Money-Payment Systems

Retail Payment Systems

Money is one of the most important and complicated forms of energy. Its substance is related to both energy and information.However, let us examine its different functions performed via the material forms of money - such like cash, coins, cheqs, etc. and which are at the center of attention in the physical-material world.
Modern day money-payment systems include:

retail payments, credit cards and wholesale payments.

At the retail level, most transactions use cash, i.e. notes and coins. However checks and plastic cards dominate in dollar volume because they typically involve more expensive purchases.

Cash Payments

Cash is the preferred method for small payments because it is the only one that involves no credit, and therefore no promises. Checks are a form of credit and involve fixed costs that are independent of the amount of the check. Thus checks are seldom used or accepted for very small payments.

Payments by Check

A check is an order to transfer funds from the payer's bank account to the payee's bank. Most small banks do not process checks themselves. Instead they send them either to a correspondent bank, with which they have an arrangement, or to the Fed which also provides that service. Both charge a fee. A check drawn on a bank outside the area of the local clearinghouse generally involves the use of the Fed's clearing facilities.

Float refers to checks in the process of clearing. When the payee deposits the check in his bank, he receives credit the same day for that amount. Until the check is processed through the clearing system, the payer continues to receive credit on his account. Thus float represents an interest-free short term loan to the payer. Credit cards offer a substantially longer float period. The benefit of float to credit card holders is one reason why debit cards have been relatively slow to catch on in the U.S.

Giro Payments

The problem of bad checks is avoided by the giro payment method of transferring ownership of bank deposits. With a check, the payer gives the payment order to the payee. The payee must present the check to either the payer's bank for cash or to his own bank for deposit which will then initiate the clearing process. With a giro payment, the payer sends the payment order directly to his own bank, which then makes payment to the recipient's bank. After the payment has been received, the payee is notified by his bank.

A giro payment cannot bounce because the payer's bank simply will not accept the order if there are insufficient funds to cover it. The giro is not a useful way to pay for unplanned purchases in a store. Its principal use is for regular periodic payments like taxes or utility bills. Paper giro payments are unknown in the U.S.

Plastic Cards

Plastic cards had their origin in store credit cards. Retailers would often extend credit to favored customers, allowing them to charge their purchases and settle up at the end of the month with a single payment. The retailer accepted the risk of default. As the number of customers who bought on credit increased, retailers issued identity cards which evolved into store credit cards.

Later, the financial system developed the third-party credit card, expanding the use of credit to a wider base. The retailer would receive immediate payment from the issuer, less a discount. The cards were accepted only at any retailers agreeing to the arrangement. The card holder would be sent a bill at the end of the month by the issuer for all of his purchases. Third-party cards did not generally offer the option of paying over time.

Banks entered this business with third-party cards of their own. However the cards were not widely acceptable because of the restrictions on interstate banking. The banks came up with a solution, the four-party card which involves two banks in each transaction, the cardholder's bank (the issuer of the card) and the retailer's bank.

Charge Cards

With a charge card, you are expected to pay upon receipt of a monthly statement. Nevertheless you do receive a loan up to the date of the payment. Most people write a check to pay off their card bill. The American Express Green Card is the predominant charge card.

Credit Cards

With a credit card, you can pay your charges in full or finance them up to the credit limit that the card issuer has offered you. As with a charge card you get a loan, but you can extend the term of the loan almost indefinitely so long as you make a minimum payment each month. The most widely used is the Citibank Visa card. Because credit cards now play such an important role in the retail economy, a more detailed explanation of how they work is provided in the next article.

Debit Cards

With a debit card, the payment comes right out of your checking account. The card is issued by the entity that holds your money on deposit, probably a bank, but possibly a money market fund. When you present your card, money is transferred from your account to the merchants account that day. The Check Card issued by Bank of America is a typical debit card.

Source:http://wfhummel.cnchost.com/retailpayments.html

Suppose you buy a TV and present a Visa card, bearing the logo of the issuer, say Citibank, in payment. You swipe your card through a card reader, which reads the data on the magnetic stripe and adds information that identifies the merchant and the dollar value of the purchase. This electronic message automatically goes via telephone line to a computer maintained by the merchant’s acquirer, also a member of the Visa association. That computer reads the message and determines that you used a Visa card. It calls up Visa’s computer, which checks with Citibank’s computer to verify that you have a credit balance sufficient to cover the purchase.

If you have enough credit, the Citibank computer will send back a message to the Visa computer authorizing the transaction. Visa relays the message back to the terminal at the store. The entire process takes just seconds, and finishes by printing out the credit charge receipt that you must sign. Since the transaction is captured and stored electronically, the receipt is used only to settle disputes that might arise for example due to a stolen card with a forged signature.

The merchant submits a request for payment to its acquirer, which in turn sends it to Visa’s computer. The Visa computer passes on the request to Citibank’s computer, which posts the transaction to your account with Citibank. Visa’s computer consolidates this transaction with all other Visa transactions that day and settles the accounts among banks.

The merchant receives about 2 percent less than the amount you paid for the TV. That 2 percent is called the merchant discount, and is paid to the acquirer. The acquirer keeps a portion for his services, and pays about 1.4 percent of the purchase amount to the issuer, in this case Citibank. That 1.4 percent is called the interchange fee which is set by Visa. American Express does not have an interchange fee because it is both the issuer and acquirer, and keeps the entire merchant discount.

Credit Card Associations

Visa and MasterCard are by far the largest payment card systems. Visa accounts for more than half of global purchases, with MasterCard ranking second and American Express third.

Surprisingly, neither Visa nor MasterCard earn profits. Both are for-profit corporations, yet they are operated on a break-even basis. They cover their costs with fees levied on their membership, which totals many thousands of banks. The associations have their own management and employees, but they are owned by the banks that issue their cards, and are supervised by boards of directors composed of representatives of those banks.

