CHAPTER 3: AN INTRODUCTION TO THE PAYMENTS SYSTEM

I. PAYMENT SYSTEM

➢ A payment system is a mechanism for carrying out certain transactions.

The payment system has changed over time, from relying on gold and silver
coins to paper money and checks written on bank accounts to electronic
funds transfers.
➢ Commodities money is a term that refers to a product that has value
apart from its usage as money.
➢ Fiat money- is money that has no value other than its use as money, such
as paper currency.
➢ Consumers and businesses accept paper money because they believe that
once they accept it, they will be able to pass it over to someone else when
they need to purchase products and services.
II. Checks and Their Significance
➢ Checks are guarantees that a bank or other financial institution will pay
demand money deposited with them. They can be written for any number,
and using them to settle transactions is simple.
III. New Technology and the Payments System
➢ Five most desirable outcomes for a payments system:
• Security – Episodes in which hackers broke into store credit networks and other
aspects of the payment system have sparked security questions.
• Efficiency- Resources allocated to the preparation of paper checks or other
elements of processing payments are withdrawn from the production of other
products and services.
• Speed-fast settlement of payment facilities transactions between households and
businesses alike.
• Smooth international transactions – the growing number of cross-border
transactions will be facilitated if transfers can be made easily and conveniently.
• A successful collaboration between system participants – Payment schemes need
to include states, financial institutions, such as banks, and other companies around
the world effectively.
➢ Automated Clearing House (ACH) transactions include direct deposits of
payroll checks on employers' accounts and electronic payments on vehicle
loans, and mortgages, where payments are sent electronically from the
borrower's account and deposited in the borrower's account.
➢ Automated Teller Machines (ATMs) help you to carry out the same
transactions at your bank whenever it is most convenient for you.
➢ E-Money, Bitcoin, and Blockchain
E-money or electrical money, digital cash, is used by people to buy goods
and services. One of the most known types of e-money is PayPal.
➢ Blockchain is technically a distributed book or an online network that
registers the ownership of funds, securities, or any other goods, including
movies and songs. Blockchain enables individuals and enterprises all over
the world to quickly and safely settle transactions on an encrypted site.