Chapter 4 - Payment Instruments and Systems

Question 1

Payment

Answer 1

transfer of monetary value from one party to another whether in cash or non-cash form

cash payment is effected with transfer of notes and /or coin from payer to payee

Question 2

Payor

Answer 2

party sending the payment

payor’s account is debited for the value of the transaction

Question 3

Payor’s Bank

Answer 3

processes the value transfer on the payor’s behalf

Question 4

Payee / Beneficiary

Answer 4

receiver of the payment

payee’s account is credited the value of the transaction

Question 5

Payee’s Bank

Answer 5

processes the transaction on behalf of the payee and generally holds the value in an account

Question 6

Other Payment Participants

Answer 6

(1) central banks e.g. the Fed
(2) commercial entities e.g. CHIPS, Visa
(3) transaction facilitators that transmit info but do NOT provide settlement e.g. SWIFT
(4) payment systems that transmit info and provide funds settlement e.g. Fedwire and / or ACH Network
(5) third party processors e.g. payroll processors, check printers, and systems providers

Question 7

Four Elements in the payment process

Answer 7

(1) payment instructions
(2) payment generation
(3) clearing
(4) settlement

Question 8

Payment Instruction

Answer 8

instructions from the payor telling the paying bank to transfer value to the payee through the receiving bank

consists of info in an electronic transfer, payment card transaction, or a check

Question 9

Payment Generation

Answer 9

occurs when the payment instructions are entered into the payment system

Question 10

Clearing

Answer 10

process in which banks use te payment info to transfer money between themselves on behalf of the payor and the payee

involves the transfer and confirmation of info between payor’s bank and payee’s bank

Question 11

Settlement

Answer 11

occurs when the payee’s bank account is credited and the payor’s bank account is charged

settlement refers to the movement of funds from payor’s account to payee’s account aka when the payee can use the money

Question 12

Finality

Answer 12

point in time at which the funds cannot be taken back or retracted by the payor or payor’s bank

settlement transitions to finality when a payment is unconditional and irrevocable

finality is determined by the transfer system’s rules and applicable law

Question 13

Real Time Gross Settlement Systems (RTGS)

Answer 13

payment systems that offer immediate and irrevocable value (aka wire transfer systems)

Question 14

Correspondent accounts

Answer 14

two banks can have accounts with each other for the purpose of clearing and settling payments

Question 15

Check

Answer 15

written instruction form the payor to the payor’s bank to make a payment to the named payee or the bearer (unnamed payee)

Question 16

Electronic Funds Transfers (EFT)

Answer 16

payments that are cleared and settled electronically
categorized as individual transfer or batch payments

Question 17

Wire transfers

Answer 17

one of two forms of individual transfer EFTs

processed individually and in real time with immediate and irrevocable settlement

Question 18

Instant / real-time payments

Answer 18

one of two forms of individual transfer EFTs

lower cost alternative to wires, generally irrevocable, reduces settlement risk associated with batch payments

Question 19

Low-value electronic batch payments

Answer 19

aka ACH payments

value-dated and processed in batches, and typically takes one to two days to settle

may be recalled under certain conditions

Question 20

Card payments

Answer 20

settle through on of the large card-processing networks including Visa, Mastercard, UnionPay, Amex

may also settle through an ATM or POS system

Question 21

Digital payments

Answer 21

include digital or mobile wallets, mobile (phone) payments, person-to-person payments and virtual currencies

(1) digital wallets - use smartphones with near field communication (NFC) chips or bar code
(2) mobile payments allow user to set up account with a cell phone provider and transfer funds via text using a PIN for security - does not require smartphone or bank account, making it a popular method in developing and underbanked countries
(3) P2P payments can be initiated by the payor through a bank or nonbank intermediary (e.g. PayPal)
(4) virtual currencies e.g. cryptocurrencies have limited acceptance and are not seen as stable stores of value

Question 22

Business-to-Business (B2B)

Answer 22

one business to another, typically for vendor payments

smallest portion of payment volume but represent largest portion of payment value

primarily electronic payments or via card

Question 23

Business-to-Consumer (B2C)

Answer 23

business to consumers or individuals e.g. payroll

Question 24

Consumer-to-Business (C2B)

Answer 24

consumer to business, typically for purchases and bill payments

majority are either card payments at point of sale or electronic payments made through a bank

Question 25

Consumer-to-Consumer (C2C)

Answer 25

person-to-person or peer-to-peer (P2P)
move funds from one individual to another e.g. income payments from babysitting and personal payments such as gifts

