CH04-Payment Systems

Question 1

Calc collected balance

Answer 1

Average Ledger - Deposit Float = Collected

Question 2

Daylight overdraft

Answer 2

banks permit corporations to make payments that exceed the available balance (rectified before end of day)

Question 3

RDC

Answer 3

Remote Deposit Capture = image capture of MICR and payment info. Means faster availability, later cutoff time, later deposit deadline, lower service charges

Question 4

Reject Items

Answer 4

physical defects in MICR or MICR doesn’t meet bank specs

Question 5

As-of Adjustments

Answer 5

As-of Adjustments occur when a check takes longer than expected to clear. Impacts available funds and float balance. Could result in overdraft

Question 6

POD

Answer 6

Proof-of-delivery = availability is assigned to each check as it is processed

Question 7

CHIPS

Answer 7

Clearing House Interbank Payments System = Fed setteled, FI must have US presence

Question 8

SWIFT stands for

Answer 8

Society for Worldwide Interbank Financial Telecommunication

Question 9

What type of system is SWIFT?

Answer 9

SWIFT is a messaging system. SWIFT only transmits info. SWIFT doesn’t settle/clear.

Question 10

4 Components of SWIFT code

Answer 10

CHAS US 33 XXX
4 digit Bank
2 digit Country
2 digit Location
3 digit Branch

Question 11

SEPA stands for

Answer 11

Single Euro Payments Area

Question 12

Open Loop vs Closed Loop credit cards

Answer 12

Open Loop = accepted anywhere (Visa)

Closed Loop=only accepted by issuer (Macy’s)

Question 13

3 high level steps of credit card processing

Answer 13

1. Authorization
2. Clearing
3. Settlement

Question 14

4 steps to Credit Card Authorization process

Answer 14

1. Card presented to merchant
2. Authorization Request
3. Hold placed on Credit Limit
4. Authorization Granted

Question 15

3 steps to Credit Card Clearing process

Answer 15

1. Charges sent for clearing by merchant
2. Transaction data routed to issuing bank
3. Hold converted to charge

Question 16

What is the credit card settlement process?

Answer 16

Funding remitted through network to merchant

Question 17

Define Settlement

Answer 17

The movement of funds from payor’s account to the payee’s account

Question 18

Define Finality

Answer 18

When funds cannot be taken back or retracted by the payor or the payor’s bank

Question 19

When does settlement transition to finality?

Answer 19

when a payment is unconditional and irrevocable

Question 20

4 elements of the payment process (in order)

Answer 20

“IGCS”

1. Payment Instructions
2. Payment Generation
3. Clearing
4. Settlement

Question 21

Define Clearing

Answer 21

banks use the payment information to transfer money between themselves on behalf of the payor & payee, either directly or through some external network

Question 22

Net Settlement

Answer 22

transactions are combined and sorted by sending and receiving banks. Only the net amount is transferred.
Credits are final.
Debits may be reversed.

Question 23

TARGET2 does …

Answer 23

Europes RTGS system. Allows Central banks to move real-time gross settlements thru the Eurosystem

Question 24

timing of check settlement vs finality

Answer 24

Checks settle same day or next day thanks for image processing and electronic presentment.
Check finality takes several weeks due to returned items.

Question 25

Principal & secondary benefits of a p-card over a PO.

Answer 25

Principal=reduced admin costs & more efficient

Secondary=negotiated rebate & may be able to delay payment until end of billing cycle

Question 26

Purpose of the check digit within a MICR

Answer 26

Check digit is a math calc used to verify the accuracy of the routing number

Question 27

Common method of Foreign Check Clearing

Answer 27

Correspondent bank accounts =
Depository bank sends foreign check to correspondent bank in the country in which the foreign check is payable. Foreign check is processed locally and eventually remits proceeds to depository bank.