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Your payment options

A stone figure standing on top of a stone next to symbolic charts

We use different types of payment in different situations. We pay by debit card at the supermarket, use online banking to pay sports club fees on our smartphone, pay in cash for little snacks or by credit card for dinner at a restaurant. Read on to find out what you should keep in mind when using different types of payment as a consumer.

Overview

Overview of different types of payment
Bank account and SEPA
Making payments via bank accounts
Credit card and payment service providers
Secure (online) payments

Overview of different types of payment

In our modern digital world, we can pay in many different ways. In addition to using cash, i.e. banknotes and coins, we can use a number of options to make cashless payments. With digitalization and online commerce advancing in recent years, paying cashless has become increasingly popular. 

The following figure shows which payment options we have.

The figure “Payment options” is organized as a table. The first row shows the headings of four columns, labeled “Type of payment”, “In-store payment”, “Online payment” and “Paying at the bank”. The second row is colored green, labeled “Cash” and subdivided into “Coins” and “Banknotes”. The option “In-store payment” is ticked for both coins and banknotes. The third row is colored blue, labeled “Cashless” and subdivided into “Transfer via bank account” and “Payment service providers”. “Transfer via bank account” is again subdivided into “Debit card”, “Online transfer”, “Instant credit transfer”, “Payment order”, “Standing order” and “Direct debit”. The option “In-store payment” is ticked for debit card. The option “Online payment” is ticked for online transfer, instant credit transfer, standing order and direct debit. The option “Payment at the bank” is ticked for payment order, standing order and direct debit. “Payment service providers”, in turn, is subdivided into “Credit cards”, e.g. the ones of known tech companies. The options “In-store payment” and “Online-payment” are ticked for all three categories.

Example: Paying for a sofa

Lara Muster is moving and needs a new sofa. She decides on model "PIA 200.45" in emerald green, available for EUR 750 from the furniture dealer "MYHOME Polsermöbel Ltd.” The company has both an online shop and a store with a showroom in Salzburg. How can Lara Muster pay for the new sofa?

Solution: Lara Muster can go to the store in Salzburg to order the sofa and pay for it in cash at the store. She can also make the payment directly from her bank account. To do this, she can either pay at the store with her debit card, initiate an online transfer or use a payment slip to place a transfer order. She can also pay by credit card or use services provided by other payment service providers such as from known tech companies.

In the sales agreement, the seller and buyer must agree on the time of payment, no matter which type of payment is used. Depending on whether the payment is made before delivery, at the time of delivery or after delivery, we distinguish between advance payment, concurrent payment and payment on receipt of invoice. If you agree to pay for your purchase by installments, this is called installment purchase. The individual partial payments you make are called installment payments.

The following figure gives an overview of the different payment options you have, depending on the agreed time of payment.

The figure “Payment options by time of payment” shows what payment options you have with respect to the time of payment and the delivery of your purchase. On top, there is a blue field labeled “Time of payment”. From there, three lines lead to three fields below. The first field is labeled “Before delivery”. From there, an arrow points downward to a field labeled “Advance payment”. The second field is labeled “At time of delivery”. From there, an arrow points downward to a field labeled “Concurrent payment”. The third field is labeled “After delivery”. From there, two more arrows point downward to two fields. One is labeled “Payment on receipt of invoice”. The other “Installment payments”.

Payment options by time of payment

Payment options by time of payment

Paying on receipt of invoice is a secure option for customers. It means the seller will send them the invoice together with the purchased goods. In this case, the buyer only pays the purchase price once the seller has provided the service or delivered the goods.

In the case of an installment purchase, customers do not pay the entire purchase price immediately. Instead, they pay parts of the amount in a fixed number of monthly installments. Please note that installment purchases can involve high interest and/or additional charges, such as service charges or account management fees. As a result, the sum total of installment payments plus any additional costs may be significantly higher than the purchase price. No matter what payment option you choose, consumer protection law will apply, e.g. if the goods you received are defective or if, when in use, the product you bought turns out to be faulty. In cases like that, you may claim compensation under statutory warranty rights. Keep in mind that with many online purchases, you have the right to withdraw from the sales contract within 14 days.

Example: Paying for a sofa

If Lara pays for the new sofa before delivery, she pays in advance. If she pays for the sofa at the store and takes the sofa with her straight away, payment and delivery take place at the same time (“concurrent payment”). If she has the sofa delivered and receives an invoice upon delivery or afterward, and if the amount does not have to be paid immediately upon delivery but can be paid later, she pays on receipt of invoice. If Lara agrees with MYHOME Pollstermöbel Ltd. to pay a number of partial amounts over a fixed period of time, she pays by installments.

