1. Module 6 – Payment Instruments Types of retail payment instruments Check clearing Giro processing Credit card processing Survey of use of retail payment instruments (from www.bis.org/publ/cpss63.htm) www.bis.org/publ/cpss63.htm Survey of electronic payment system developments (from www.bis.org/publ/cpss62.htm) www.bis.org/publ/cpss62.htm

2. Types of Retail Payment Instruments Cash - face-to-face, low value Cheques – face-to-face or remote – low or high value – requires identification/creditworthiness voucher Direct funds transfer – payer-initiated credit transfers (giro or electronic) – payee-initiated debit transfers (usually electronic) Credit cards – charge cards or revolving credit – usually used for non-recurring face-to-face payments – also used for pre-authorized payments, MOTO, Ecommerce payments over the internet, ATM cash advances – online payments verified immediately, fully electronic – offline payments verified when paper voucher enters clearing process Debit cards Other (money orders, wire transfers, traveller’s cheques)

3. AB A’s Bank (Paying Bank) B’s Bank (Collecting Bank) Clearing Department Clearing Department Clearing House 1. A presents check to B. 2. B lodges it. 3. Credit B’s account and forward check for clearing 4. Checks Exchanged. 5. Verify funds availability and debit A’s account. Check The check-clearing process

4. AB A’s Bank B’s Bank Clearing Department Clearing Department Clearing House 1. A initiates Giro to B. 4. Funds credited to B’s account. 3. Credits Exchanged. 2. A’s bank debits account and sends giro for clearing. Giro Payment by credit transfer or Giro Central Bank 5. Settlement.

5. Card Association Clearing/Settlement Card Association Authorization Card Issuing Bank Authorization Acquiring Bank Card HolderMerchant 1. Sign Voucher Sales Voucher 2a. Authorize 2c. Authorize2b. Authorize 3. Vouchers 4. Clearing Stages in a credit card payment.

6. Availability of instruments Currency –Issued by central banks –Distributed via bank branches, ATMs, cash-back on debit and credit card transactions –Cross-border arrangements such as Plus (VISA International) and Cirrus (MasterCard International/EuroPay) allow withdrawals in local currency by foreign travelers Cheque payments –Financial institutions and some non-financial institutions which have clearing arrangements with financial institutions –Drawn on deposit account, and in some countries on line-of-credit Direct funds transfer –Financial institutions, as well as postal giro systems in Japan and most European countries –Debit transfers, payer, maintains account with paying institution –Credit transfers through giro systems, payer can initiate transaction with inpayment at giro agent

7. Availability of instruments (continued) Credit card –Issued by financial institution, usually through affiliation to a credit card network –Cardholder must have a credit arrangement with institution –VISA and MasterCard are the largest card networks worldwide Debit cards –require users to have a deposit account with a financial institution that issues cards or acquires payments –Countries such as Belgium, Canada, France, Italy and the Netherlands have a single national shared EFTPOS –Other countries (notably the U.S.) have different regional and nation-wide EFTPOSs, some of which are interoperable –Some major EFTPOS networks have cross-border affiliations Money orders, travellers cheques, wire transfers –available from financial institutions in most countries –many countries allow non-financial institutions to issue them –in countries with postal giro systems, the post offices issues most of the money orders, usually against inpayments