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A payment system is any
system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment (systems), environment, is described by its boundaries, ...
used to settle financial transactions through the transfer of
monetary value In economics, economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured through units of currency, and the interpretation is therefore "what is the maximum amount of money a speci ...
. This includes the
institutions Institutions are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions a ...
,
instruments Instrument may refer to: Science and technology * Flight instruments, the devices used to measure the speed, altitude, and pertinent flight angles of various kinds of aircraft * Laboratory equipment, the measuring tools used in a scientific lab ...
, people, rules, procedures, standards, and
technologies Technology is the application of knowledge to reach practical goals in a specifiable and reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in medicine, science, ...
that make its exchange possible.Biago Bossone and Massimo Cirasino, "The Oversight of the Payment Systems: A Framework for the Development and Governance of Payment Systems in Emerging Economies"The World Bank, July 2001, p.7 A common type of payment system, called an operational network, links
bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type of ...
s and provides for monetary exchange using
bank deposit A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below. ...
s. Some payment systems also include
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
mechanisms, which are essentially a different aspect of payment. Payment systems are used in lieu of tendering
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
in domestic and international transactions. This consists of a major service provided by banks and other financial institutions. Traditional payment systems include negotiable instruments such as
drafts Draft, The Draft, or Draught may refer to: Watercraft dimensions * Draft (hull), the distance from waterline to keel of a vessel * Draft (sail), degree of curvature in a sail * Air draft, distance from waterline to the highest point on a vesse ...
(e.g., cheques) and documentary credits such as
letters of credit A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exp ...
. With the advent of computers and electronic communications, many alternative electronic payment systems have emerged. The term electronic payment refers to a payment made from one bank account to another using electronic methods and forgoing the direct intervention of bank employees. Narrowly defined electronic payment refers to
e-commerce E-commerce (electronic commerce) is the activity of electronically buying or selling of products on online services or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain manageme ...
—a payment for buying and selling goods or services offered through the
Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
, or broadly to any type of
electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
. Modern payment systems use cash-substitutes as compared to traditional payment systems. This includes debit cards, credit cards, electronic funds transfers,
direct credit A direct deposit (or direct credit), in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' acco ...
s, direct debits,
internet banking Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial insti ...
and
e-commerce payment system An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
s. Payment systems may be physical or electronic and each has its own procedures and protocols. Standardization has allowed some of these systems and networks to grow to a global scale, but there are still many country-specific and product-specific systems. Examples of payment systems that have become globally available are credit card and
automated teller machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fun ...
(ATM) networks. Additionally, forms exist to transfer funds between financial institutions. Domestically this is accomplished by using
Automated clearing house An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. T ...
(ACH) and
real-time gross settlement Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a " gross" basis. Settlement in "real time" means a paym ...
(RTGS) systems. Internationally this is accomplished using the
SWIFT Swift or SWIFT most commonly refers to: * SWIFT, an international organization facilitating transactions between banks ** SWIFT code * Swift (programming language) * Swift (bird), a family of birds It may also refer to: Organizations * SWIFT, ...
network.


Domestic

An efficient national payment system reduces the cost of exchanging goods, services, and assets. It is indispensable to the functioning of the interbank, money, and capital markets. A weak payment system may severely drag on the stability and developmental capacity of a national economy. Such failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money. The technical efficiency of the payment system is important for the development of the economy. An
automated clearing house An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. T ...
(ACH) system processes transactions in batches, storing, and transmitting them in groups. An ACH is considered a
net settlement A net settlement is a payment system used for inter-bank transactions. It is the process by which banks calculate the collective total of all transactions through designated times each day. In an inter-bank payment system using net settlement, deb ...
system, which means settlement may be delayed. This poses what is known as
settlement risk Settlement risk is the risk that a counterparty (or intermediary agent) fails to deliver a security or its value in cash as per agreement when the security was traded after the other counterparty or counterparties have already delivered security ...
.
Real-time gross settlement Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a " gross" basis. Settlement in "real time" means a paym ...
systems (RTGS) are funds transfer systems where the transfer of money or securities takes place from one bank to another on a "real-time" and on "gross" basis. Settlement in "real time" means that payment transaction does not require any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. Comparatively, ACHs are typically used for low-value, non-urgent transactions while RTGS systems are typically used for high-value, urgent transactions. Countries and regions have also implemented real-time or instant (or faster) payment systems which typically operate 24x7x365 and perform the transaction from debit of ordering customer's account to credit of beneficiary customer's account within a timeframe of 10–15 seconds.