Tip

  • Payment by installments is often used when buying more expensive things. It is a common debt trap, however. It often involves additional costs, such as high interest if you fail to make a payment or if you pay later than agreed. Also, the total amount to be paid can be higher than the purchase price. A word of caution: Installment payments might continue even if you no longer use the product. Moreover, if you make several installment purchases over the same period, installment payments can easily add up and become a burden. If your situation changes, e.g. if you lose your job or become seriously ill, keeping up with installment payments might become impossible.

Bank account and SEPA

A bank account helps individuals and businesses to manage their income and expenses.

Basically, it lists your money deposits (credits) and withdrawals (debits). The account balance shows how much money you have in your account, namely the difference between total credits and total debits. If the sum of your credits is higher than the sum of your debits, your account balance is positive. You have money in the bank. You can use your bank account to deposit or withdraw cash. You can also transfer money from one bank account to another. This is called a credit transfer.

Using Lara Muster's bank account and the reference date of May 1, 20X1, the following figure shows how a bank account works.

The figure “How a bank account works” gives an overview of how a typical bank account works. It shows a blue field labeled “Lara’s bank account”. The field contains a table with two columns and six rows. The left-hand field in each row contains text, the right-hand field contains amounts in euro. The left-hand field in the top row says “Account balance May 1, 20X1 (old)”. The corresponding right-hand field says “EUR 1,251”. The row below is colored green. Its left-hand field says “Cash deposit Melanie”. The corresponding right-hand field says “EUR 20”. An explainer on the left-hand side says “Cash deposit (credit), e.g. Melanie pays EUR 20 into Lara’s bank account at the bank counter”. An arrow points from the explainer to the corresponding row. The next row is colored red. Its left-hand field says “Withdrawal at bank branch Selber Street”. The corresponding right-hand field says “–EUR 100”. An explainer on the right-hand side says “Cash withdrawal (debit), e.g. Lara withdraws EUR 100 from the ATM”. An arrow points from the corresponding row to the explainer. The next row is colored green. Its left-hand field says “Salary payment May 5/X1”. The corresponding right-hand field says “EUR 1,900”. An explainer on the left-hand side says “Transfer (credit), e.g. Lara’s employer transfers her salary of EUR 1,900”. An arrow points from the explainer to the corresponding row. The next row is colored red. Its left-hand field says “BauSpezi Shop Ltd.”. The corresponding right-hand field says “–EUR 250”. An explainer on the right-hand side says “Transfer (debit), e.g. Lara buys a power drill for EUR 250 online”. An arrow points from the corresponding row to the explainer. The bottom row is not colored. Its left-hand field says “Account balance May 1, 20X1 (new)”. The corresponding right-hand field says “EUR 2,821”.

How a bank account works

How does a bank account work?

The account balance can be negative if you withdraw more money than you actually have in your bank account. Then your bank account is overdrawn. In this case, you owe a debt to the bank and have to pay overdraft interest. Overdraft interest can be very high.

Banks charge fees for the use of bank accounts. These fees depend on the different services the bank account offers and on various other factors. Private individuals usually have to pay a fee of around EUR 3 to EUR 15 per month for their bank account. Bank accounts that can be accessed daily (e.g. a current account that is used for everyday payments) are more expensive than accounts with a commitment period. Online-only accounts are cheaper than accounts that also offer the use of services at a bank branch. The costs of a bank account also increase, for example, if it comes with a debit card and/or credit card.

Tip

In most cases, customers receive a debit card to go with their bank account. Debit cards are also called ATM cards or cash cards. Debit cards can be used in a number of ways: You can use them to withdraw money from an ATM, pay cashless at local stores and buy things online. This means a debit card works both online and offline (ATM, payment terminal), and it supports contactless payments.

Debit cards are the same size as credit cards and contain various data.

The figure “Debit card and bank verification codes” shows the front (left-hand side, light grey) and the back (right-hand side, purple) of a symbolic debit card. The front has a small square field in its top right-hand corner. At the bottom, it has two lines. The lower line is labeled “IBAN”. An arrow points downward from this line to an example of an IBAN for an Austrian debit card: “AT611905522455684211”. “AT” is identified as the country code. "61” is identified as the verification code. “19055” is identified as the branch sort code. The remaining numbers are identified as the individual bank account number. The back has a black, horizontal bar across its top. At the bottom, it has a line that reads “BIC”. An arrow points downward from this line to an example of a BIC for an Austrian debit card: “PECBATWW”. “PECB” is identified as bank code. “AT” is identified as country code. “WW” is identified as location code.

