Payment System Report

7/28/2019 Payment System Report

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Group 4


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A payment system consists of a set of instruments, banking

procedures and, typically, interbank funds transfer systems that ensurethe circulation of money

In simple terms, money is regarded as cash

(i.e., notes and coins issued by the government or central bank) or claims

against credit institutions in the form of deposits. The use of bankdepositsto make payments has become an important medium in most developedcountries and to make a payment, the payer must issue an instruction inthe form of a paper-based instrument (e.g. a check) or an electronicinstruction (e.g. using a credit or plastic card).


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The effectiveness of payment activities is fullydependent on thearrangements that facilitate fund transfers

between members and it is

through these arrangements that constitute apayment system. PaymentSystems consist therefore of networks that link

the members with existing

rules and procedures for the use of thisinfrastructure. A Payment Systemnormally requires the following:


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Standard methods of transmitting paymentmessages between

members

Agreed means of settling claims within the

members/participants (normally through the depositsof themembers/participants with the central bank)

Common operating procedures and rules(admission, fees,operating hours)


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Payment systems are vital part of the economic and financial

infrastructure. Their efficient functioning, allowing transactions tobe

completed safely and on time, makes a key contribution to overalleconomic performance. Payment systems, however, can also

involvesignificant exposures to risks for members. It is for this reason that

central banks have always taken into account the design andoperation of

payment systems additional control features to mitigate these

risks.


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WHAT ARE THE MAJOR PAYMENT

INSTRUMENTS IN THE PHILIPPINES?


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Check

A written order from one party (the drawer) to another (the

drawee,normally a bank) requiring the drawee to pay a specified

sum ondemand to the drawer or to a third party specified by the

drawer.


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Credit Card

A card indicating that the holder has been granted a line of credit. Itenables the holder to make purchases and/or withdraw cash up to a

prearranged ceiling; the credit granted can be settled in full by the endof a specified period or can be settled in part, with the balance taken

as extended credit. Interest is charged on the amount of any extendedcredit and the holder is sometimes charged an annual fee.

Credit cards in the Philippines are usually issued by the banks whichhave formed part of their marketing strategy to increase the number of their customer base and improve income that can be generated fromretail and consumer business. Credit card use is no longer limited to

the ordinary purchase of goods and services by the cardholders.Banks have expanded its usage for other purposes such as cash

advance, easy installment plan for purchases, link-up to savings andchecking accounts of cardholders etc. to attract more customers. The

most common credit cards being used are the Visa, MasterCard,BanKard, JCB, Unicard, Diners Card, and American Express Card.


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Debit Card

Debit Cards enable the holder to have his purchases directly chargedto funds on his account at a deposit-taking institution (may sometimes

be combined with another function e.g. that of a cash card or checkguarantee card)

The existing ATM networks (BancNet, MegaLink, ExpressNet,Nationlink and Encash) have developed their own Point-of-Sale (POS)

System to allow their depositors to pay for their purchases

electronically through their ATMs for credit to the retailers account.


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Stored Value CardStored Value Cards are prepaid card in which the record of funds canbe increased as well as decreased. Also called an electronic purse.In the Philippines, these cards are commonly single use instruments

and non-reusable. Typical examples of single use cards are thoseissued by the the Light Rail Transit Authority, Metro Rail Transit

Authority, and telecommunications companies. A bank pioneered alsothe use of multi-purpose reloadable e-Cash that can be used for cash

withdrawal through the banks counter or automated teller machines or payment of bills to the accredited establishment of the e-Cash issuer.


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Electronic Money

A value stored electronically in a device such as a chip cardor a hard

drive in a personal computer.11 Also known as e-money.The BSP classify e-money further as monetary value stored

electronically in an instrument or device which can beconverted backto cash, and if issued by a bank, shall not be considered as

deposit.Two of the most popular form of e-money in the Philippines

areSMART Money and Globes G -Cash.


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Electronic Check Clearing System (ECCS)

Operated by the Philippine Clearing House Corporation, ECCS is thesystem used to facilitate the exchange of checks issued by banks for processing and settlement through their DDAs with the BSP.

Electronic Peso Clearing and Settlement System (EPCS)

The Electronic Peso Clearing and Settlement System is an interbankaccount-to-account fund transfer system that supports bulk, recurring,

non-time sensitive payment and collection transactions. This isconsidered a cost-efficient means of transacting payments andcollections and considered as a robust alternative to check payments.EPCS is operated by the Philippine Clearing House Corporation.


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Philippine Domestic Dollar Transfer System (PDDTS)

This system allows online, real time settlement of domestic interbankUS Dollar transfers/trading. In addition, it provides a facility for onlineinquiry and settlement of foreign exchange transactions, where thePDDTS participants enter interbank US Dollar and Peso transfer instruction in a single screen. The US Dollar leg is settled via PDDTSusing their US Dollar accounts with Citibank as settlement bank. ThePeso leg is transmitted via the PDS Settlement Highway (PSH) to thePhilippine Payments and Settlements System (PhilPaSS) for

settlement through the banks DDAs maintained with Bangko Sentralng Pilipinas.


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PDS Settlement Highway (PSH)

The PSH, which is operated by the Philippine Dealing System (PDS)Group, enables the real time settlement of various investment tradingactivities including, but not limited to the following: settlement of thePeso leg of US Dollar interbank transfers/trading (via Payment vs.Payment system or PvP), settlement of interbank/interdealerrepurchase transactions and securities trading (via Delivery vs.Payment system or DvP), tertiary or public market trading (viaexpanded Delivery vs. Payment system or eDvP) distribution ofinterests and dividends from registries, custodians or the depository.


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Automated Teller Machine (ATM)

ATMs , being used in a variety of retail payment transactions, havebeen an indispensable payment instrument nowadays. The system

that connects the ATM consortiums now enables cashless paymentsfor purchases made by ATM cardholders. What the system does is it

debits the ATM cardholders account with his bank for every purchasemade using his ATM card thus, making transactions safer and more

efficient.


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Philippine Payments and Settlements System (PhilPaSS)

The Philippine Payments and Settlements System or PhilPaSS is thesystem name where both processing and final settlement of fund

transfer instructions can take place continuously (i.e. in real time). Asa

gross settlement system, it enables individual settlement of paymentinstructions, that is, without netting debits against credit. As a realtime

settlement system, the system effects final settlement continuouslyrather than periodically at pre-specified times provided that a sending

bank has sufficient balances or credit. The settlement process isbased on real time transfer of central bank money.


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WHY ARE PAYMENT

SYSTEMS IMPORTANT?


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A. Payment systems allow safe and timelycompletion of transactions.

Various payment systems are normally used by

companies to buy orsell goods and services; individuals rely on them

to receive their

salaries and for retail purchases; and thegovernment depends onthem to receive taxes and pay benefits.


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B. Payment systems allow the customers of onebank to make payments

to other banks thereby minimizing the risks of fraud and erroneouspayments to illegitimate creditors.


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C. Payment systems are vital to the operation of financial markets as they

are used to settle trading of various financial

instruments such asgovernment securities, commercial paper, stocks,

foreign exchangeand derivatives.

Documents

Payment System Report