A bank can be a member of both associations, but may serve on the board of directors of only one or the other. The daily operations of the two associations are run by separate managements. The following rules apply to the Visa association, but the MasterCard association has similar rules.

The board of directors of an association is elected by the member banks, which are allocated votes based on the volume of various products they offer. The board appoints the management which hires the staff and is responsible for the following:

* Developing operating regulations

* Processing transactions and interchange payments between members.

* Developing system-wide innovations such as interchange technologies.

* Promoting the association brand through advertising.

* Coordinating other system wide matters, such as fraud control.

Individual members, besides being responsible for their own financial commitments, set card interest rates, fees, special features, and sign up card holders (as issuers) and merchants (as acquirers).

Issuers

Card issuers receive revenues from two sources: merchants who accept their cards and consumers who use their cards. Finance charges on credit card loans comprise over three-quarters of the revenues. By comparison, merchant discount fees comprise over half of the revenues on American Express charge cards. Issuers must properly manage a number of expenses, of which the cost of funds and bad debt charge-offs are the largest. Other expenses include labor, data processing, system development and maintenance, and new card solicitations.

Computerized credit scoring has increased issuers' ability to weed out potential deadbeats, but it remains hard to predict which cardholders will default. The delinquency rate on bankcard loans remains well above that on mortgages, auto loans, and personal loans.

Acquirers

Only members of the association can enter into contracts with merchants, although member banks can work with third-party firms to do so. Acquirers perform the following functions:

* Signing up merchants and managing the relationship

* Installing terminal equipment

* Providing authorization services when customers present their cards

* Keeping track of transactions and reporting the data to merchants

* Transferring funds to the merchant on a daily basis to cover card purchases, i.e. clearing and settlement

* Responding to merchant problems with card processing

Some acquiring banks conduct all aspects of merchant acquiring, from signing up the merchant to transaction processing and customer service. Other banks serve as the customer’s point of contact but outsource the processing functions to third parties. Still others serve only as the depository institution where clearing and settlement occurs, leaving the third party as the active member of the merchant relationship.

Wholesale Payment Systems

Fedwire

The Fedwire funds transfer system is a real-time gross settlement system in which about 8,500 depository institutions initiate transfers of funds that are immediate, final, and irrevocable when processed. Depository institutions that maintain a reserve or clearing account with a Federal Reserve Bank may use Fedwire to send payments to, or receive payments from, other account holders directly.

Depository institutions use Fedwire to handle large-value, time-critical payments, such as payments for the settlement of interbank purchases and sales of federal funds; the purchase, sale, and financing of securities transactions; the disbursement or repayment of loans; and the settlement of real estate transactions.

CHIPS

The Clearing House Interbank Payment System (CHIPS) is the electronic equivalent of payment by check. As of April 2008 this system linked 46 banks with branches in New York to a central computer, clearing and settling about 350,000 transactions per day with an average total value in excess of $2 trillion. Most payments over CHIPS are related to the foreign exchange and Eurodollar markets.

As an example, suppose a British bank needs to pay a French bank $100 million in U.S. dollars. The British bank executes the payment through its branch in New York if it has one, or through a New York bank with which it has a deposit. The payment is made over CHIPS to the New York branch of the French bank if it has one, or to a New York bank at which it has a deposit.

As with the check clearing process, payments are netted to minimize the amounts needed to settle. The CHIPS computer keeps track of each bank's net position relative to all other banks on the system. At 4:30 PM each day, the CHIPS computer sends each bank a summary of its payments for the day and its final net position. Each bank with a net debt must transfer funds to a special account at the Fed. At 6:00 PM, banks that are owed money receive payment out of the special account.

As with a checking account, there is a danger that a bank may not have sufficient funds to settle at the end of the day. If that happens, all banks to which it owes money would remain unpaid. Strict rules are imposed on the participating banks to minimize this possibility. If a bank does fail during the day, CHIPS has a loss sharing arrangement in which the other banks must cover the failed bank's debt in proportion to each bank's credit limit to the failed bank.

Automated Clearing Houses (ACHs)

Fedwire and CHIPS are on-line systems on which payments can be executed immediately. ACHs are a slower but less expensive method of electronic payment. Payroll payments are usually handled that way. The data is sent to an ACH, together with information from other banks. Payment instructions are passed on, and payments to and from the various banks are netted. Settlement of net positions is made over Fedwire. ACHs handle both credit transfers and debit transfers. Credit transfers are similar in nature to giro payments, e.g. direct deposits to your bank account. Debit transfers are similar in nature to checks, e.g. authorizing your insurance agency to take monthly payments from your bank deposit. In the U.S. most ACHs are operated by the Fed, although there are private operations too.

Ideas for reform

The recent movie The Secret demonstrated that energy can be attracted and can be be managed by the human mind, if a person realizes how The Law of Attraction works. However, reading about the Law of Attraction or even watching the movie is one thing. Understanding it is another. And proper application is a whole another thing entirely.

Even if you know the ancient secret of uniting the power of your thought and the energy of your emotion, it is still a great challenge to a newbie.

What a beginner does need is a dead simple set of practical tips that can be followed easily.

Is there such a solution?

Yes - a new life changing software called the Attractor Genie! It is meant precisely for this purpose. It helps cut the long learning curve, to develop "mental and spiritual" muscles and the discipline to remain conscious of your thoughts, feelings and desires?

With the Attractor Genie Software you can cut the Law of Attraction learning curve to just 7 minutes a day!

Find out all the details by clicking on the image above.

Share this thrilling experience with a couple of friends to reduce your bill!

Go to MONEY AND DEBT

Please help this site stay FREE

Custom Search this site