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Module 6 – Payment Instruments
• Types of retail payment instruments• Check clearing• Giro processing• Credit card processing• Survey of use of retail payment instruments (from
www.bis.org/publ/cpss63.htm)• Survey of electronic payment system
developments (from www.bis.org/publ/cpss62.htm)
Types of Retail Payment Instruments•Cash - face-to-face, low value•Cheques
– face-to-face or remote– low or high value– requires identification/creditworthiness voucher
•Direct funds transfer– payer-initiated credit transfers (giro or electronic)– payee-initiated debit transfers (usually electronic)
• Credit cards– charge cards or revolving credit– usually used for non-recurring face-to-face payments– also used for pre-authorized payments, MOTO, Ecommerce payments over the internet, ATM cash advances– online payments verified immediately, fully electronic– offline payments verified when paper voucher enters clearing process
•Debit cards•Other (money orders, wire transfers, traveller’s cheques)
A B
A’s Bank(Paying Bank)
B’s Bank(Collecting Bank)
ClearingDepartment
ClearingDepartment
ClearingHouse
1. A presents check to B.2. B lodges it.
3. Credit B’s account and forward check for clearing
4. Checks Exchanged.
5. Verify funds availability and debit A’s account.
Check
The check-clearing process
A B
A’s Bank B’s Bank
ClearingDepartment
ClearingDepartment
ClearingHouse
1. A initiates Giro to B.
4. Funds credited to B’s account.
3. Credits Exchanged.
2. A’s bank debits account and sends giro for clearing.
Giro
Payment by credit transfer or Giro
Central Bank
5. Settlement.
Card Association Clearing/Settlement
Card Association Authorization
Card IssuingBank
AuthorizationAcquiring
Bank
Card Holder Merchant1. Sign Voucher
Sales Voucher
2a. Authorize
2c. Authorize 2b. Authorize
3. Vouchers
4. Clearing4. Clearing
Stages in a credit card payment.
Availability of instruments• Currency
– Issued by central banks
– Distributed via bank branches, ATMs, cash-back on debit and credit card transactions
– Cross-border arrangements such as Plus (VISA International) and Cirrus (MasterCard International/EuroPay) allow withdrawals in local currency by foreign travelers
• Cheque payments
– Financial institutions and some non-financial institutions which have clearing arrangements with financial institutions
– Drawn on deposit account, and in some countries on line-of-credit
• Direct funds transfer
– Financial institutions, as well as postal giro systems in Japan and most European countries
– Debit transfers, payer, maintains account with paying institution
– Credit transfers through giro systems, payer can initiate transaction with inpayment at giro agent
Availability of instruments (continued)• Credit card
– Issued by financial institution, usually through affiliation to a credit card network
– Cardholder must have a credit arrangement with institution– VISA and MasterCard are the largest card networks worldwide
• Debit cards– require users to have a deposit account with a financial institution
that issues cards or acquires payments– Countries such as Belgium, Canada, France, Italy and the
Netherlands have a single national shared EFTPOS– Other countries (notably the U.S.) have different regional and
nation-wide EFTPOSs, some of which are interoperable– Some major EFTPOS networks have cross-border affiliations
• Money orders, travellers cheques, wire transfers– available from financial institutions in most countries– many countries allow non-financial institutions to issue them– in countries with postal giro systems, the post offices issues most of
the money orders, usually against inpayments