Credit cards have always been the favoured way of paying for online goods primarily because they were already in circulation when online purchasing first started. But many people remain reluctant and cautious about giving out their credit card details online, even on a secure server. To combat this, and to make sending money online easier, many online payment systems have sprung up. It is the popularity of online auctions, however, that has really helped these payment systems take off.

Why have online auctions played an important role?

By their very nature auctions encourage transactions between people, rather than organisations, which usually have a system of receiving payments via credit card set up. As a personal cheque takes time to send and clear, a new system had to be found to pay online in real time. And when you include foreign currency in the equation, it all gets really complicated. Online household names like Amazon and eBay for example have developed their own payment systems, Amazon.com Payments and eBay Billpoint respectively, are working very well.

You provide your credit or debit card details before you start shopping and this information is held securely by Amazon for example, which then acts as a middleman channelling money between various parties - and it takes the total of your spending off your card at the end of the day, without you having to divulge your personal details to numerous online third parties.

Recommended methods

There are a lot out there in cyberspace, some of the most popular include the following:

PayPal
This is probably the most popular and best known of all the online payment systems, boasting a massive ten million plus users. The system works by allowing you to pay for goods online from your Paypal account - which is stocked up from your credit card or current account without any of your details becoming available on the superhighway. Paypal is completely free if you want to send money, but will charge if you receive money. The cost for each transaction for example is 25 cents (about 10p). All you have to do to send money is log onto your account, select “send money,” type in an email address for the recipient and the amount to be sent and press “send” - and it is all done instantaneously. Paypal also supports WAP and PDA transactions.

Mondex
This has been around the longest (developed by NatWest in 1990) and is incredibly easy to use. It is basically a debit card like any other, with the added bonus of holding cash for electronic transactions online. You can even use it in high street shops and has no age limit tied in with using it - so the youth market is not excluded. Transactions can be made securely over the Internet, digital TV or mobile phone - which means you can use it virtually anywhere. Mondex has the best feature included in any online payment system - it allows the user complete anonymity online, as you don't have to give out any personal details. What more do you need? Oh and of course, it's free to use too!

No Chex
This British outfit is one of the only online payment systems to support sterling and take your money straight out of your UK bank account - for the privilege it charges 99p per transaction which is a bit steep when compared with other systems. It does however, allow you to just use your current account or debit account - a credit card is not necessary.

Billpoint
The official payment service of eBay, it is very easy to use. You don't have to pay if you are buying or bidding, charges are only incurred by sellers (35 cents per transaction, or about 20p) - so is cheap if you only plan to shop. It allows you to deposit money into your Billpoint account from your credit card or current account - and operates primarily in US dollars. If you win an auction all you do is click on the little purse icon and the money is transferred automatically to the seller’s bank account. Billpoint does work outside eBay but it is quite difficult to set up.

eCharge Phone
This is a really unique system because instead of using a credit or debit card to fund your account you can charge all transactions to your phone bill. Currently it's only available to businesses, but is set to hit the consumer market in the near future.