Chapter 4 - Payment Instruments and Systems Flashcards
Four Basic Elements in Payments Process
Payment Instructions
Payment Generation
Clearing
Settlement
Settlement vs. Finality
Settlement = funds have been credited
Finality =payment is no longer revocable
RTGS
Real-time gross settlement
Two Types of Individual Electronic Transfers
RTGS
RTP
Three broad trends in payment systems developments:
Move from paper to electronic and digital
Shortening of retail payment settlement cycles
Increased use of digital payment instruments
Is cash a high cost payment method?
Yes!
It costs a lot of infrastructure to support holding cash.
Alternative names for check payors
Drawers
Makers
What system do banks use to settle the net settlement due for check clearing?
RTGS
What does it mean when a check has been truncated?
MICR line is captured along with image of check
IRD (Checks)
Image Replacement Document (scanned check)
MICR
Magnetic Ink Character Recognition
What are batches of checks sent for clearing called?
Cash letters
US Check Clearing Process
- Check deposit
- Conversion to electronic image
- Clearing
- Check exchange
- Value subtracted from paying bank
- Paying bank review
On-We Check Clearing
Similar to On-Us clearing but for a group of banks that use the same third-party for check processing
Transit Checks
Checks to be drawn on other financial institutions
Trends for Settlement and Finality for Checks
Settlement occurs faster
Finality can still take weeks
Foreign checks are processed as ______ items?
Collection
Make take weeks to settle
Exceptions to Foreign Check Processing
US dollar checks drawn on Canadian banks with US MICR lines
Checks for negotiation
Check for Negotiation
Depository bank will advance funds to payee, with recourse to withdraw funds if funds fail to settle
Endpoint (Checks)
The location of the paying bank where final settlement occurs
ABA Routing Number
Ledger Cutoff vs. Deposit Deadline
Ledger Cutoff = deadline by which deposits must be made to hit the ledger balance
Deposit Deadline = deadline when an item must be ready for transit to quality for the availability stated in the availability schedule
Availability Proof of Deposit Method
Availability is assigned to each check as it is processed
Deposit Float
Deposited items that are listed on the ledger but not yet available
Not a regulatory term, but used for EAC
Collected Balances
Average ledger balance minus the deposit float
Not a regulatory term, but used for EAC