What's the best online payment method?


Poli, Bpay, Eftpos, credit cards or PayPal – find the payment method that works for you.

Checking out online payments


There are plenty of ways to pay for your stuff online – from bank transfers and debit and credit cards to third-party payment services like Poli and Bpay.

But which of these payment methods is best? You might go for convenience, but security, fees and shopper protection should all be considered, and some methods will fit the buying situation better than others.

The two main ways to pay online are with your own money (debit) or using credit; in other words, using money you have versus money you don't. 'Digital wallets' can be set up to use either.

In this report:

Which is the best way to pay online?

The best payment depends on the circumstance, but as a general rule:

  • If you're interested in avoiding fees – Poli, Bpay and debit cards are generally the least likely to incur fees, while a digital wallet such as PayPal may help avoid surcharges. Remember, if extra costs such as a surcharge haven't been included or outlined in the headline price, the business should essentially offer a fee-free way to pay.
  • If you might need to recoup your money – If you're not sure if the person or company you're dealing with is legit, or you're concerned they could go bankrupt, you're better off using a payment method that provides chargeback rights, such as a credit card or Eftpos Online.
Payment methods at a glance
Payment method Getting your money back?
Fees to consumer?
Direct deposit
Limited protections for mistaken transactions (e.g. entering the wrong details)
Fee free (within Australia)

Poli Subject to terms and conditions of retailer
Fee free
Bpay Subject to terms and conditions of retailer
Your bank may charge you a fee for using Bpay
Eftpos Online (cheque or savings)
Chargeback rights
Fees may be passed on – the average fee charged to merchants is around 10.3 cents per transaction*
Visa or MasterCard Debit
Chargeback rights, provided you select the credit option
Fees may apply – 1.5% median surcharge**
Visa or MasterCard 
Chargeback rights Fees may apply – 1.5% median surcharge**
American Express
Chargeback rights Fees may apply – 2% median surcharge**
PayPal
No guarantees through its Buyer Protection policy, but chargeback rights apply if you paid with a relevant card.
Fees may apply
Visa Checkout Chargebacks can be requested through the card scheme you use for payment.
Card surcharges may apply
MasterPass Chargebacks can be requested through the card scheme you use for payment.  Card surcharges may apply
*RBA – Payments System Board Annual Report 2013 

** RBA – The Changing Way We Pay: Trends in Consumer Payments 2014

Shopping around for a new credit card? Read our advice on how to find the best credit card.

Debit

Direct deposit

Direct deposits – where you pay the money directly into the seller's bank account – may be free, but there are no guarantees you'll be able to get your money back if something goes wrong. The ePayments Code, administered by ASIC, has protections for "mistaken" payments via direct deposit but this covers instances where you enter the wrong details rather than when you deal with a dodgy seller.

Poli

Poli, owned by Australia Post, facilitates payment to a merchant via your internet banking. When you select Poli as your payment option, it will prompt you to select your bank from a list, and then to enter your internet banking login details – although you are not on your internet banking website.

It's free to use, and it means you can pay without using a credit card (but that also means you won't have any chargeback rights). It potentially reduces the likelihood for mistaken transactions as the details of the transaction are pre-populated.

Some banks have raised concerns over Poli as it involves entering your internet banking details on a third-party site. Some banks have said this could mean forfeiting your protection against unauthorised payments in the ePayments code on the basis that you have contributed to the loss. Usernames and passwords aren't captured or stored by Poli, however your account number may be.

On its website, the Commonwealth Bank says it "urges customers making online payments to do so via the Bank's own NetBank site, which guarantees the customer's security", while a NAB spokesperson told us that Poli services have similar levels of consumer protection to the 'pay anyone' function on internet banking.

Bpay

Bpay is predominantly used as a bill payment service. It's generally available via your internet banking, but it's also offered as a payment method on some airlines' websites.

The biller may not charge a fee for using the Bpay service, but your financial institution might. And if you attempt to pay with a credit card, you may be charged for a cash advance and you won't have any chargeback rights.

Eftpos and Eftpos Online

You're using Eftpos whenever you use your card at the checkout and select cheque or savings account. To date, consumers have been less likely to pay a surcharge for the use of Eftpos than for credit cards, according to the RBA's The Changing Way We Pay: Trends in Consumer Payments report.

