Online electronic payments fedwire and chips fedwire

This preview shows page 8 - 11 out of 12 pages.

Online Electronic Payments: Fedwire and CHIPS Fedwire- o Communications network that links computers at banks to computers at the Fed o Banks transfer fed dollars in form of deposits at the fed from one bank to another o Payment is final, like payment in physical fed dollars o Virtually all large payments are made by fed wire because security and speed o More expensive than check. Small banks normally don’t use fed wire because average size of payment to use is $3.5 million CHIPS- (clearing house interbank payment system) o Electronic equivalent of payment by check o SWIFT- private electronic message transfer system
Image of page 8

Subscribe to view the full document.

o CHIPS payment is merely a promise to pay, danger that it could bounce Safe guards- stringent admission standards, participants set bilateral credit limits on net positions, each bank has a debit cap, if participant does fail during day CHIPS has loss-sharing arrangement to protect the failed bank’s creditors o Online Electronic Payment Systems in other countries- all major economies have online, large-value electronic payment systems Automated Clearinghouses (ACHs) Slower, but less expensive alternative to Fedwire or CHIPS is transfer of magnetic tapes Bank send magnetic tape of all payment to be made to the ACH (clearing house for off line electronic payments) Handles credit (like Giro) and debit (like checks) transfers Electronic Debit Cards: ATMs and EFTPOS ATMs o Customer can use to make deposits, withdrawal cash, pay bills, transfer amounts between deposits o Important externality= when bank joins network, it increases the value of its own cards AND the value of cards of other banks already in the network. Associated with economies of scale- larger membership o When use card at another banks ATM, there’s a switch fee to the network and an interchange fee to the customer bank that will likely pass the fees on to the cardholder EFTPOS- o Electronic funds transfer at point of sale terminal- purchase is immediately deducted from checking deposit o Closer to Giro payment than check Prepaid Cards- o Electronic equivalent to speak checks- a card with a magnetic strip used to make payment sup to a total amount registered on the card and paid in advance Payment on the Internet The Use of Different Methods of Payment Different Payment Methods for Different Transactions Major categories of transaction: Payments at point of sale (POS)- cash and cards, checks often used Bill payments- check, Giro, and ACH Disbursements (mainly income payments)- check, Giro, ACH Financial market transactions- wire transfers An International Comparison of Payments Patterns Pattern of use of payment methods differs across countries Why Payment Pattern Differ Some Legal and Historical Reasons- o Some countries use checks and others use Giro because of legal histories o Check evolved in English speaking countries o European courts regarded checks as personal order payments instead of commercial bills (like in US). Because it’s a personal order payment
Image of page 9
they did not recognize its negotiability as a result the Giro is more convenient o Page 216 has example of legal factors influencing payment patterns
Image of page 10

Subscribe to view the full document.

Image of page 11
  • Fall '19
  • Credit card, Cheque, Fed

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes