Payment System

11 Key excerpts on "Payment System"

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  Payment Systems

  From the Salt Mines to the Board Room

  • D. Rambure, A. Nacamuli(Authors)
  • 2008(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Part I The Structure and Economics of Payment Systems 1 The Architecture of Payment Systems Payment Systems are indispensable to our lives as individuals and to the smooth functioning of the economy. They allow money to fulfil its role of accepted means of exchange when purchasing goods or services. As private persons, it is through Payment Systems that we receive our salaries and pay our bills. Enterprises use the same Payment Systems to settle invoices within the terms of their contractual relationships. Finally , financial trading activities also result in one cash leg through a Payment System to purchase shares, or two for a foreign exchange deal, one in each currency. It is difficult to trace the birth of the first Payment System, but Box 1.1 at the end of this chapter describes one of the earliest. A Payment System includes private or corporate customers, financial intermediaries, generally commercial banks, and central banks, linked by telecommunication networks transmitting information between com- puter systems. It is important to understand the roles and responsibilities of each to reach the optimum balance between speed, efficiency, cost, security and economic safety . On the other hand, each participant is driven by its own objectives which are often contradictory . Can speed be increased without impacting costs? Can costs be reduced with- out creating opportunities for fraud? Each Payment System reflects therefore a compromise depending on the participants, the speed of execution and level of security required and, last but not least, the risk posed by the amounts involved. These will determine the most appropriate operating mode, legal framework, security level and tech- nology. Payment Systems operate in a competitive environment and technological innovation is one of the most important drivers in the evolution of payment, chip cards being one of the most obvious examples. 3

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  The Evolution of Central Banking: Theory and History

  • Stefano Ugolini(Author)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  21 © The Author(s) 2017 S. Ugolini, The Evolution of Central Banking: Theory and History, Palgrave Studies in Economic History, https://doi.org/10.1057/978-1-137-48525-0_2 2 The Payment System Absent trade, a city would be like a house (or better, like a hovel) whose inhabitants have no acquaintance or knowledge of other people than themselves, and nations would be inclined to hate, to animosity, to war; because discord is often appeased, and breach of peace among sovereigns prevented, for the interest of trade and for the profit one gets from it […]. Safeguarding trade, preserving business of every kind, without a transfer bank is not only unpractical and difficult, but impossible. One has to make so many payments for the goods she sells and buys that, if everybody wanted to give cash on one side and get it from the other, the waste of time would be such that an overwhelming share of transactions would not take place. Tommaso Contarini, Speech to the Venetian Senate in Support of the Creation of a Public Bank, 28 December 1584 (quoted in Lattes (1869, p. 120), my translation and emphasis). In its online Glossary of Payments and Market Infrastructure Terminology, the Bank for International Settlements’ Committee on Payments and Market Infrastructures defines a Payment System as “a set of instru- ments, procedures, and rules for the transfer of funds between or among participants”, clarifying that “the system includes the partici- 22 pants and the entity operating the arrangement.” 1 The payment sys- tem is therefore described not as a mere “physical” infrastructure, but rather as a sort of “ecosystem” allowing for the clearance of debts from one corner to the other of an economy.

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  Institutional Change in the Payments System and Monetary Policy

  • Stefan W. Schmitz, Geoffrey Wood(Authors)
  • 2007(Publication Date)
  • Taylor & Francis

    (Publisher)

  of new payment instruments. While countries are at different stages in the migration to electronic alternatives, this shift has not affected the ability of central banks to conduct monetary policy. In this chapter, I argue that the migration to cash substitutes will not impact monetary policy unless final interbank settlement of most transactions occurs in non-central bank issued reserves. Furthermore, if the central bank maintains price stability and provides sufficient quantities of currency, the likelihood of its currency not being the generally accepted medium of exchange is negligible. In the next section, a description of Payment Systems and recent trends are discussed. In the third section, the economics of emerging payment instruments is discussed. In the fourth section, the costs and benefits of monetary exchange are investigated. In the fifth section, the impact of recent developments in Payment Systems and its implications for monetary policy are explored. Finally, the last section concludes the chapter.