The downside with Eftpos has been that it isn't available for online purchases and it hasn't traditionally offered chargeback rights. This is set to change, however, with the launch of Eftpos Online, which is expected to start appearing as a payment option on merchant sites next year. An Eftpos spokesperson told CHOICE that it will continue to be a lower cost scheme than the credit cards, with the added benefit of offering chargebacks.

Visa or MasterCard Debit

In addition to their credit card schemes, Visa and MasterCard also operate in the debit card space. The benefit of Visa and MasterCard Debit (provided you select 'credit' when paying, rather than 'cheque' or 'savings') is that you'll have chargeback rights.

However, surcharges may still apply. The median surcharge for Visa and MasterCard Debit sits at 1.5% – the same as for your regular Visa or MasterCard credit card, according to the RBA's Trends in Consumer Payments report.

Credit cards

The credit card schemes, such as Visa, MasterCard, Diners and American Express, each have a range of cards on offer, each with different interest rates, annual fees and rewards (read our review of frequent flyer rewards cards).

One of the main benefits of paying with credit card is the ability to claim a chargeback (see below), but you'll likely pay for the privilege. Around 45% of merchants applied a credit card surcharge in December 2014, according to data from East & Partners' annual Merchant Payments report.

Surcharges are likely to be higher for American Express and Diners payments, with a median surcharge of 2% in 2013, while Visa and MasterCard had a median surcharge of 1.5%, according to RBA data.

Chargebacks

The credit card schemes (and soon Eftpos Online) offer customers chargeback rights. Chargebacks can be useful when shopping online in cases where the transaction goes sour and you haven't been able to sort out the dispute with the seller. The card schemes will have their own criteria for allowing a chargeback, but reasons can include:

  • Fraudulent transactions
  • Goods or services not provided
  • Counterfeit transaction
  • Goods not as described/defective.

The time frames to initiate a chargeback differ depending on your bank, the card issuer and the transaction type, so it's best to get in touch with your bank as soon as possible. Be aware there may also be fees associated with an unsuccessful chargeback dispute.

Digital wallets: PayPal, Visa Checkout and MasterPass

'Digital wallets' offer a convenient way to securely store your bank account or credit card payment details online. You can pay for something online by simply entering a username and password when prompted.

Fees

The downside of digital wallet services is that you may still be charged fees to pay. Some of the worst offenders when it comes to excessive surcharging are the airlines, and both Virgin and Jetstar's fees for using PayPal are the same as for paying by credit card – even if you're paying through your savings or cheque account.

But PayPal can sometimes offer a way to avoid credit card surcharges from the retailers that charge them. For example, if you use your credit card to pay a Telstra bill, Telstra will charge you a credit card surcharge. But if you use your credit card through PayPal, you won't be charged. And in some other good news, the federal government has committed to putting an end to excessive credit card surcharging starting with some reforms in mid-2016.

MasterPass told CHOICE that "retailers cannot charge customers for checking out using MasterPass" but this is "separate to card surcharges which are allowed". Exactly how this will play out is unclear, but MasterPass says the retailer is solely responsible for how credit card surcharges are displayed and calculated.

Obtaining refunds

Digital wallets are unlikely to offer you extra protection beyond the actual method you use to pay. So if you've set up the digital wallet to use your bank account, you won't have the benefit of a chargeback, whereas if it uses your credit card, you will.

PayPal's Buyer Protection Policy, which is touted as protection if the order is significantly different to the seller's description or doesn't arrive, may be of little use. Even if PayPal decides a dispute in your favour, it makes no guarantee it will get you your money back. It will "attempt to recover your payment from the seller", but if that fails – perhaps because the seller has closed their account, or they just don't have any money in it – PayPal may or may not reimburse you. Your best bet would be to initiate a chargeback through your credit card provider.

Online payment security

Security is another consideration when it comes to making online payments through these third parties. Matthew Warren, a Professor of Information Systems at Deakin University who researches the areas of information and cyber security, tells CHOICE that the authentication process is the main weakness of online payment services.

"The applications themselves are very secure," Professor Warren says. "[But] most users still use two-stage authentication – e.g. username and password. If these are compromised [then] someone can gain access to your account."

The biggest risk with two-stage authentication is 'phishing' attacks – where a fake site posing as a legit one asks you to log in in order to steal your details. Professor Warren says a three-stage authentication process would be ideal – for example, username, password and additional authentication such as swiping your card, SMS code or thumbprint.

Want to know more about different payment methods?


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