Question 26

Consumer-to-Government (C2G)

Answer 26

taxes and other government fees

Question 27

Business-to-Government (B2G)

Answer 27

taxes, fines and other government fees

Question 28

Government-to-Business (G2B)

Answer 28

usually for vendor payments

Question 29

Government-to-Consumer (G2B)

Answer 29

retirement, social security, tax refunds, welfare payments

majority are electronic or card-based

Question 30

Payment Characteristics that affect payment method used

Answer 30

(1) urgency and time sensitivity: processing time and when payee will receive value vary by selected instrument and can affect the method chosen

(2) dollar value of payment: max value thresholds for certain payment systems and require payment above that value to be processed via a systemically important EFT system

(3) push vs. pull payments: push are initiated by the payor (e.g. checks, ACH credits, wires) pull are initiated by the payee using authority granted by the payor (one time or recurring)

Question 31

Cash payment

Answer 31

involves currency and coin and are used to settle small transactions

cash payments are self settling, the physical transfer of cash is the ““clearing network”” that leads to final settlement

many types of companies continue to receive a portion of receipts in cash

cash represents a security risk and must be safeguarded at collection point until it can be transported to a bank for deposit, making it a high-cost payment method for most companies

Question 32

Check payment

Answer 32

overall check volume is declining but it still remains an important method for B2B payments in the US

funds are usually available to depositor in 1-2 days but finality can take several weeks or longer due to stop payments and overdraft returns

Question 33

US Check Clearing Process

Answer 33

(1) Check Deposit: payee deposits the check at payee’s bank with the physical check or with image of check via remote capture
(2) Convert to Electronic Image: if not done so already, bank of first deposit images the check and captures the MICR info - check in snow considered truncated
(3) Clearing: checks / images are sorted and sent through a clearing channel as cash letters which includes info such as depositing institution routing #, total dollar amount of deposit, and # of items deposited
(4) Check Exchange: historically settlement occurs after presentment / delivery of physical checks to the paying bank but with check truncation, this bow occurs with exchange of check images
(5) Value Subtracted: value is subtracted from paying bank’s account at time of presentment through central bank, correspondent bank, or other clearing channel and paying bank debits the amount from payor’s account
(6) Paying Bank Review: paying bank has a limited period of time to review check/image and decide to either authorize or refuse the payment (return to bank of first deposit)
- US: banks have ~36 hours; midnight of the business day following the day of receipt of a check
- UK: deadline is business day after check was deposited

Question 34

On-Us Check Clearing

Answer 34

payee deposits check in an account at the same bank on which the check is drawn

bank simultaneously debits payor and credits payee
typically same day or immediate availability and lower processing fees

Question 35

On-We Check Clearing

Answer 35

similar to on-us checks but involves a group of banks that use the same third party vendor for check processing, since checks are processed at the same time and place, they are treated as on-us items with same day or immediate availability

Question 36

Transit Check Clearing

Answer 36

deposited checks are drawn on another bank and require more processing than on-us or on-we items

bank of first deposit must sort checks into cash letters and transmit them to the paying bank for final settlement

Question 37

Foreign Checks

Answer 37

checks deposited at a bank in one country that are drawn on a bank in another country, can be drawn in foreign currency

normally treated as collection items and processed outside of the normal check clearing systems

depository bank will send check to a correspondent bank in the country where the check is payable

correspondent bank will process the check locally and remit proceeds to depository bank

are subject to both FX costs and extra processing fees so bank of first deposit will not credit the payee’s account until it receives and converts proceeds of the check into its base currency

results in days or weeks for clearing and amount is usually less than the face amount of the check”

Question 38

Ledger Cutoff Time

Answer 38

time of day when a deposit must be received in order for the amount to be posted to the ledger balance of the payee’s account

items deposited after the ledger cutoff are considered to be received by the bank on the following banking day

ledger balances are granted provisional credit based on anticipated settlement and finality of the item

Question 39

Deposit Deadline

Answer 39

time within the banking day when an item must be ready for transit at the depository bank’s processing center to qualify for the availability stated in the availability schedule

if deposit deadline is missed, availability is delayed

Question 40

Availability Schedule

Answer 40

specifies when a bank grants available credit for deposited items or includes them in collected balances

banks set availability schedules based on processing schedules, capabilities, and pricing decisions

availability is assigned using proof-of-deposit method, where availability is assigned to each check as it is processed and is determined based on time/day of deposit and where paying bank is located

availability schedule impacts float balances, so availability schedules offers is typically part of pricing decision

