As online shopping continues to grow, so do the many payment options – from bank transfers and debit and credit cards to third-party payment services like Poli and BPAY, and all of the buy now, pay later (BNPL) services like Zip and AfterPay.
But which of these payment methods is best? You might go for convenience, but security, fees and buyer protection should all be considered, while some methods will fit the buying situation better than others. And do the newer BNPL services such as AfterPay and Zip pose a debt risk?
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.
On this page:
- Which is the best way to pay online?
- Payment methods at a glance
- Debit options
- Credit cards
- Buy now, pay later services: Afterpay, Zip, Klarna and more
- Digital wallets: Apple Pay, PayPal, Visa Checkout and more
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, PayPal or Eftpos Online.
Payment methods at a glance
Direct deposit
Getting your money back? Limited protections for mistaken transactions (e.g. entering the wrong details)
Fees to consumer? Fee free (within Australia)
Poli
Getting your money back? Subject to terms and conditions of retailer
Fees to consumer? Fee free
BPAY
Getting your money back? Subject to terms and conditions of retailer
Fees to consumer? Your bank may charge you a fee for using BPAY
Eftpos Online (cheque or savings)
Getting your money back? Chargeback rights
Fees to consumer? Fees may be passed on – typically around 0.5%*
Visa or MasterCard Debit
Getting your money back? Chargeback rights, provided you select the credit option
Fees to consumer? Fees may apply – 1.5% median surcharge**
Visa or MasterCard
Getting your money back? Chargeback rights
Fees to consumer? Fees may apply – 1.5% median surcharge**
American Express
Getting your money back? Chargeback rights
Fees to consumer? Fees may apply – 1.5–2% median surcharge**
PayPal
Getting your money back? No guarantees through its Buyer Protection policy, but chargeback rights apply if you paid with a relevant card.
Fees to consumer? Fees may apply
Visa Checkout
Getting your money back? Chargebacks can be requested through the card scheme you use for payment.
Fees to consumer? Card surcharges may apply
MasterPass
Getting your money back? Chargebacks can be requested through the card scheme you use for payment.
Fees to consumer? Card surcharges may apply
*ACCC – Credit, debit & prepaid card surcharges. RBA – Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey
** Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey
Direct debits are fee-free, but there are limited protections for mistaken transactions.
Debit options
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
Owned by Australia Post, Poli 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, then to enter your internet banking login details – although you are not on your internet banking website.
Some banks have raised concerns over Poli as it involves entering your internet banking details on a third-party site
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 of 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".
BPAY
BPAY is predominantly used as a bill payment service and can be used with phone, online and mobile banking.
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
You're using Eftpos whenever you use your card at the checkout and select cheque or savings account. The ACCC has said businesses don't have to offer a card payment option for payments under a certain dollar amount, although they must adhere to surcharging limitations if they do, regardless of the cost of the product.
Eftpos has been facilitating electronic payments in Australia since 1984 and after adding mobile payments in 2017 it recently launched digital identity with connectID, intended to act as a central verification hub to help secure online transactions.
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 Consumer Payment Behaviour in Australia 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 a credit card is the ability to claim a chargeback (see below), but you'll likely pay for the privilege.
Merchants can apply credit card surcharges, however, they're banned from applying excessive charges to credit (as well as debit and prepaid cards) by the ACCC.
It's also worth noting that American Express cards issued by Australian financial institutions are included in the ban, but not Diners Club or American Express cards issued directly from those organisations.
One of the main benefits of paying with a credit card is the ability to claim a chargeback, but you'll likely pay for the privilege
Chargebacks
The credit card schemes 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
- duplicate 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 and may extend up to 120 days.
But 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.
Buy now, pay later services: Afterpay, Zip, Klarna and more
BNPL options have exploded in popularity, with the CommonwealthBank and Pay Pal the latest to jump on the bandwagon. But like a line of credit rather than old-style lay-by, there are some pitfalls to be aware of.
BNPL services normalise debt as a part of shopping, a default could potentially affect your credit rating and they are designed to make it as easy as possible to buy first and consider the costs and ability to make repayments later.
ASIC has found that more than half of BNPL users are spending more than they otherwise would, and one in six have become overdrawn, delayed other bill payments, or borrowed money as a result of overcommitment through BNPL platforms.
Right now, purchases don't incur fees as retailers don't levy a surcharge because the BNPL providers are bound by a no-surcharge rule. However, the Reserve Bank is currently examining the policy, so this may change in the future. You may also incur monthly fees if the repayments aren't made by the due date.
