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Payment systems

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A payment system is a “system consisting of a set of instruments, banking procedures and interbank funds transfer systems designed to ensure the flow of currency.”

The term “payment system” can refer to both a system, as defined above, or, at the national level, the group consisting of payment instruments, infrastructure, institutions, conventions, laws , etc., allowing the transfer of funds.

Payment systems process a wide range of financial instruments (type, amount … ), a variety of modes (continuous or batch, with or without compensation, commercial currency or central bank …). Some are specialized, others treat several instruments, although in different forms. The following typology thus allows a first analysis, and many cases of mixed systems sometimes blur the boundaries between these categories.

System of large-value payment

These systems are mainly based on gross settlement operation , transactions are processed individually in real time, and in central bank money. The TARGET2 system for the euro area or the Fedwire system in the United States fall into this category.

Systems of large-value payment are characterized by a high average amount of operations. The average amount of transactions in TARGET in 2005 was over € 7 million.

Mass payment system

These systems , which operate mostly in commercial currency, deal with mass payment system: credit transfers, direct debits, checks, cards … These systems often provide clearing functions, which reduce the number of interbank regulations. Most often it is a multilateral netting. Each participant sets a balance for the net value of its entire activity in the system for a given period. These balances are settled mostly in the gross settlement system in real time in the country.

Retail payment systems are characterized by a low average value of transactions. In 2005, the average amount of a treated in the SIT (previous CORE system) operation was 400 €.

Thus, significant practical difference between the gross settlement systems and net settlement systems (compensation) is that in the gross settlement systems each regulation is independent of the preceding and following. If there is an incident, it will cover this payment. In contrast, in a net settlement system, payments are truly guaranteed once all the regulations presented and compensation ordered. The net settlement system is more random to ensure the execution date of the settlement since the delivery of a regulation in this system depends on the smooth functioning of all the other rules in the system.

System of settlement for securities

These systems operate downstream of the chain of processing securities. Securities are first negotiated and compensated to have a net position of each operator. The last step allows the settlement and delivery of securities.

Developments

Payment systems are undergoing profound changes: development of international systems, mergers or association of national systems, linkages between different systems. In the European context, especially in the context of the implementation of SEPA, all European systems evolve, especially with the introduction of TARGET2, CORE (for retail payments in lieu of SIT ) the implementation of Euroclear SAP, etc.

Translated and adapted from Wikipedia.

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