Question 41

Ledger Balance

Answer 41

reflects all entries to a bank account regardless of if deposited items have been collected

important for account purposes

NOT used for fund availability or bank compensation
negative ledger balance results in an overdraft and is subject to OD charges

Question 42

Available Balance

Answer 42

amount of funds available for withdrawal from an account

may also include overdraft lines of credit

Question 43

Deposit Float

Answer 43

deposited items that are listed on the ledger but not available for withdrawal

Question 44

Collected Balances

Answer 44

ledger balance minus deposit float

Question 45

Intraday Overdrafts

Answer 45

occurs when banks permit companies to make payments in excess of the available balance and overdraft positions are usually eliminated by funds that arrive later in the day

Question 46

RDC / Image Capture Impact of Availability

Answer 46

check items that are preprocessed using RDC may receive faster availability, later cutoff, later deposit deadline, and/or lower fees because the customer is performing a labor intensive task for the bank

Question 47

Check Deposit - Reject Items

Answer 47

check items that are rejected by ta bank’s automated check processing equipment due to physical defects in the MICR line

or MICR line non-compliance with banking industry specifications

items will need to be repaired and reprocessed and will likely miss critical deposit deadlines resulting in delays in availability and additional processing fees”

Question 48

As-of Adjustments

Answer 48

represents the different between the time the check takes to clear and the initial availability granted by the bank

banks may make as-of adjustments if a check takes longer to clear than expected (e.g. granted one-day availability but it took two days to clear)

additional day(s) of float is added when calculating collected balances which reduces available balances and may increase bank fees

Question 49

Value Dating

Answer 49

practice of debiting or crediting a transaction on some date other than the processing date

Question 50

Cashier’s Check

Answer 50

aka official bank check

check is drawn on a bank’s funds

Question 51

Certified Check

Answer 51

drawn on a depositor’s account, funds are withdrawn at the time of certification to assure payment with a certification / guarantee by the bank

Question 52

Government Warrants

Answer 52

an order to pay that instructs a treasurer to pay the warrant holder on demand or after a maturity date

deposited warrants are routed to a collecting bank that processes them as collection items

collecting bank presents the warrants to the govt entity’s treasury dept for payment each business day

typically used for payroll, A/P to vendors, tax refunds, or payment of unclaimed monies

Question 53

Money Order

Answer 53

prepaid instrument issued by banks or third parties (e.g. post office, convenience stores, check cashing agencies)

purchaser of the instrument is the payor and money order is the obligation of the issuer

Question 54

Payable-through-draft (PTD)

Answer 54

resembles a check and is drawn against the payor instead of the bank

handled like a check through the clearing process

responsibility to pay lies with the payor

typically used when companies want to preserve the right to review the item prior to final payment

e.g. insurance companies often use PTD’s for claim reimbursement to ensure opportunity to verify signatures and endorsements prior to honoring the item

Question 55

Pre-authorized debits (aka remotely created checks)

Answer 55

used to draw or draft against a payor’s account

check is unsigned and the payee initiates the transaction, not the payor

typically created for one-time payment

since they do not bear a signature and can be created without the knowledge of the payor, RCCs are vulnerable to fraud and banks often refuse to accept them

Question 56

Sight Draft

Answer 56

usually presented in combination with other documents to verify the terms of a transaction have been met

if all documentation is in order draft is payable upon presentment i.e. on sight

typically used to support international trade

Question 57

Time Draft

Answer 57

same as a sight draft but is not payable until a specific future date

typically used for transactions that call for delayed payment

primarily used to support international trade

Question 58

Gross Settlement

Answer 58

occurs when each transaction results in a separate value transfer between the payor and payee

settlement occurs immediately through an RTS system

payments are considered final when processed

Question 59

Net Settlement

Answer 59

when many transactions are combined and then sorted by sending and receiving banks

net amount either owed by or owed to each bank is determined and only the net amount is actually transferred

at this point - electronic credit transaction are considered final and electronic debits may be reversible under certain circumstances

Question 60

Systemically Important EFT Systems (RTGS Systems)

Answer 60

most countries have at least one systemically important payment system which is used at a minimum for interbank payments and are usually used by banks to process urgent or time-sensitive client payments

most systemically important systems settle payments individually and in real time using RTGS systems

RTGS systems clear and settle individual transactions continuously throughout the system’s processing day

RTGS systems are used by companies to facilitate major transactions that are time sensitive and where irrevocable receipt is required

