Ch.4 Payment Systems Flashcards
what are the 4 key elements in a payment process
- Payment instructions: information contained in the EFT or Check
- Payment Generation: where the instructions are entered in the payment system
- Clearing: Process in which FI’s transfer money.
- Settlement: Final step in the payment process where money clears the payor’s account and beneficiary account is credited
Settlement vs Finality
Settlement, when the payee can actually use the money
Finality, payor cannot retrieve the money.
4 types of payments
Checks or Draft
RTGS (real time gross settlement) or Wires
Low value eft, ACH’s
Card based payments
C2B
Consumer to business payment
C2C
or P2P, consumer to consumer or person to person
B2G
Business to Government
on-us clearing
payee and payor use the same bank for check clearing, availability is faster or immediate.
On-we clearing
group of banks use the same 3rd party vendor to process their checks for them.
CHIPS
Clearing House Inertbank Payment System
US-based privately owned wire transfer system through the federal reserve bank.
made up of 46 banks representing 19 countries
used to move international USD from bank to bank within the US.
SEPA TARGET2
Single Euro Payments Area
designed to standardize payments in the Eurozone
TARGET2 is the platform for the SEPA
Basically, this allows to treat payments in Europe like the US…no ‘cross border’ restrictions.
CLS
continuous linked system
prevents FX risk, allowing for no delay in exchange which results in elimination settlement risk.
SWIFT
Society for Worldwide Interbank Financial Telecommincations
- Unified and standardized system for delivering messages from bank to bank across the world along with the funds
- includes 9000 banking organizations around the world.
