient funds.
5. Direct Debit
Definition: A payment method for varying amounts on varying dates, such as
utility bills.
It is initiated by the payee instructing the payer’s bank to make a payment e.g
paying for grocery shopping
Advantages:
(a) Convenient for paying multiple bills automatically.
(b) Reduces the chances of missed payments and bad debts.
Disadvantages:
(a) Loss of full control over the account.
(b) Potential for errors due to varying amounts.
6. Debit Cards
Definition: A plastic card linked to the account holder’s bank account, used for
payments or withdrawals.
Advantages: Convenient for making payments without cash.
Disadvantages: Risk of theft or unauthorized transactions.
7. Credit Cards
Definition: A plastic card allowing the holder to purchase goods or services on
credit, to be repaid later.
Advantages: Flexibility in payments, rewards, and incentives.
Disadvantages: High-interest rates if not paid in full, risk of debt.
International Payments
1. Remittances
Definition: Transfers of money from individuals in one country to those in
another.
Advantages: Convenient for sending money to family abroad.
Disadvantages: Bank fees and exchange rate fluctuations can reduce the amount
received.
2. Electronic Transfers
Definition: Computerized transfers between the same bank but in different
countries.
Advantages: Fast, secure, and reduces the risk of theft.
Disadvantages: May incur higher fees.
3. Documentary Credits (Letter of Credit)
Definition: A letter issued by a bank guaranteeing payment on behalf of an
importer for goods bought from another country.
Advantages: Safe method of payment that eliminates the risk of non-payment.
Disadvantages: High cost of issuance and administration, based on documents
rather than physical goods.
Factors Affecting Choice of Payment Method
a. Amount to be paid
b. Speed required
c. Additional costs involved
d. Security of the payment method
e. Acceptability to the payee
f. Distance and availability of payment services

Trends in Banking
a. Mobile and Digital Banking/Internet Banking:
Purpose: Provides access to banking services via smartphones or other internet-
enabled devices.
Advantages: Convenient, saves time, and reduces operational costs for banks.
Disadvantages: Vulnerable to identity theft and hacking.
b. Mobile Wallets:
Purpose: Applications that used for storing financial information and other
documents such as credit cards, bank information
Advantages: Convenient for quick purchases and secure transactions.
Disadvantages: Security concerns if the mobile device is compromised.
5. The Cashless Society
Concept: A society where banknotes and coins are not used as a form of money,
with digital or electronic forms of money being the standard.
Advantages: Easier financial management, reduced crime rates, quicker
international payments.
Disadvantages: Exposure to cyber security risks, technology problems could limit
access to funds, and potential overspending.
Implications of Internet Banking:
Positive:
(a) Convenience and access to account information anytime.
(b) Cost savings for both customers and banks.
(c) Faster transactions and reduced need for physical bank branches.
Negative:
(a) Increased risk of criminal activity and fraud.
(b) Slower deposit processes online.
(c) Challenges in navigating online banking platforms for some users.

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