International

Globalization Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
is driving corporations to transact more frequently across borders. Consumers are also transacting more on a global basis—buying from foreign eCommerce sites as well as traveling, living, and working abroad. For the
payments industry A payment is the voluntary tender of money or its equivalent or of things of value (economics), value by one Party (law), party (such as a person or company) to another in exchange for good (accounting), goods, or Service (economics), services pro ...
, the result is higher volumes of payments—in terms of both currency value and number of transactions. This is also leading to a consequent shift downwards in the average value of these payments The ways these payments are made can be cumbersome, error prone, and expensive. Payments systems set up decades ago continue to be used sometimes
retrofit Retrofitting is the addition of new technology or features to older systems. Retrofits can happen for a number of reasons, for example with big capital expenditures like naval vessels, military equipment or manufacturing plants, businesses or go ...
ted, sometimes force-fitted—to meet the needs of modern corporations. And, frequently, the systems creak and groan as they bear the strain. Examples of such systems include STEP2 (an upgrade from 2003), which processes only Euros, and
TARGET2 TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlement (RTGS) system for the Eurozone, and is available to non-Eurozone countries. It was developed by and is owned by the Eurosystem ...
(an upgrade from 2007), which is closed on Saturdays and Sundays and some public holidays. As of 2014, STEP2 is the only
Pan-European automated clearing house A pan-European automated clearing house (PE-ACH) is a clearing house that is able to settle SEPA compliant credit transfers and direct debits across the Eurozone. At present there is only one PE-ACH in operation – STEP2 – which was establish ...
(or PE-ACH system) in operation. This type of system is thought to become less relevant as banks will settle their transactions via multiple
clearing house Clearing house or Clearinghouse may refer to: Banking and finance * Clearing house (finance) * Automated clearing house * ACH Network, an electronic network for financial transactions in the U.S. * Bankers' clearing house * Cheque clearing * Cl ...
s rather than using one central clearing house. TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is a RTGS system that covers the European Union member states which use the
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
. It is part of the
Eurosystem The Eurosystem is the monetary authority of the eurozone, the collective of European Union member states that have adopted the euro as their sole official currency. The European Central Bank (ECB) has, under Article 16 of its Statute,
, which comprises the
European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's Big Four (banking)#Intern ...
and the national central banks of those countries that have adopted the euro. TARGET2 is used for the settlement of central bank operations, large-value Euro interbank transfers as well as other euro payments. TARGET 2 provides real-time financial transfers, debt settlement at central banks which is immediate and irreversible. For users of these systems, on both the paying and receiving sides, it can be difficult and time-consuming to learn how to use
cross-border Borders are usually defined as geographical boundaries, imposed either by features such as oceans and terrain, or by political entities such as governments, sovereign states, federated states, and other subnational entities. Political borders ...
payments tools, and how to set up processes to make optimal use of them. Solution providers (both banks and non-banks) also face challenges cobbling together old systems to meet new demands. For these providers, cross-border payments are both lucrative (especially given
foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
conversion revenue) and rewarding, in terms of the overall financial relationship created with the end customer. The challenges for global payments are not simply those resulting from volume increases. A number of economic, political, and technical factors are changing the types of cross-border transactions conducted. Such factors include: * Corporations are making more cross-border purchases of services (as opposed to goods), as well as more purchases of complex fabricated parts rather than simple, raw materials. * Enterprises are purchasing from more countries, in more regions. * Increased
outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
is leading to new in-country and new cross-border intracompany transactions. * More enterprises are participating in complex, automated supply chains, which in some cases drive automatic ordering and fulfillment. Online purchasing continues to grow, both by large enterprises as part of an automated procurement systems and by smaller enterprises purchasing directly. * There is continued growth in the use of cross-border labor. * Individuals are increasingly taking their investments abroad.


