My Greeting to Functional people! My name is Piyush Srivastava, and I’m working as in functional/Automation for more than 5 years on various projects with respect to Banking and payment domain as a Senior Consultant and SME. Now I’m working in *Luxoft * where I got great chance to upskill myself in better way. I wanted to share some Banking concepts for the Functional people.
With the help of this article, I wanted to encourage you to start using this basic concept in your daily work or at least give it a try it will increase your Banking and payment domain concepts for sure once you start using and looking deep dive with this basic as I will keep adding my knowledge with this type of post which I gathered with my experience in this domain.
Payments
Payment is the mechanism of sending or giving money in a currency either in cash, cheque or electronically for a goods or services or fees or donation etc. Electronic payments are done through the banking channels from account of client A to account of client B of the same bank or different bank in the same country or foreign country in the same currency or different currency!
Payments done by the corporates using their corporate internet banking channels are basically classified for corporate payments. Payments done by the retails/individuals using their internet
banking channels are basically classified for retail payments.
This method is also known as EFT - Electronic Fund Transfer.
Payment Systems – A definition
“A set of instruments, procedures and rules for the transfer of funds among system participants”.
- (Committee on Payment and Settlement Systems of the BIS, Basle) The above definition describes the various components which constitute a payment system.
Instruments : Wallet payments, UPI payments, Cheque, Credit Cards, Debit Cards, E-money, Demand Drafts, Banker Cheque, Pay Order, Mail Transfer, Telegraphic Transfer, Traveler’s cheque
etc. These instruments instruct the bank on how and where the funds are to be transferred.
The way or the mode in which this transfer is made is determined by the instrument of payment used and the channel through which the parties choose to make the payment. The transactions thus can be categorized into:
● Cash transactions
● Non-cash transactions
For cash payments the payment is finalized at the actual time of payment, when the instrument of payment, that is to say, banknotes and coins, are exchanged. Here we have no intermediaries.
Money transfers, card payments through debit and credit cards, cheques and bank money orders are examples of payment instruments that initiate transfer of funds between two or more accounts
held by one or more intermediaries, usually banks. They are all therefore said to be account based payment instruments. Such payment instruments can often be used in and via different channels.
The payment channel indicates the route chosen to send the information about the transaction.
For example, a bank card can be used for payments over the counter in the shop, on the internet or even by telephone.
Credit-based and Debit-based Payment Instruments
The initiation of a payment is the first, and in many ways the most visible, step in the whole process of transferring funds between the bank accounts of different customers. The selection of
payment instrument for a particular transaction will depend on the answers to a range of questions:
● What is the cost to the customer of using particular instruments?
● Is the transaction ‘face to face’ (e.g. in a shop) or a ‘remote’ transaction?
● Is it a regular (monthly, quarterly) transaction or a ‘one-off’ transaction?
● Is it urgent (e.g. requiring same-day availability of funds to the receiver) or non- urgent?
● Is it a high-value or low-value payment?
● Is it a local or long-distance payment?
● Is it domestic or cross-border?
● Is the privacy of the transaction data maintained?
● To what extent the processing is secure and reliable using a particular instrument?
Credit based instrument:
When a credit-based instrument is used (for example, a payment order), the sender gives the instruction directly to his own bank for onward transmission to the receiver’s bank.
Debit based instrument:
When a debit-based instrument is used (such as a cheque), the sender first of all gives the instruction to the receiver himself, and the receiver then passes the instruction to his bank, which will in turn pass it to the sender’s bank.
Categories of Payment Instruments:
● Paper based payment instruments, Cash, Negotiable instruments
● Card based instruments.
● Electronic funds transfer – debit transfer and credit transfer
Faster Payment
The emphasis on data and messaging capabilities, in addition to real-time settlement, has positioned the U.S. RTP system is the most advanced system in the world. Real-time payment systems offer significant benefits to all stakeholders in the ecosystem.
To realize the advantages and tremendous opportunities that remain unlocked in the U.S., banks are urged to participate in the shift away from legacy systems early.
RTP offers ubiquity, speed of payment, extensive data exchange, real-time messaging, and 24/7/365 availability. With such capabilities, real-time payments can help improve cash flow, operational efficiencies, customer engagement, data transparency and accuracy. Unlike other markets, the real-time payment system in the U.S. has a strong emphasis on data and messaging.
With the adoption of ISO 20022, there are several message types supported. ISO 20022 is an international framework that enables a real-time, common language for global financial communications across debtors, creditors, and their financial institutions.
While it’s easy to see speed as a key benefit, the richer value of RTP lies in its robust data and messaging capabilities that far exceed earlier payment methods. When real-time payments are made, there is so much more data that can be attached to the transactions, including remittance data. By coupling data with the transaction, there is an abundance of data and insights, which can help to improve business performance, enhance operational efficiencies, monitor fraud and manage risks. With such robust data and messaging functionality, banks are not only able to offer their customers a real time settlement option, but are able to innovate around customer pain points and inefficiencies.
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