  Payment taxonomy and trends

  A Payment System encompasses a means for a transactor to initiate a payment; communications and computation infrastructure to carry each transactor’s initiation message to its bank and also messages among banks to direct interbank payments to be made; contracts, laws, regulations, and industry standards to establish rights and responsibilities of transactors and their banks and to facilitate coordination among them, and so forth. In Figure 4.1 , a non-cash payment and the corresponding settlement between a payor and payee are diagrammed for a payment transaction that accesses an account at a financial institution.4 Payments are processed via

  Figure 4.2 Flow of funds

  financial institutions, whereby the payee’s account is credited and the payor’s account is debited the underlying value of the transaction. Payments that are cleared and settled electronically have extensive information networks that authorize payments and send messages to the appropriate institutions to make payment.

  In most payment networks, final interbank settlement occurs with central bank reserves. Payment networks net transactions among financial institutions and settle a much smaller amount with reserves held at the central bank. In Figure 4.2

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  The Future of Financial Markets

  • D. Mayes(Author)
  • 2006(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  12 2 The Payment System: Structure, Efficiency, Innovation and Regulation It is easy to under-estimate the importance of the Payment System and its contribution to the economy because it is largely out of sight. In some countries the costs of the Payment System can amount to 3 per cent of GDP (Humphrey et al., 1997, p. 33). The costs of making payments can differ across countries by an order of ten, which could have a major impact on the development of the financial system and the ability to respond rapidly to new challenges and opportunities. This is particularly true for the exploitation of cross-border transactions in the EU. These issues could readily merit a book on their own. However, these aspects of financial ‘plumbing’ tend to be regarded as dull compared with banking and monetary policy. In this chapter, after a short introduction summarising the nature of the Payment System and its structure, we consider just three main issues that affect the likely future development of the system: • its efficiency in various countries round the world and the scope for improvement by moving to best practice; • the nature of innovation in the industry and the potential for new more efficient systems both within and between countries; • the role of regulators in shaping the future. Our agenda in tackling these issues has been threefold. In the first place, like most central banks, the Bank of Finland has a responsibility for ensuring efficient working of a reliable Payment System which all can access. Second, the creation of the euro area and the single market for financial services in the EU and wider European Economic Area is providing a new challenge to Payment Systems that have in the past been aimed primarily at the domestic economy with only rudimentary D.G. Mayes et al., The Future of Financial Markets © David G. Mayes 2006

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  Effective Government Accounting

  • A. Premchand(Author)
  • 1995(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  1 Payments Systems T raditionally, the literature on accounting and central banking has viewed payments systems in government as a mechanical process. Consequently, scant justice has been done to systems that bring the government closer to the taxpaying public. 1 For the purposes of this analysis, accounting is viewed as a system with two primary purposes—to organize all procedures connected with the receipt and disbursement of funds to and by the government, and to organize bookkeeping so that these transactions can be recorded in a transparent manner that will allow full disclosure of the financial status of a government entity Payments, either to or from the government, represent the first operational stage in the financial management process of the government but should not be viewed as a purely internal process of the government. The growth of central banking and the associated development of clearing arrangements have reached the stage at which they need to be considered in conjunction with the linkages between the central bank and the government. Indeed, the improvements that a government can make in these payments systems are dependent on the level of development of the banking payments system. In addition, gradual improvement in the application of computer technology and related electronic processing has opened up new vistas, and organizations and systems that were hitherto considered essential are now being reviewed to determine if they are viable in the new context. There is, moreover, a perennial need to make the operations cost effective and user friendly. These considerations suggest that payments systems have entered the mainstream for accountants, expenditure managers, and central bankers—reason enough to consider the various aspects of the systems

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  E-Business

  State of the Art of ICT Based Challenges and Solutions

  • Dragan Perakovic(Author)
  • 2017(Publication Date)
  • IntechOpen

    (Publisher)