Question 61

Finality for RTGS

Answer 61

Payment is final and irrevocable when either
(1) RTGS processor credits the amount to the receiving bank’s account OR
(2) RTGS processor sends notice to receiving bank
whichever is earlier

Question 62

TARGET2

Answer 62

is based on a common operating platform developed and operated by Banca Italia, Banque de France, and Deutsche Bundesbank on behalf of the Eurosystem

became operational in Nov, 2007 and was introduced to support eurozone monetary policy and facilitate cross border payments in euros

Question 63

Clearing House Interbank Payment System (CHIPS)

Answer 63

US-based privately owned wire transfer system, is an RTGS system that provides finality

is one of the main EFT systems for processing international USD funds transfer made among international banks in the US

to access the CHIPS network, a bank must have US presence

Question 64

EURO1

Answer 64

a privately owned same day net settlement system that settles its transactions via TARGET2

settles payments with high priority, mostly within 30 minutes

Question 65

Low-Value Transfer Systems (e.g. ACH)

Answer 65

used for the exchange of non-system critical payment instructions between banks

can transfer more payment-related info than can be transmitted via paper instruments or wire transfers
allow transactions to be originated as either credits or debits

• ACH credits are originated by the payor
• ACH debits are originated by the payee

Question 66

ACH Operators in the US (2)

Answer 66

Fed processes most of the ACH transactions in the US and EPN (private operator) processes the rest

Question 67

NACHA

Answer 67

is a trade organization responsible for managing the development, administration, and governance of the US ACH system

Question 68

Instant / Real Time Systems

Answer 68

(1) UK: Faster Payments, since 2008 with max transaction size of 250k GBP
(2) SEPA: Instant Credit Transfer, since Nov. 2017, settles within 10 seconds, max of 100k EUR
(3) US: CHIPS - RTP, since 2017 with max of 100k USD
(4) US: Fed - FedNow, since 2023, 24x7x365 payment settlement system
(5) Singapore: FAST in 2014 and PayNow in 2017, both allow up to 200k SGD

Question 69

SEPA

Answer 69

ensures that electronic euro-payments within the SEPA region are handled in a standardized and inexpensive manner

cross-border payments within the SEPA boundaries are treated as if they were in country rather than cross border payments

Question 70

Cross Border ACH (IAT)

Answer 70

accomplished through the use of “gateway” banks or service providers that will receive transactions in one country and then forward them to the ACH system of another country

Question 71

FedGlobal ACH Payments

Answer 71

Provided by the Fed and allows for cross border ACH transactions to over 30 countries

standard option is account-to-account transfer - distributes cross border payments between deposit accounts

account-to-receiver option allows fund from accounts at a US bank be retrieved by any receiver either at a participating bank location or at a trusted third party provider in certain receiving countries

Question 72

FedGlobal Transaction Currency Options

Answer 72

(1) fixed-to-variable: USD are converted to destination currency based on exchange rate, settlement occurs in USD between US bank and Fed bank

(2) fixed-to-fixed USD to USD: transferred and received in USD, settlement occurs in USD between US bank and Fed bank

(3) fixed-to-fixed FX to FX: transferred and received in foreign currency, FX rate and settlement managed and processed by US bank and foreign gateway operators via their foreign correspondent banks

Question 73

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Answer 73

is an industry owned, cooperative, interbank telecomm network that enables banks, nonbank financial institutions and some corporates to send authenticated, electronic messages in standard formats

contains payment related information but do not actually transfer value

access options include:
(1) direct corporate access via dedicated connection
(2) direct corporate access via online / web-based
(3) indirect access via service bureau or through bank

Question 74

SWIFT global payments innovation (SWIFT gpi)

Answer 74

improves the speed and traceability of cross border electronic funds transfers

provides transparency for deductions, permits up to 140 characters of remittance info

stop-and-recall option to return tracked payment to originating bank

and initiator generated end-to-end transaction reference # for tracking of payment”

Question 75

Card Types

Answer 75

(1) credit card - issued against a line of credit
(2) charge card - special type of credit card where outstanding balance must be paid off each month
(3) debit card - issued against a deposit account belonging to the cardholder, also called EFTPOS - EFT at point of sale
(4) prepaid / stored value card - preloaded with value and will only be accepted if sufficient value remains on the card
(5) virtual card - digital card with features of credit, charge, debit, or prepaid card

Question 76

Purchasing Card

Answer 76

aka procurement cards are used by business for the purchase of supplies, inventory, equipment, etc.
Benefits:

