Credit Card, PayPal or Cash App? How You Pay Matters
A guide to weighing security, convenience and benefits of each payment option
A guide to weighing security, convenience and benefits of each payment option
Buyers have more ways to pay for things than ever before: Apple Pay, Venmo, credit cards and dozens of other options. What you choose might matter as much as the purchase itself.
Each of the different payment methods provides various conveniences, perks and protections from fraud. Credit cards have long been the default option of choice. But higher interest rates have now raised the cost of carrying a credit-card balance.
Money-transfer apps such as Venmo and Zelle processed nearly $900 billion last year, and the Consumer Financial Protection Bureau expects that number to reach $1.6 trillion by 2027.
These apps and services provide easy instant payments, usually for free. The downside is that these options offer fewer protections from scams and unfulfilled orders.
“The U.S. consumer is very driven by convenience. They may not be directly driven by security,” said James Anderson, managing director at Paze, a bank-owned digital wallet.
Payment apps are among the fastest-growing sources of fraud reports and losses, according to Federal Trade Commission data. Overall fraud losses have increased more than fivefold to $1.2 trillion since 2019. Losses tied to payment apps jumped from $5 million to $47 million over the same period, according to the FTC data.
As new payment options gain acceptance, consumers should try to educate themselves how to use these methods safely, said Seth Ruden, director of global advisory at BioCatch, a fraud-detection software company.
“The channel itself is not the villain. The bad actors are the scammers, the social engineers and exploit artists,” he said.
Here’s how to weigh the security, convenience and benefits of each payment option:
When you swipe or tap your card or authorise a card transaction online, the merchant’s bank communicates with your bank through a card network such as Mastercard or Visa to ask permission to withdraw a certain amount. Your bank then decides whether to approve the transaction based on your available funds or credit and the likelihood the transaction is fraudulent. If approved, your bank puts a hold on the funds until they are sent to the merchant’s account, usually within a business day.
Credit cards can be the most rewarding way to pay online. Card issuers use the revenue from transaction fees to fund perks for customers such as cash-back deals, travel points, access to airport lounges and fraud protection.
A credit card can be expensive if you don’t pay your balance in full, and higher interest rates have now raised the cost of carrying a credit-card balance. Paying off a $1,000 balance in 12 months at the current average annual percentage rate of 22.16% means $103 in interest, compared with $77 roughly a year ago when the average was 16.65%, according to estimates from the Federal Reserve.
Debit cards don’t offer the same rewards as credit cards since their issuers make less money from each transaction. They do come with similar fraud and payment protections as credit cards.
Federal regulations require issuers to reimburse customers for unauthorised transactions of more than $50 and allow customers to dispute charges within 30 days. Many credit cards also provide purchase protection, meaning you can ask for reimbursements directly from your issuer if something you buy is lost, damaged or inconsistent with what was advertised.
Few people make the most of their credit-card benefits, payments experts said. After finding most people don’t bother to read the fine print when they sign up for a new card, Mastercard is now notifying customers of benefits in real-time.
“If I have to read a big booklet or call a number to understand what my benefits are, I’m not doing it,” said Chiro Aikat, executive vice president of U.S. market development at Mastercard.
Digital wallets such as PayPal or Apple Pay are among the safest and easiest ways to pay online. Checking out with a wallet is typically faster than paying with a credit card directly since one doesn’t have to re-enter billing information and shipping address.
All of the protections and benefits associated with the underlying card are still in effect for wallet transactions, so it is best to connect these wallets to a credit card directly to maximise your protection, said Corie Wagner, an analyst at Security.org, a safety-product review site.
If a digital wallet gives you the option to link a bank account directly, you should read the policy agreement to make sure you understand what is protected. For example, PayPal offers an extra level of purchase protection, but Apple Pay and Google Pay don’t.
Wallets also offer additional layers of security through encryption and biometric verification and many don’t share sensitive financial data such as your 16-card number with individual merchants. “Use as many authentication factors as possible” such as Face ID or personal identification numbers, Wagner said.
Apps such as Venmo, Cash App and Zelle were designed to help people send money to friends and family, but they are now used in more settings. They move money more quickly than card payments because, instead of waiting on banks to approve the transaction, the payment is authorised once the sender hits submit. It is almost impossible to get money back once it has been sent.
These payment methods aren’t regulated as heavily as cards, so users might still be on the hook for unauthorised payments if a swindler gets control of their accounts.
“Use it to pay people you know, and trust,” said Meghan Fintland, a Zelle spokeswoman. “They’re not meant to have the credit-card security.”