Debit card and bank verification codes

Each bank account has its individual bank account number. The Single Euro Payments Area (SEPA) was established to harmonize cashless euro payments within the European Union (EU). SEPA makes credit transfers within Europe uncomplicated and cost effective. To make payments from your bank account to bank accounts within SEPA, you need the International Bank Account Number (IBAN) of the bank account you want to transfer money to. The IBAN has 20 digits. To make payments from your bank account to bank accounts outside the SEPA area, e.g. in the USA, you also need the corresponding Business Identifier Code (BIC). The BIC is a code that identifies the name, branch, location and country of the bank in question.

Tip

  • Since 2016, all persons legally resident within the EU have been entitled to a basic bank account. Citizenship of an EU country, e.g. Austria, is not required. A basic bank account offers all the services of a standard bank account: You can make deposits, withdraw cash anywhere in the EU, authorize direct debit transactions within the EU and make online payments. Unlike a standard bank account, however, it cannot be overdrawn and does not include a credit card function. Costs for basic bank accounts are limited to make these accounts affordable for everyone: As a rule, they may not cost more than EUR 83.45 per year, or EUR 41.73 per year for economically vulnerable groups (amounts as of 2024). You can find more information about the basic bank account in a booklet (in German) provided by the Austrian Ministry of Social Affairs, Health, Care and Consumer Protection. → https://broschuerenservice.sozialministerium.at/Home/Download?PolstermöbelationId=485&attachmentName=Das_Basiskonto_Ein_Konto_f%C3%BCr_Sie_2020_DE_pdfUA.pdf

Making payments via bank accounts

To transfer an amount from one bank account to another, the account holder must submit a transfer order. A transfer order can take various forms.

Payment by debit card

When you pay with your debit card in a store, you actually order a credit transfer from your bank account to the store’s account.

Online credit transfer

For an online credit transfer, you fill in an online form via your bank's online platform or app. You have to enter the IBAN of the bank account of the person or company that will receive the money (payee or recipient), the amount you want to transfer and the reason why you transfer it (payment reference).

Payment order (payment slip, money transfer form)

When paying by payment order, you specify the payee and other transfer details by filling in a form (payment slip, money transfer form). But unlike with online transfers, you must go to a bank branch and have the payment slip or money transfer form stamped to place the payment order.

Standing order

A standing order is a special form of credit transfer you can use to make regular payments of the same amount. All you need to do is instruct your bank to transfer a certain amount from your bank account to another bank account on a regular basis (e.g. on the 15th of each calendar month). Standing orders are often used for paying rent, membership fees or credit installments or for depositing money on a savings account.

(SEPA) direct debit

If you use direct debit, you authorize a person or company (payee) to withdraw amounts from your bank account. This means you agree to them debiting your bank account once or on a recurring basis with a varying amount. Payees must always notify account holders when they debit their accounts and provide an 18-digit ID to do so. Companies and institutions normally use SEPA direct debits to process regular payments of varying amounts.

Instant credit transfer

An instant credit transfer is processed immediately. Instant credit transfers are faster and more convenient than traditional online credit transfers. They involve companies that manage payments between online retailers and your bank. Such companies are called intermediaries. This means to make an online payment, you do not need you do not need to enter your bank details to place the transfer order. This speeds up the payment process.

Credit card and payment service providers

One of the most important forms of cashless payments is payment by credit card. Paying by credit card has many advantages, especially at an international level, as many credit cards are accepted worldwide. You can also make contactless payments with your credit card, just like with your debit card. But unlike debit card payments, credit card payments are not debited directly to your bank account. When you pay for products or services with your credit card, the credit card company prefinances your purchases. This means it extends credit to you. In other words, you borrow money from the credit card company. As credit card holder, you have to repay this credit to the credit card company at a specified later date.

Credit cards come with a credit limit. This means you can borrow money only up to a certain amount. Once a month, you receive a credit card statement from your credit card company. At this point, your credit (i.e. the sum of your credit card payments since the last statement) becomes due and your bank account is debited.

Using the example of Lara Muster's sofa purchase, the figure below shows how credit cards work.

The figure “Credit card payments” shows the cycle of credit card payments. In the top left-hand corner, there is a symbol of a person. From there, an arrow points to a blue field on the right-hand side that says “Example Ltd.”. The arrow reads “Credit card payment: EUR 750”. Below, it says “At time of purchase”. From “Example Ltd.”, an arrow points downward to an orange field that says “Credit card company”. The arrow reads “Disclosure of payment information”. From the orange field, an arrow points back upward to “Example Ltd.” The arrow reads “Payment: EUR 750”. Also from the orange field, a horizontal arrow points to a purple field on the left. The field is labeled “Sample bank”. The arrow reads “Credit card statement, e.g. on every 15th of the month” and above, it says “Ex post settlement”. From the sample bank, a horizontal arrow points back to the right to the credit card company. It reads “Once a month, Lara repays the total amount due”. Also from the sample bank, an arrow points back upward to the symbol of a person (Lara).

