11. Payments and Money Transfer Services Flashcards
What percentage of transactions were carried out using cheques in 2017?
4%
What was the annual rate at which Non-cash transactions grew between 2013 & 2017?
10.8%
What percentage of transactions were made using cash in 2018? What is this predicted to change to by 2028?
2018 = 28%
2028 = 9%
What is a country’s Central Bank responsible for? (4)
- Maintaining FINANCIAL STABILITY
- Setting MONETARY POLICY
- Control MONEY SUPPLY (coins, notes & electronic money)
- OWN & OPERATE SYSTEMATICALLY IMPORTANT SETTLEMENT & PAYMENT SYSTEMS
What are Systematically Important Payment Systems (SIPs)? What are some examples of SIPs? (3)
Payment Systems which have the potential to TRIGGER or TRANSMIT SYSTEMATIC DISRUPTIONS
Includes:
1. Systems that are the SOLE PAYMENT SYSTEM within a jurisdiction.
2. The PRINCIPLE SYSTEM in terms of the AGGREGATE VALUE OF PAYMENTS.
3. Systems that mainly handle TIME-CRITICAL, HIGH VALUE PAYMENTS
What are the main reasons for different payment systems developing over the years? (5)
- Give consumers GREATER CHOICE
- REDUCE PRICING due to COMPETITIVE PRESSURE.
- improve the payment cycle (beneficiaries RECEIVE CLEARED FUNDS MORE QUICKLY)
- Allow people to take advantage of TECHNOLOGICAL ADVANCES.
- CONNECTIVITY to different parts of the world for INTERNATIONAL COMMERCE.
What are High-Value Payments?(3)
Payments that are URGENT and NON-RECURRING & of SIGNIFICANT VALUE.
What are Low-Value Payments?(3)
Payments that are NOT URGENT, REPETITIVE & of LOWER VALUE.
What are Card Payments?
The use of CREDIT/DEBIT CARDS to make payment for the SALE OF GOODS OR SERVICES
Which type of payment is related to the following examples of UK terminology:
- Direct Debits
- Direct Credits
- Instant
- Faster
- BACS
- Automated Cleaning House (ACH)
Low-Value Payments
Which type of payment is related to the following examples of UK terminology:
- Credit Card
- Debit Card
- Store Card
Card Payments
Which type of payment is related to the following example of UK terminology:
- Real Time Gross Settlement (RTGs)
High-Value Payments
What are Real Time Gross Settlement (RTGs)? What are some features of payments made this way? (3) Who owns RTGs?
Funds transfer systems used for high-value payments which allow the INSTANTANEOUS TRANSFER OF MONIES/SECURITIES
Payments are:
DIRECT, FINAL & IRREVOCABLE
The RTG Payment system is owned by the central bank
What type of payment would be used for the following example:
The Government wants to make a payment to a construction company as part of a large construction contract
High Value Payment
What type of payment would be used for the following example:
Paying an electric bill online
Low Value Payment
What type of payment would be used for the following example:
Someone completing on a house purchase
High-Value Payment
What is an Automatic Clearing House (AMH)?
Self-regulated organisation used for making low-value payments
What type of payment would be used for the following example:
Salary payments
Low-Value Payments
What is the role of a Payment Service Provider (PSP)? Name a popular Payment Service Provider.
They settle transactions between individuals and businesses by connecting to different systems.
After the sender makes a request to pay the funds, the sender’s PSP will verify their account details and the availability of funds, before transferring the funds to the receiver’s PSP via the low-value clearing system. The receiver’s PSP then receives the funds and all parties are notified so that transaction records can be updated accordingly.
PayPal is an example of a popular PSP
What are Clearing Systems?
The structures used to transfer money in and out of customer’s accounts.
Which is the only type of payment which does not have to go through a clearing system?
Cash Payments
What are Image Clearing Systems (ICS)?
Allow customers to digitally pay in cheques through their mobile banking app, rather than taking the physical cheque to the bank; however, cheques can still also be cashed in physically alongside ICS.
Some businesses and charities have their own digital scanners given to them by their banks to use ICS
How long does it take for funds to be available for withdrawal after a cheque is paid in using Image Clearing Systems (ICS)? Is this faster or slower than taking the physical cheque into the bank?
Funds will be available no later than 23.59pm the next working day (except on bank holidays).
This is faster than paying in the physical cheque.
What are the three most established types of digital low-value payment?
- Standing Orders
- Direct Debits
- Direct Credits
What are standing orders? Who initiates them? Are they more or less widely used compared with Direct Debits?
Fixed sum, fixed date regular payments.
They are initiated by the payment provider upon a customer’s instructions
They are less widely used than Direct Debits as they are less flexible
What are Direct Debits? Who initiates them? How do they differ from standing orders (2)?
Regular payments.
They are initiated by the BENEFICIARY, not the payer’s bank.
Differ from standing orders because:
- The amounts, dates and frequencies of payment can be changed
- Consumers are protected
- if the consumer complains the DD has been incorrectly taken, the PROVIDER MUST PUT IT RIGHT (even if it was the fault of the originator/beneficiary, not the payment provider)
- Beneficiaries/originators all sign an indemnity confirming they will rectify all incorrect DDs immediately. If they do not, they can be removed from the DD payment system altogether.
What must originators of payments do in order to join the Direct Debit payment system? (2)
- Be sponsored by the Banking Industry
- Sign up to the Direct Debit Guarantee Scheme
What is the process for cancelling a Direct Debit?