Businesses are increasingly offering ways to pay with your bank account directly since Automated Clearing House, or ACH, transfers are much cheaper to process than cards. This option should only be considered in exchange for a discount, payments executives said.
Consumers should be selective in sharing their bank information with merchants since wire transfers don’t have the same protection guarantees as cards.
If a business requests a direct bank transfer instead of a card payment, choosing a slower option over the newer instant methods such as Zelle might be best. ACH transfers typically take a few days to settle, giving you a few more days to try to stop the transaction before the money leaves your account.
“The slower it is, the greater likelihood is that you’ll be able to get recourse,” Ruden, at BioCatch, said.
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When will Berkshire Hathaway stop selling Bank of America stock?
Berkshire began liquidating its big stake in the banking company in mid-July—and has already unloaded about 15% of its interest. The selling has been fairly aggressive and has totaled about $6 billion. (Berkshire still holds 883 million shares, an 11.3% interest worth $35 billion based on its most recent filing on Aug. 30.)
The selling has prompted speculation about when CEO Warren Buffett, who oversees Berkshire’s $300 billion equity portfolio, will stop. The sales have depressed Bank of America stock, which has underperformed peers since Berkshire began its sell program. The stock closed down 0.9% Thursday at $40.14.
It’s possible that Berkshire will stop selling when the stake drops to 700 million shares. Taxes and history would be the reasons why.
Berkshire accumulated its Bank of America stake in two stages—and at vastly different prices. Berkshire’s initial stake came in 2017 , when it swapped $5 billion of Bank of America preferred stock for 700 million shares of common stock via warrants it received as part of the original preferred investment in 2011.
Berkshire got a sweet deal in that 2011 transaction. At the time, Bank of America was looking for a Buffett imprimatur—and the bank’s stock price was weak and under $10 a share.
Berkshire paid about $7 a share for that initial stake of 700 million common shares. The rest of the Berkshire stake, more than 300 million shares, was mostly purchased in 2018 at around $30 a share.
With Bank of America stock currently trading around $40, Berkshire faces a high tax burden from selling shares from the original stake of 700 million shares, given the low cost basis, and a much lighter tax hit from unloading the rest. Berkshire is subject to corporate taxes—an estimated 25% including local taxes—on gains on any sales of stock. The tax bite is stark.
Berkshire might own $2 to $3 a share in taxes on sales of high-cost stock and $8 a share on low-cost stock purchased for $7 a share.
New York tax expert Robert Willens says corporations, like individuals, can specify the particular lots when they sell stock with multiple cost levels.
“If stock is held in the custody of a broker, an adequate identification is made if the taxpayer specifies to the broker having custody of the stock the particular stock to be sold and, within a reasonable time thereafter, confirmation of such specification is set forth in a written document from the broker,” Willens told Barron’s in an email.
He assumes that Berkshire will identify the high-cost Bank of America stock for the recent sales to minimize its tax liability.
If sellers don’t specify, they generally are subject to “first in, first out,” or FIFO, accounting, meaning that the stock bought first would be subject to any tax on gains.
Buffett tends to be tax-averse—and that may prompt him to keep the original stake of 700 million shares. He could also mull any loyalty he may feel toward Bank of America CEO Brian Moynihan , whom Buffett has praised in the past.
Another reason for Berkshire to hold Bank of America is that it’s the company’s only big equity holding among traditional banks after selling shares of U.S. Bancorp , Bank of New York Mellon , JPMorgan Chase , and Wells Fargo in recent years.
Buffett, however, often eliminates stock holdings after he begins selling them down, as he did with the other bank stocks. Berkshire does retain a smaller stake of about $3 billion in Citigroup.
There could be a new filing on sales of Bank of America stock by Berkshire on Thursday evening. It has been three business days since the last one.
Berkshire must file within two business days of any sales of Bank of America stock since it owns more than 10%. The conglomerate will need to get its stake under about 777 million shares, about 100 million below the current level, before it can avoid the two-day filing rule.
It should be said that taxes haven’t deterred Buffett from selling over half of Berkshire’s stake in Apple this year—an estimated $85 billion or more of stock. Barron’s has estimated that Berkshire may owe $15 billion on the bulk of the sales that occurred in the second quarter.
Berkshire now holds 400 million shares of Apple and Barron’s has argued that Buffett may be finished reducing the Apple stake at that round number, which is the same number of shares that Berkshire has held in Coca-Cola for more than two decades.
Buffett may like round numbers—and 700 million could be just the right figure for Bank of America.
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