Tip

  • Take care not to lose track of your payments when paying by credit card. If you fail to repay the due amount to your credit card company, i.e. if the credit card company cannot debit your bank account, they might charge you high interest. It makes sense to use your credit card only to buy what you can actually afford.

You can also use your credit card for online payments. In addition, there are many other online payment services. One of them is PayPal, a system that is used worldwide. With PayPal, you can send money online to retailers or to other individuals. The service uses e-mail addresses for identification. Other options are Apple Pay or Google Pay. With these systems, you can make contactless payments via smartphones or tablets using near field communication (NFC). These payment services are normally linked to a credit card. They have their own security systems in place, however. This means that only a limited amount of information is disclosed at the time of purchase.

Secure (online) payments

Cashless payments require special security measures to protect customers. One of these measures is two-factor authentication, which is now mandatory for all online banking transactions. Two-factor authentication means that payers have to prove their identity by a combination of two different factors. When you enter your PIN to pay with your debit or credit card, this is an example of one-factor authentication. Only your PIN (one factor) is required.

For online banking, you need two-factor authentication to prove your identity as the authorized account holder. Usually, identification takes place both when logging into your online banking app and when confirming credit transfers or administrative changes related to your bank account. A second factor, for instance, could be a push notification you receive on your smartphone when completing a transfer order on your PC. Or it could be the fingerprint you enter when you make a credit transfer from your smartphone.

Tip

  • When you buy something online, online shops usually want you to pay in advance. Remember only to pay in advance if you are sure that online shop is reliable. If in doubt, read users’ reviews of the online shop. Online shops often carry seals of approval, that may indicate that the shop is reliable.

Tip

  • Do not write down the PIN of your debit or credit card on a piece of paper that you carry in your wallet together with your card. If your wallet is stolen, someone else can use the PIN to pay with your card.

Tip

  • Never share your bank details, passwords or codes with anyone, not even with family members or friends. Keep in mind that it is a frequent trick of online fraudsters to pretend to be working for your bank in an attempt to get your bank or login details over the phone or via fake online forms or e-mails. Do not share your bank or login details with anybody and keep in mind that your bank would never ask you to share them. If you are not sure what to do in such cases, make sure to call your bank to find out whether it was really them that were asking you for the information.

A brief recap

What different payment options are there?

You can either pay with cash (banknotes and coins) or you can use a number of options to make cashless payments. Among the most important types of cashless payments are various forms of credit transfers. You can also make cashless payments by using the services of payment service providers (credit cards, payment providers from know tech companies, etc.).

How do payment options differ with respect to the delivery date?

If you buy something, you have different payment options that depend on the time of payment and date of delivery. You can pay before delivery (advance payment), at the time of delivery (concurrent payment) or after delivery (payment on receipt of invoice). You can also pay by installments after delivery if you make an installment purchase.

What is a bank account and what can you use it for?

A bank account lists all your deposits (incoming payments or credits) and withdrawals (outgoing payments or debits). The account balance shows how much money you have in your account, i.e. the difference between total credits and total debits. You can use a bank account to receive credit transfers (incoming payments) and make credit transfers (outgoing payments).

What do the abbreviations SEPA, IBAN and BIC mean?

SEPA is short for Single Euro Payments Area. SEPA was established to harmonize cashless euro payments within the European Union (EU).

IBAN is short for International Bank Account Number. It identifies your bank account. The IBAN has 20 digits and is required for cashless payments within SEPA.

BIC is short for Business Identifier Code. The BIC is required in addition to the IBAN when making credit transfers outside of SEPA, for example to the USA.

What payment options do bank accounts offer?

There are many different ways to pay via your bank account: paying by debit card, online credit transfer, instant credit transfer, payment order, SEPA direct debit or standing order.

How does payment by credit card work?

If you use your credit card to buy goods and services, the credit card company prefinances your purchases. This means you borrow money from the credit card company and the credit card company extends credit to you. As credit card holder, you have to repay the amount due to the credit card company at a specified later date.

What are payment service providers?

Payment service providers are companies that facilitate electronic payment transactions. Mostly, they provide digital interfaces that enable credit and money transfers between buyers and sellers. Services offered by payment service providers are e.g. from known tech companies.

How does two-factor authentication work and why is it necessary?

Two-factor authentication is a security measure for online credit transfers. It serves to protect customers. Two-factor authentication means that payers have to prove their identity by a combination of two different factors (e.g. PIN and push notification on your smartphone) to make online banking transactions.

Downloads

  • Handout: Your payment options (without sample solution)
  • Handout: Your payment options (with sample solution)