A direct debit can be cancelled at any time up until the payment is called for by writing to the payment provider.
What is a Direct Credit? Provide examples (3)
Payments made by SPONSORED COMPANIES which allows them to make payments directly into a beneficiary’s account.
Examples:
1. Salary Payments
2. Pension Payments
3. State Benefits
What are the main benefits of using standing orders and direct debits? (4)
- Convenient
- don’t need to do anything once they are in place - You wont forget to pay bills
- avoids embarrassment and late payment fees - Proof of payment
- appears on statements - Helps people to budget more effectively
What is BACS?
A type of Automated Clearing House (ACH) system, which is named after the company which originally created Direct Debit/Credit payments. It is one of the world’s largest ACH’s.
What types of payment are processed via BACS? (2)
- Direct Debits
- Direct Credits
What’s the maximum amount of money that can be sent via BACS?
£20 million
but service providers usually set their own lower amounts
What is the Faster Payments Service (FPS)?
Instant retail payments service, payments can be made in real-time 24/7 and the funds will usually be immediately available for use by the recipient.
What are the main benefits of using instant payment schemes like the Faster Payments Service? (4)
- Efficiency
- Quicker access to funds
- Enhances/enriched payment information
- Reduced settlement cycles
What is the maximum amount of time permissible for a Faster Payment to be received?
1 Day, but usually it will be immediate
All banks now use the Faster Payments Service. Why? (2)
- Reduced customer queries as customers can have real-time feedback as to when a payment reaches the beneficiary account
- FPS payment are irrevocable - banks cannot recall them, so there’s less work for banks to do
What types of payment are permissible using the Faster Payments Service (FPS)? (3) When will each of these payments usually be received?
- Single, Immediate Payments
- that need to be processed end-to-end within 2 hours - Forward-dated one off payments
- customers arrange an advances for a specific time and date
- when received will depend of recipient bank opening hours - Standing orders
- processed end-to-end by the next business day
- can only be made on business days (unlike other FPS payments)
90% of Standing Order Payments made using the Faster Payments Service (FPS) arrive in the recipient’s bank account by what time the following day?
6am the next working day
Payments under what amount of money can usually be made via the Faster Payments Service (FPS) without incurring any fees/charges associated with urgent same-day payments?
£250,000
What are Card Payments used for?
Point of Sale (POS) transactions - immediate payment for goods and services
What is the role of a Merchant Acquirer?
They process Point of Sale transactions on behalf of the retailer.
They sometimes also provide the retailer with a TERMINAL to process these transactions, like a card reader.
Name the three main steps which make up the Card Payment process.
- Card Data Capture
- Transaction & Authorisation
- Clearing and Settlement
What type of information is collected during the Card Data Capture part of the card payment process? (3) How is the data collected? (4)
Information is collected including:
- cardholder details
- transaction amount
- merchant details
Collected by one of the following methods:
1. Chip & PIN
2. Swipe & sign (magnetic strip)
3. Contactless
4. Online/Phone (by entering card details & billing info)
What is near-field communication?
Another name for a contactless payment
What are ‘card not present’ payments?
Online/phone payments where the card details and billing info is entered manually
What happens during the transaction & authorisation part of the card payment process?
The merchant connects to the cardholder’s card issuer via a NETWORK e.g VISA, MASTERCARD, AMERICAN EXPRESS)
The network then checks the card details and fund availability. Within seconds, the network will send a message to the merchant authorising or declining the transaction
What happens during the clearing and settlement part of the card payment process? How long do funds take to settle? (2)
When the transaction gets authorised it is complete. The merchant then collects the funds from the merchant acquirer.
Domestic funds settle 1 day after the transaction takes place (T+1)
International funds settle 3 days after the transaction takes place (T+3)
Which usually incurs more fees? Direct Debit or Direct Credit?
Direct Credit
What types of card payment can incur additional fees? (3)
- International Payments
- Card swipe payments
- Online/phone payments where details need to be entered manually
How are card payment processes regulated?
By the rules of the payment network (VISA, MATERCARD etc)
What type of card can be described as follows:
“Universally accepted; revolving line of credit”
Credit Card
What type of card can be described as follows:
“Universally accepted; debit to bank account”
Debit card
What type of card can be described as follows:
“Universally accepted; Interest-free; balance must be paid off in full monthly”
Charge card
What type of card can be described as follows:
“Universally accepted; no credit; spending is to a prepaid limit only”
Pre-paid card
What type of card can be described as follows:
“Universally accepted; used by consumers to buy goods on behalf of a business”
Commercial card
What type of card can be described as follows:
“Accepted by only a single merchant; revolving line of credit”
Store card
Have card payments increased or decreased as a result of the development of new technologies?
Increased - especially with smart phones and wearables like smart watches being even more popular
What percentage of all payments made globally were card payments in 2017?
69%
What percentage of the UK population owns a debit card? How many out of every 10 payments were made by debit card in 2018?
98%
4 in every 10 payments were made by debit card
Name 3 pieces of upcoming payment innovation.
- Open Banking in-store payments
- Invisible Payments
- Conversational Commerce & in-car payments
What is an invisible payment?
Payments using virtual wallets on apps that store your bank details. No cash, card, wearables etc
What is conversational commerce?
AI systems that suggest suitable payment products customised to the customer’s activity pattern. This is based on:
- processing times
- payment charges
- usage