  In this case, the system of n level is equal with any of the systems of n − 1 level. 5. Brief review of most important Payment Systems factors Safe and efficient payments systems are the most critical segment in undisturbed financial system functioning. Payments systems, in interbanking funds transfer sense, are the most important payments systems and they are considered to be important Payment Systems. They are basic, and often the only channel that can transfer faults in domestic and foreign systems and markets. Robust payments systems are essential for keeping and improvement of financial stability. In the last few years, consensus was made among main financial institutions and a set of requirements was developed which payments systems must satisfy, promoting interna‐ tionally recognized standards and best practice regarding their design, development and production. E-Business - State of the Art of ICT Based Challenges and Solutions 46 There are 50 trillion retail transactions processed today in the Euro zone, which is two to four times more than in cash. This transaction volume is realized by 315 million retail users, 16–18 million small, medium and large companies, 6000–7000 banks and other financial organiza‐ tions, at 4.6 million POS 9 terminals and 240,000 ATMs. 10 The market and processing expenses in banks and other financial organizations are such that there is interest for creation of a new competitive market different from the present one, which is a kind of monopoly. In the European Union (EU) there are tendencies of introducing unique payment zone where legal entities and private individuals could perform their transactions equally as in their present national zones, and therefore under the same conditions, with the same rights and liabilities. European Union now consists of 27 member countries and four joined countries: Ireland, Norway, Lichtenstein and Switzerland, but the priority is introducing into 13 present EU countries.

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  Democratizing Money?

  Debating Legitimacy in Monetary Reform Proposals

  • Beat Weber(Author)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  While in the monetary system, means of payment are the counterpart of credit creation, creation of credit does not always result in new money-like liabilities. The monetary system is just a subset of the larger financial system, where a large set of promises to pay are created, evaluated, managed and transacted. In recent decades, disintermediation has resulted in a substantial transformation of the financial system compared to its shape in the Current Monetary Governance 57 aftermath of the Second World War. Financial institutions other than banks have started to offer bank-like products. A growing number of financial institutions started to refinance holdings of longer-term assets by short-term liabilities. Banks have reacted actively to this challenge by enlarging their participation in markets as issuers, market makers and holders of securities, and by other dealings with market participants. As a result, the financial system is now more market-based and global than before. In the post-war era, banking was confined within national borders. Most bank short-term liabilities were held as deposits by retail savers, and most bank assets consisted of credit granted to business and government. Contemporary banking takes place in a globalized market, where banks are key players among a more diverse set of players, financial instruments and markets. In advanced economies, a large stock of private wealth has accumulated over decades of prosperity. Its manage- ment has become a major task for the financial sector on top of the creation of new wealth by financing industrial development. A significant share of corporate lending has shifted to securities mar- kets. A larger extent of credit generated by banks now goes to house- holds. It is no longer always held to maturity in balance sheets of banks. Instead, large banks have developed a routine of repackaging and sell- ing loans to provide assets for giant institutional investors.

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  Economic Areas Under Financial Stability

  • Indranarain Ramlall(Author)
  • 2018(Publication Date)
  • Emerald Publishing Limited

    (Publisher)

  Chapter 2

  Payment and Settlement Systems

  2.1. Introduction

  With the publication of financial stability reports by many central banks in the world after the global financial crisis of 2007, it became common practice for many central banks to give due consideration to the payment and settlement systems (PSS). The underlying rationale relates to the notion that the PSS have a direct connection to the financial stability state of an economy. A Payment System can be defined as an arrangement which eases the transfer of funds between participants and which incorporates a number of components such as the payment architecture, the established rules and regulations to be followed, the acceptable financial instruments to be used and the standards to be adhered to. The best way to gauge the significance of PSS is to note that, on a busy day, payments undertaken by a bank can far exceed its capital level. Coupled with the latter, the transaction volume and turnover on PSS can be many times the GDP of the economy as argued by The Danmarks Nationalbank (2005).

  Basically, trust or confidence lies at the root cause for the existence of financial markets. Such a trust is being maintained or bolstered by a smoothly functioning PSS. Any shock or distortion to the PSS entails a direct impact on financial stability. It therefore becomes important to have sound insight pertaining to the PSS in order to ensure that upside risks to financial stability are well contained. To strengthen the resilience of PSS with respect to financial stability, it becomes important to enhance the liquidity arrangements of their participants which can be effected through both liquidity and collaterals arrangements. While the authorities often strive to maintain security, efficiency and reliability of the PSS, the predominant element to always keep in mind is the security aspect as this is directly related to financial stability issues ingrained in the PSS. On a final note on the introduction part, it is important to appreciate the encompassing roles fulfilled by the PSS because the maintenance of financial stability is not the only objective of PSS but to also cater for other important objectives such as crime prevention (money laundering), avoidance of unfair competition and cushioning consumers against frauds.