(1) reduces / eliminates time consuming labor intensive paper based process
(2) reduce / eliminate need use of petty cash in an organization
(3) earn rebate based on charge volume
(4) delay payment until end of billing cycle
(5) procure goods and services quickly without complicated PO process

Question 77

T&E Card

Answer 77

used by businesses for employee travel

Question 78

Fleet Card

Answer 78

designed for expenditures related to trucks and cars such as fuel and repairs

entitles users to fuel discounts and capture added info such as vehicle mileage and location

Question 79

Department Card

Answer 79

unnamed card for general use by a department; linked to department instead of an individual

Question 80

Single-Use Card

Answer 80

generate single use / disposable card numbers
can be used for T&E and / or AP and vendor spend

Question 81

Stored-Value / Prepaid Card

Answer 81

can be branded open-loop cards or private label closed loop cards

can either reloadable or non-reloadable
e.g. gift cards, payroll cards, FSA/HAS cards

Question 82

Credit Card Transaction Process

Answer 82

(1) Authorization: (a) card presented to merchant for purchase (b) merchant submits authorization request via gateway (c) issuing bank reviews and if approved, places hold on credit limit (d) authorization response routed back and presented via gateway
(2) Clearing: (a) card transaction si submitted by merchant to merchant acquirer (b) acquirer route info to issuing bank (c) issuing bank receives info and converts hold into a charge on customer’s card
(3) Settlement: funds are transferred from issuing bank to the merchant via the merchant acquirer, settlement typically occurs the next day following submission of the clearing transaction to the network operator; any FX conversion is handled as part of settlement process

Question 83

Merchant Gross Settlement

Answer 83

merchant receives full transaction value and is periodically invoiced for amount of fees owed to respective parties

Question 84

Merchant Net Settlement

Answer 84

merchant receives transaction value minus the fees

Question 85

Merchant Fees

Answer 85

includes (1) interchange due to issuing bank (2) assessment / network fee due to network operator e.g. Visa / MC (3) transaction fees due to merchant acquirer

Question 86

Payment Card Industry Data Security Standard (PCI DSS)

Answer 86

a worldwide info security standard defined by the Payment Card Industry Security Standards Council
created to help organizations that process card payments prevent card fraud by increasing controls on the data they hold and exchange
failure to comply with standards or breach of security can result in substantial fines and possible termination of acceptance of credit cards

Question 87

Card Authorization

Answer 87

(1) signature based: customer authorizes the credit / debit transaction by signing receipt at checkout
(2) PIN-based: facilitates consumer authorization and authentication through entry of a PIN at the POS terminal

Question 88

Smart Cards (EMV Chip Cards)

Answer 88

smart cards include a computer chip that stores info for security / transaction processing

these EMV compliant cards also have a magnetic stripe in addition to the chip

EMV chip transactions are more secure than magnetic stripe transactions as criminals can copy the magnetic stripe data and produce counterfeit cards

EMV chip has dynamic authentication that reduces the possibility of fraud

liability for fraud has shifted to merchants if they do not support chip technology or to issuers if they have not issued a smart card to the user

if a chip card is used at POS but is not processed via EMV (e.g. used magnetic stripe) merchant will not be able to dispute a charge back”

Question 89

Interchange

Answer 89

largest portion of overall merchant gees, and is paid to the issuing bank for each transaction

fee is intended to cover issuing banks costs to issue cards and process card transactions

interchange varies by acquisition method and card type

(1) acquisition method: interchange is lower for card present transactions where cardholder authorizes the transaction via PIN due to lower risk of fraud / chargebacks and higher for card not present transactions (e.g. online, phone, mail order) where there’s an increased risk of fraud or error

(2) card type can refer to standard vs. reward card and / or credit vs debit card - interchange is typically higher for reward cards and higher for credit cards since regulations cap debit card interchange to ~$0.22 per transaction

Question 90

Assessment Fee

Answer 90

calculated as a percentage of the transaction amount and are set by the network operators based on method of acceptance and type of industry

fee is intended to reimburse the network operators for their services and for brand management

Question 91

Processor / Transaction Fee

Answer 91

are set by the individual card processor or merchant acquirer and fees are charged to process the transaction on the merchant’s behalf and is usually based on expected transaction volume

this is the only portion of merchant fees that is negotiable

Question 92

Electronic Fund Transfer Act (EFTA) 1978

Answer 92

defines the rights and responsibilities of customers using all types EFT services except for wires

limits customer liability for unauthorized bank transactions involving ATMs and POS terminals provided that the customer notifies the bank / institution that issued the card