See also

*
Aadhaar Enabled Payment System Aadhaar ( hi, आधार, ādhār, lit=base, foundation, bn, আধার) is a 12-digit unique identity number that can be obtained voluntarily by the citizens of India and resident foreign nationals who have spent over 182 days in twelve ...
* ATM Industry Association (ATMIA) *
Automated clearing house An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. T ...
* BankAxept *
Bharat Bill Payment System Bharat Bill Payment System (BBPS) is an integrated bill payment system in India offering interoperable and accessible bill payment service to customers through a network of agents of registered member as Agent Institutions (AI), enabling multipl ...
*
BHIM BHIM (Bharat Interface for Money) is an Indian mobile payment mobile app, app developed by the National Payments Corporation of India, National Payments Corporation of India (NPCI), based on the Unified Payments Interface, Unified Payments Int ...
*
Cheque Truncation System Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank of India (RBI), commenced in 2010, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque cl ...
* Clearing *
Clearing house Clearing house or Clearinghouse may refer to: Banking and finance * Clearing house (finance) * Automated clearing house * ACH Network, an electronic network for financial transactions in the U.S. * Bankers' clearing house * Cheque clearing * Cl ...
*
Credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
* Debit card *
Direct Deposit A direct deposit (or direct credit), in banking, is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' acco ...
* Digital currency *
E-commerce credit card payment system Electronic commerce, commonly known as e-commerce or eCommerce, or e-business consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electr ...
*
E-commerce payment system An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
*
Electronic bill payment Electronic bill payment is a feature of online, mobile and telephone banking, similar in its effect to a giro, allowing a customer of a financial institution to transfer money from their transaction or credit card account to a creditor or ven ...
*
Digital Wallet A digital wallet, also known as an e-wallet, is an electronic device, online service, or software program that allows one party to make electronic transactions with another party bartering digital currency units for goods and services. This can ...
*
Electronic commerce E-commerce (electronic commerce) is the activity of electronically buying or selling of products on online services or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain manageme ...
*
Electronic funds transfer Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
* Giro *
Immediate Payment Service Immediate Payment Service (IMPS) is an instant payment inter-bank electronic funds transfer system in India. IMPS offers an inter-bank electronic fund transfer service through mobile phones. The service is available 24x7 throughout the year in ...
* Interbank Network ( ATM /
EFT A newt is a salamander in the subfamily Pleurodelinae. The terrestrial juvenile phase is called an eft. Unlike other members of the family Salamandridae, newts are semiaquatic, alternating between aquatic and terrestrial habitats. Not all aqu ...
/
EFTPOS Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS ...
) *
List of on-line payment service providers The following is a list of notable online payment service providers and payment gateway providing companies, their platform base and the countries they offer services in: (POS -- Point of Sale) See also * Payment gateway * Payments as a se ...
*
National Automated Clearing House National Automated Clearing House regional ECS into one National Payment System, is claimed to be better than its predecessor, Electronic Clearing Service. According to the service's website, transactions towards distribution of subsidies, divide ...
*
National Common Mobility Card National Common Mobility Card (NCMC) is an inter-operable transport card conceived by the Ministry of Housing and Urban Affairs of the Government of India. It was launched on 4 March 2019. The transport card enables the user to pay for travel, t ...
*
National Electronic Funds Transfer National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Bankin ...
*
NUUP Services The National Unified USSD Platform (NUUP), also known as the *99# service, is a platform that provides access to the Unified Payment Interface (UPI) service over the USSD protocol. Initiated by the Government of India and developed by the National ...
*
Online banking Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial ins ...
*
Payment card Payment cards are part of a payment system issued by financial institutions, such as a bank, to a customer that enables its owner (the cardholder) to access the funds in the customer's designated bank accounts, or through a credit account and ...
*
Payment service provider A payment service provider (PSP) is a third-party company that assists businesses to accept electronic payments, such as credit cards and debit cards payments. PSPs act as intermediaries between those who make payments, i.e. consumers, and thos ...
*
Payments as a Service Payments as a service (PaaS) is a marketing phrase used to describe a software as a service to connect a group of international payment systems. The architecture is represented by a layer – or overlay – that resides on top of these dispar ...
*
Real Time Gross Settlement Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a " gross" basis. Settlement in "real time" means a payme ...
*
RuPay RuPay ''(portmanteau of Rupee and Payment)'' is an Indian multinational financial services and payment service system, conceived and launched by the National Payments Corporation of India (NPCI) on 26 March 2012. It was created to fulfil th ...
*
Society for Worldwide Interbank Financial Telecommunication Swift or SWIFT most commonly refers to: * SWIFT, an international organization facilitating transactions between banks ** SWIFT code * Swift (programming language) * Swift (bird), a family of birds It may also refer to: Organizations * SWIFT, a ...
* Systemically Important Payment Systems *
Unified Payments Interface Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. It is used ...
*
Wire transfer Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash ...
*
Automated Teller Machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fun ...


References


External links


A Guide to Replacing Legacy Payment Systems

Inside National Payment SystemsThe end of a monopoly
- New consumer payment systems.
The Future of Money-Like Things
- Past, present, and future overview of consumer payment systems. {{DEFAULTSORT:Payment Systems