CH04-Payment Systems Flashcards
Calc collected balance
Average Ledger - Deposit Float = Collected
Daylight overdraft
banks permit corporations to make payments that exceed the available balance (rectified before end of day)
RDC
Remote Deposit Capture = image capture of MICR and payment info. Means faster availability, later cutoff time, later deposit deadline, lower service charges
Reject Items
physical defects in MICR or MICR doesn’t meet bank specs
As-of Adjustments
As-of Adjustments occur when a check takes longer than expected to clear. Impacts available funds and float balance. Could result in overdraft
POD
Proof-of-delivery = availability is assigned to each check as it is processed
CHIPS
Clearing House Interbank Payments System = Fed setteled, FI must have US presence
SWIFT stands for
Society for Worldwide Interbank Financial Telecommunication
What type of system is SWIFT?
SWIFT is a messaging system. SWIFT only transmits info. SWIFT doesn’t settle/clear.
4 Components of SWIFT code
CHAS US 33 XXX 4 digit Bank 2 digit Country 2 digit Location 3 digit Branch
SEPA stands for
Single Euro Payments Area
Open Loop vs Closed Loop credit cards
Open Loop = accepted anywhere (Visa)
Closed Loop=only accepted by issuer (Macy’s)
3 high level steps of credit card processing
- Authorization
- Clearing
- Settlement
4 steps to Credit Card Authorization process
- Card presented to merchant
- Authorization Request
- Hold placed on Credit Limit
- Authorization Granted
3 steps to Credit Card Clearing process
- Charges sent for clearing by merchant
- Transaction data routed to issuing bank
- Hold converted to charge
What is the credit card settlement process?
Funding remitted through network to merchant
Define Settlement
The movement of funds from payor’s account to the payee’s account
Define Finality
When funds cannot be taken back or retracted by the payor or the payor’s bank
When does settlement transition to finality?
when a payment is unconditional and irrevocable
4 elements of the payment process (in order)
“IGCS”
- Payment Instructions
- Payment Generation
- Clearing
- Settlement
Define Clearing
banks use the payment information to transfer money between themselves on behalf of the payor and payee, either directly or through some external network
Net Settlement
transactions are combined and sorted by sending and receiving banks. Only the net amount is transferred.
Credits are final.
Debits may be reversed.
TARGET2 does …
Europes RTGS system. Allows Central banks to move real-time gross settlements thru the Eurosystem
(like US’s Fedwire)
timing of check settlement vs finality
Checks settle same day or next day thanks to image processing and electronic presentment.
Check finality takes several weeks due to returned items.
Principal and secondary benefits of a p-card over a PO.
Principal=reduced admin costs and more efficient
Secondary=negotiated rebate and may be able to delay payment until end of billing cycle
Purpose of the check digit within a MICR
Check digit is a math calc used to verify the accuracy of the routing number
Common method of Foreign Check Clearing
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.
What are Small-value transfer systems ?
- Payment instructions to either debit or credit a deposit account.
- Typically batch-processed, value-dated electronic funds transfers between originating and receiving FIs.
- Can transfer more payment-related information than checks or wires.
- Use Originator and Receiver (not payor/payee)