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  The Payment Order of Antiquity and the Middle Ages

  A Legal History

  • Benjamin Geva(Author)
  • 2011(Publication Date)
  • Hart Publishing

    (Publisher)

  4.3 Conclusion A payment mechanism is a form of machinery facilitating the transmission of monetary value in payment of debts that enables a debtor to avoid the transpor-tation of banknotes and coins and their physical delivery to his creditor. Thereunder, the debtor instructs a third party, frequently his own debtor, to pay the creditor in discharge of the debt. The third party is likely to be a lender, banker, money-transmitter, or a fellow merchant having an ongoing business relationship with the debtor. The operation of the payment mechanism does not involve the physical delivery of a bag of money from the debtor to the cred-itor via a third party carrier. Rather, the third party pays out of his own pocket, thereby either discharging his own debt to the debtor, or becoming the debtor’s creditor for the sum paid. Payment by the third party need not be in specie but could take place by the third party becoming indebted to the creditor in lieu of the original debtor. This model is sufficiently elastic to accommodate all machineries for the transmission of monetary value, whether they are paper-based or electronic funds transfers, whether debit or credit transfers, whether paper currency or GIRO systems, and regardless of the stage of technological progress. The model is also sufficiently broad to accommodate multiparty payment mechanisms using more intermediaries, besides the third party, for the transmission of mon-etary value. 208 On this subject, in connection with both debit and credit transfers, see in general B Geva, ‘Payment Finality and Discharge in Funds Transfers’ (2008), 83 Chicago-Kent Law Review 633. 209 Discussed in section 4.1(iii) above. The Concept of a Payment Mechanism 61 While each payment mechanism might have distinct features, the very term ‘payment mechanism’ in its generality attests to the existence of common ele-ments.

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  Available until 8 Dec |Learn more

  Protocols for Secure Electronic Commerce

  • Mostafa Hashem Sherif(Author)
  • 2003(Publication Date)
  • CRC Press

    (Publisher)

  27 2 Money and Payment Systems ABSTRACT In this chapter, we describe the fi nancial context within which the demate-rialization of means of payment is taking place. The fi rst part of the chapter is dedicated to the “classical” forms of money and the means of payment in some developed countries. The second half corresponds to “emerging” mon-ies, either in “electronic” or “virtual” forms. 2.1 The Mechanisms of Classical Money The term money designates a medium that can be used to certify the value of the items exchanged with respect to a reference system common to all parties of the transaction (Berget and Icard, 1997; Dragon et al., 1997, p. 17; Fay, 1997, p. 112; Mayer, 1997, p. 37). Thus, money represents the purchasing power for goods and services and has three functions: • It serves as a standard of value to compare different goods and services. These values are subjective and are affected, among other things, by currency fl uctuations. • It serves as a medium of exchange, as an intermediary in the process of selling one good for money, thereby replacing barter. • It serves as a store of value and of purchasing power. Money permits postponement of the utilization of the product of the sales of goods or services. This saving function is maintained on the condition that the general level of prices remains stable or increases only slightly. The practical terms of money depend on theoretical considerations on its nature and its intrinsic value. Primitive forms of money corresponded to 28 Protocols for Secure Electronic Commerce, Second Edition needs for storage and exchange on the basis of valued objects. Accordingly, money fi rst took a materialistic nature, in the form of a coin with a speci fi c weight and minted from a precious metal. Today, the value of money corre-sponds to a denomination that is independent of the material support medium.

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  Economics of Banking

  • Hans Keiding(Author)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  10.6 Comments A discussion of payments almost necessarily takes as its point of departure the theory of money, and the discussion in this chapter is no exception. For theories of money based on transactions, see Ostroy and Starr [1990], Kiyotaki and Moore [2002]. The literature on RTGS systems has been extended to include liquidity saving mechanisms; see Martin and McAndrews [2008]. A recent direction of research which is not considered in the chapter is that of network topology of payments, in particular interbank payments; see e.g. Soramäki et al. [2007]. The theory of payment cards is of relatively recent date, and its emphasis is not so much the activity of banks as the influence on competition in the markets for the goods transacted using payment cards. As such it is a subfield of the theory of two-sided markets ; see the survey in Rochet and Tirole [2006]. Bitcoins, or more generally, cryptocurrencies, provide a fascinating new field of research, but contributions are as yet rather few. For a discussion of the transaction fee, see Houy [2004].

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