Payment Instruments And Systems Flashcards
How are payments made?
In cash
By cashless payment instruments
Who are the payment service providers?
Credit institutions
Payment institutions
Other institutions
What is PSP’s purpose?
They allow their users to transfer funds between accounts.
What are the payment instruments?
Credit transfer Direct debit Payment card E-money Cheque Bill of exchange Promissory note
What is Credit Transfer?
A payment order initiated by the payer to its bank requesting that an amount of funds be deposited in a payee’s account.
What is direct debit?
A pre-authorised payment order initiated by the payee on the payer’s bank account. It is used to collect receivables or pay taxes.
What is a payment card?
A physical device or virtual instrument used to perform payment transactions.
What is a payment card used for?
- to make payments to merchants that accept cards
- to withdraw money from an ATM
- to transfer funds between accounts
What are international card schemes?
International card schemes (VISA, Mastercard) are used for transactions outside the card’s home country.
Types of Payment Cards by usage
Credit card (allows drawing of funds up to an approved credit limit) Debit card (allows drawing of funds up to the amount of money that exists in the account) Debit card with an overdraft (allows drawing of funds up to an overdraft at which point negative balance is presented) Prepaid card (a card with a pre-loaded amount of funds, such as a gift card used for specific payments)
Types of payment card by issuer
Bank cards (issued by banks) Store card (issued by retailers, gift cards, discount cards) Co-issued cards (issued by retailers in collaboration with banks)
Types of payment cards by technology
Card with a magnetic stripe
Card with a microprocessor
Dual card (with both)
Types of cards by the payment time/area
Pay before: prepaid cards
Pay now: debit cards
Pay later: credit cards
Domestic cards
International cards
What are the electronic payment instruments?
Physical card Virtual card (used for online transactions) Internet banking Home banking Mobile banking
What is e-money
E-money is fiat money in the virtual space, used to facilitate online transactions. It can be exchanged for physical money.
What are the debit payment instruments?
Cheque
Bill of exchange
Promissory note
What is the cheque?
The cheque is a document through which the user has the right to request a certain amount of funds from the bank if the user has the required funds in the account when he presents the document.
What is the bill of exchange?
It is a document through which the issuer gives an order to the payer to pay a payee at maturity.
What is a promissory note?
A document through which the issuer undertakes to pay a payee at maturity.
What is a letter of credit?
A contractual agreement through which a bank allows another bank to make payments to a beneficiary.
What is a letter of guarantee?
It is a document through which a bank agrees to pay one of its customers’ debt on behalf of the customer.
What is a payment system?
A set of instruments and procedures used for the transfer of funds among the members of the system.
What are the components of a payment system?
Real Time Gross Settlement (settles large value payments on a 1 to 1 basis)
Automated clearing house (settles low value high volume (retail) payments
Securities settlement system (settles payments with securities)
What is TARGET 2?
It is a real time gross settlement system owned by the Eurosystem.
Usages:
-monetary policy operations
-interbank transfers
What is TARGET Instant Payment System?
An extension of TARGET 2 which allows PSP’s to transfer funds to their clients nonstop.
What is Euro Banking Association Clearing?
A private owned clearing service. It offers both high and low value clearing services.
What is EURO1?
A privately owned real time gross settlement system.
What is STEP1?
A privately owned payment system complementary to EURO1. It facilitates payments to banks outside EURO1. Banks in STEP 1 have full EURO1 benefits.
What is the Continuous Linked Settlement system?
An international clearing and settlement system for cross-border foreign exchange transactions.
Introduced in 2002.
What is the Fedwire?
A real time gross settlement system provided by the Federal Reserve Banks to make high-value time-sensitive payments.
What is STEP2?
The Pan-European clearing house used for payments smaller than 50,000 Euro.
What is SEPA?
SEPA is the single european payment area. It enables customers to make non-cash euro payments to any beneficiary located in the euro area.
What are SEPA’s objectives?
- to create a single domestic market
- to eliminate the differences between domestic and cross-border payments in euro
- to bring economic opportunities
What is the Romanian payment system composed of?
Romanian Electronic Gross Interbank Settlement (RTGS)
the System for Electronic Net Settlement (Automated Clearing House)
TARGET-2 Romania
SaFIR and RoClear are two Romanian security settlement systems.