BNPL services normalise debt as a part of shopping
The BNPL providers include Afterpay, Klarna Payright and Zip. Afterpay was founded in Australia and users must make four fortnightly payments over eight weeks as part of the interest-free plan. Klarna works much the same way, while Zip provides for flexible repayments with a minimum of $40 a month every week, fortnight or month.
There are other types with different arrangements. Openpay is where you shop through partners and then spread the cost with a payment plan. Humm has two credit amounts, one for small purchases and the other for larger purchases, that provide set amounts of credit with a payment plan. Latitude Pay will provide up to $1000 to be repaid over 10 weekly instalments. LayBuy lets people use the platform to make purchases on credit with a six-week payment plan. PayItLater is similar to the others and has a four-week payment window.
Klarna has late fees that vary depending on the value of the purchase.
Fees
The marketing around BNPL is designed to focus on the ease of connecting to these payment systems when shopping online or in stores.
Like a credit card or a loan (but without the same regulatory protections), BNPL services encourage consumers to go into debt to pay for things and offer set credit limits that may give consumers a false sense of inflated spending, and that is concerning.
There may be some flexibility in choosing the schedule of repayments, but ultimately they still need to be paid, and most have fees for missed payments.
AfterPay, for example, has a $10 fee for a missed repayment and adds another $7 fee if it's not paid within a week. If you run into unexpected hardship, like losing your job or being hit with an unexpected bill, these sorts of fees could really add up.
Similarly, Zip Pay has a $7.95 monthly account fee if you don't pay the full balance by the due date, and Klarna has late fees that vary depending on the value of the purchase, although they are capped at $45 per order and payments can be 'snoozed' to defer for a few days.
What about refunds?
When you're using BNPL services, you're not making a payment directly with a retailer so it can complicate matters when it comes to seeking a refund. With Afterpay, after 120 days and all the repayments are made, they are no longer involved, so any requests for a refund go through the retailer. But if you are seeking a refund within that 120-day window, you need to both notify Afterpay and make a request with the retailer.
Klarna has a buyer protection policy and it encourages users to go to the retailer first for any issues such as missing or defective items and then also report a problem with the purchase in the app. With Zip, refunds go through the retailer and will then go to your account, but only as credited not a return of funds directly.
Like all retail purchases of goods and services, Australian Consumer Law still applies to anything bought through BNPL, which means that it qualifies for a repair, replacement or refund if something is defective.
Digital wallets: Apple Pay, PayPal, Visa Checkout and more
'Digital wallets' offer a convenient way to securely store your bank account or credit card payment details online or in an app on a smartphone. You pay for something by simply entering a username and password when prompted to pay electronically without needing to enter the bank details directly.
It's important to note that digital wallets aren't formally recognised as a payment system and as such not required to meet any standards around availability or accessibility. This looks set to change as the Government intends to review the entire Australian payments architecture, starting with its 2021 payments system review that has found more oversight in digital wallets is needed.
Digital wallets aren't formally recognised as a payment system and as such not required to meet any standards around availability or accessibility
There are many different types of digital wallets. There are the ones from big tech – Apple Pay, Google Pay and Samsung Pay – used as an app on your phone. There are also online wallets from PayPal, Mastercard PayPass, and V.me by Visa that can be used across multiple devices for browser-based transactions. The Commonwealth Bank also now has its own digital wallet named Kaching.
Fees
While digital wallets offer convenience, in some cases you may still be charged a fee. With PayPal, for example, there's a fee to withdraw funds from your account to your bank account, or if make a purchase with an insufficient account balance.
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, offers some protection, although there are limits. "Eligible items" purchased online that don't arrive or are significantly different to the seller's description, can be reimbursed for the full purchase price plus shipping costs, up to $20,000 per item. This extends to digital downloads, events and hotel bookings, but not used or second-hand goods picked up in person, real estate, cars or industrial machinery.
Online payment security
Security is another consideration when it comes to making online payments through these third parties.
The Government recognises that while regulatory agencies, industry bodies and government have remained relatively unchanged for over two decades, payment systems have morphed into an entire payments ecosystem that has changed dramatically with new services and new types of payment providers.
One of the significant elements that needs reform, and protection, is payment security. The government's recent review found that changes to payments and the way services are provided present new safety risks.
It wants to expand the Reserve Bank's powers to designate what is a payment provider or service. It also wants to see "a single, tiered payments licensing framework that replaces the need for providers to obtain multiple authorisations from different regulators, provides clear protections for consumers and businesses, and facilitates transparency in access to payment systems".
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