Question 93

Depository Institutions Deregulation and Monetary Control Act (DIDMCA) 1980

Answer 93

(1) requires deposit taking institutions to hold reserves at the Fed

(2) makes Fed services (e.g. discount window, check clearing) available to all deposit-taking institutions

(3) mandates that the Fed reduce / price payment system float and reprice previously free Fed services to be in line with the standards of a tax-paying vendor

Question 94

Electronic Signatures in Global and National Commerce Act (E-Sign Act) 2000

Answer 94

grants digital signatures the same legal status as handwritten ink signatures

establishes the legal certainty of e-commerce transactions

provides a measure of confidence around the enforceability of electronic transactions

Question 95

Check Clearing for the 21st Century Act (Check 21) 2003

Answer 95

provides the basis for electronic clearing of checks by allowing an image to substitute for the original check document in the clearing process

led to faster clearing of checks and improved efficiency of the payment system

Question 96

Federal Reserve - Reg E

Answer 96

implements provisions of the Electronic Funds Transfer Act (EFTA)

establishes guidelines for the documentation of electronic transfers

Question 97

Federal Reserve - Reg J

Answer 97

implements check collection and settlement provision of the Federal Reserve Act of 1913

establishes procedures, duties and responsibilities for check collection and settlement through the Fed

Question 98

Federal Reserve - Reg Z

Answer 98

for treasury professions, primary impact of reg Z is related to credit cards offered to their customers as it implements the Credit Card Accountability and Disclosure Act of 2009 (Credit CARD Act)

(1) prohibits increase credit card rates during the first year after account opening and prohibits increase to rates that apply to existing credit balances

(2) prohibit creditors from issuing cards to anyone under 21 unless there is a parent or cosigner

(3) Requires creditors to get consent from consumer before charging fees for transactions that exceed the credit limit

(4) limits the high fees associated with sub prime credit cards

(5) bans creditors from using two-cycle billing to impose creidt charges

(6) prohibits creditors from allocating payment in ways that maximize interest charge”

Question 99

Federal Reserve - Reg CC

Answer 99

implements provisions of the Expedited Funds Availability Act of 1987

establishes rules designed to speed the collection and return of checks and mandates banks to return unpaid checks expeditiously

imposes the same procedures to payable-through-drafts (PTD)

Question 100

Federal Reserve - Reg II

Answer 100

implements provisions of the Durbin Amendment to the Dodd-Frank Act of 2010

provision limit debit card interchange fees and increases competition in payment processing

Question 101

UCC - Article 3: Negotiable Instruments

Answer 101

prevents inadvertent accord and satisfaction for paper instruments (e.g. unauthorized signatures on checks) if the payee discovers the error and returns the payment to the payor within 90 days

clarifies that a bank’s failure to examine a forged signature is not a failure to exercise ordinary care if it does not violate bank procedures and if bank procedures do not vary from general banking practices unreasonably

bank customer may be liable if they do not exercise ordinary care related to check issuance and do not notify the bank of any potential discrepancies in a timely manner

Question 102

UCC - Article 4A: Funds Transfer

Answer 102

outlines the risk, rights and obligations of parties in electronic funds transfers

(1) security procedures: bank must make security procedures available to customer and bank and customer must agree that the procedures are commercially reasonable for verifying payment (e.g. PIN, callback, encryption)

(2) consequential damages: banks are generally NOT responsible for consequential damages (i.e. losses from an action or error made by the bank beyond the actual loss) but bank is still liable for any interest losses from incorrectly executing payment order.

Bank is only liable for consequential damages when it agrees to assume this liability in a written agreement with the customer

Question 103

EU Payment Services Directives - PSD1

Answer 103

adopted in 2007

is the legislative framework for SEPA focused on two primary concepts

(1) create standard credit and debit payment schemes
(2) create a common payment card framework

Question 104

EU Payment Services Directives - PSD2

Answer 104

applied since Jan. 2018 in response to growth in mobile / internet payments

includes rules that limit interchange fees on consumer credit and debit card transactions and prohibit the use of surcharging on these transactions

is also the legal basis for open banking in the EU - allows FSP to register as account info service providers (AISPs) or payment initiation service providers (PISPs)

• AISPs are entitled to receive customer account info to provide account aggregation, price comparison, and similar info collation services
• PISPs are entitled to connect to a customer’s bank account to initiate payment on behalf of that customer”