Once you've found a decent place to purchase your goods, now you need to complete a transaction. In some cases, you have the ability to check prices online and then go to a brick and mortar store to pay cash if you wish, but in most cases, that's not going to happen. Instead, either because they don't have a brick and mortar outlet or because you need it sooner, you'll need some method to pay online.
Bank Account Debit
Allowing a company to directly withdraw from your bank account. Bad idea.
In some very rare cases, you may find a website or service that will give you the option to enter your bank account information to allow direct debit (outside hacker from breaking in.
History shows that this is a poor strategy. Instead, either use the service another way or don't use the service if at all possible. Don't let websites touch your bank funds!
Debit or Check Cards
Debit/Check/ATM cards look like credit cards and might even have a credit card logo, but they all have in common that funds are immediately taken from your account when they are used (if it has a credit card logo, that only means that you can use them where credit cards are accepted).
Because there are no mandatory protections on debit card transactions, it's best not to use them for online purchases. It's also safer to not use them for out-of-town transactions especially with small, no-name shops. Giving someone your debit card information is nearly the same as giving them direct bank access. Therefore, only do it for large-brand stores that you know and trust or if you have no credit cards.
By using a third party, you don't expose your financial information to anyone but the third party. Useful in certain circumstances, but not always the best option
By far the most well-known escrow service is Paypal. To purchase through Paypal you either connect your bank account to Paypal or use a credit card.
Either way, once your have a source of funding entered, you can easily purchase items from both websites or even regular people (if they have Paypal set up themselves) without that person or site ever having access to your financial information. Or put more bluntly, you can buy from a website without letting them store (and then lose) your credit card information.
Using these services is not without it's own risks however particularly if you connect it to your bank account. Due to fraudulent transaction, system error, system breach or who knows what else you could find your bank account violated. Use these only after careful consideration.
Because of rampant abuse, the credit card industry is now heavily regulated and controlled by federal law. That's good news for you and makes this one of the best ways to shop online possible.
Have you ever noticed how quick many credit card companies are to contact you when there's weird charges on your account? Why is it that they're so proactive about protecting your credit cards anyway?
The reason is because a federal law puts the responsibility for false charges on them. That's right, they're proactive about helping you not to help you, but themselves.
From the Federal Trade Commission's page on the Fair Credit Billing Act (FCBA):
Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. Also, if the loss involves your credit card number, but not the card itself, you have no liability for unauthorized use.
Or translated, this means that if you have any unauthorized charges, but you never lost your card, you're not responsible for ANY of the charges. Pretty cool huh?
The other neat thing you can do (that I've even done myself on occasion) is called a chargeback. There are many reasons you might implement a chargeback, but here are some more common ones:
- Fraudulent transaction
- You never received the goods
- The goods were grossly inferior or not as described
In most cases, you're required to try and work it out with the company first, but after that, you're free to start a chargeback. The neat thing here is that you get your money, they charge the offending company the same amount (plus fees), and, if enough are filed against that company, they may lose their merchant account. Now that's satisfaction!
It's a good thing to have at least one credit card for making your purchases online. The key is to filter your purchases through the card for unauthorized purchase and chargebacks protection, but not to carry a balance (getting into credit debt creates all new problems).
There is one problem with credit cards and that's the risk of them being stolen out of a retailer's database, which wouldn't be a problem if they would just stop storing your card long after the transaction is over, but I digress…
Virtual Credit Cards
A variation of a credit card, this creates a temporary credit card number that you can use to purchase without the possibility of the card being used again later. Combining the protections of regular credit cards with an ephemeral ability to disappear, you have the pinnacle of online shopping methods.
Escrow services (as described before), protect your information from companies at the price that you must trust the escrow service. If you'd rather not have to extend your trust to any of these people, a virtual card is your weapon of choice.
The way it works is you utilize your bank's virtual card function (usually via your online account) to create a one-time-use credit card with a balance you specify. Therefore, if you're sitting at the final screen of an order from Amazon.com (or whatever), note the total of the transaction and create a virtual card for that amount. You will be given a credit card number and details necessary to complete the transaction.
HOWEVER, once the transaction is complete and the balance on the "virtual" card is empty, it's no longer usable. And since you never gave your actual credit card number, the company can lose all the data they want and you still won't be affected.
Ah… sweet victory.