Chapter 10
Describe the seven-step clearing process for an ACH credit transaction using the example of direct deposit of payroll.
(1) A company prepares a file containing payroll TSXs (2) Company transmits file to bank (3) Company's bank sorts out on-us transactions for EE's who have accounts with bank (4) Company's bank merges the company's TSXs with other ACH and sends to ACH operator (5) Local ACH operator sorts out those TSXs that involve banks in its area and send remaining TSXs to other ACH operators (6) Settlement or TSF of value occurs (7) ACH operator presents a file tot he EEs bank containing all TSXs pertaining to that bank, EE account credited
Describe three elements that constitute a payment system when combined.
(1) A payment instrument (2) A clearing channel (3) A settlement mechanism
Describe five options for Fed Global ACH Payments.
(1) Account to account TSF (2) Account to Receiver (3) Fixed to Variable (4) Fixed to fixed-USD (5) Fixed to fixed-foreign currency
Describe two benefits of Canada's Large Value Transfer System (LVTS) that make it a hybrid of the two main models for current payment systems.
(1) Achieving the real-time PMT finality provided by a RTGS system. (2) Offering the lower collateral costs associated with a netting system.
Describe the three step process necessary to complete a credit card transaction.
(1) Authorization (2) Clearing (3) Settlement
Describe five benefits of straight-through-processing (STP).
(1) Better, more efficient connectivity between transaction participants (2) Increased speed of transaction settlement (3) Complete integration of all back office system and applications (4) reduction of human intervention in the transaction process (5) Overall reduction of total operational costs and cycle time
Describe three methods used for settlement.
(1) Bilateral exchange of value between the paying and receiving banks (2) Through correspondent banks (3) Through reserve accounts at a central monetary or banking authority
Describe five characteristics of image technology.
(1) Both front and back of a paid check may be captured by the drawee bank and converted into digital info using optical scanning (2) Paid check images may be transmitted to a company via fax, internet, or direct transmission (3) Check images may be stored in banks database (4) Imaging provides a company with faster access to disbursement check info and is particularly beneficial when used in conjunction with controlled disbursement, PTDs and or positive pay services (5) Primary use is to exchange information between bank and customers
Describe eight characteristics of the Clearing House Interbank Payments System (CHIPS).
(1) CHIPS is bank-owned, large dollar funds TSF network operated by The Clearing House Association (2) CHIPS was established in 1970 to substitute electronic payments for paper checks in international TSXs between foreign and American banks
Describe the seven participants in a credit card transaction.
(1) Cardholder (2) Card Issuer (3) Merchant (4) Merchant Acquirer (5) Acquiring processor (6) Issuer processor (7) Network operator
Describe six steps involved in the check clearing process.
(1) Check drawn on US bank in US dollars is deposited into a payee's account at a FI. (2) The bank of first deposit (aka depository bank), or the payee, encodes the check amount on the MICR line (3) encoded checks are sent through a MICR reader which sorts checks by the RTN then sent to the clearing system (4) For settlement to occur the original check must be presented to the paying bank by presentment, IRD, or by RDC (5) Value is subtracted from the paying bank's account at time of presentment through a Fed Reserve Bank, correspondent bank, or other clearing channel (6) Paying bank posts the check to the payer's account.
Describe the seven types of checks processed by a lockbox or drop box that are not eligible for conversion based on NACHA rules.
(1) Checks that contain an auxiliary on-us field in the MICR line (2) Checks greater than 25K (3) 3rd party checks (4) Credit card and lines of credit checks (5) Obligations of financial institutions (travelers, money orders, cashier) (6) Checks drawn on US Treasury (7) Non-US dollar denominated checks
Describe two critical areas of interface between treasury and AP related disbursements.
(1) Communication from AP regarding INV vouchered for PMT (2) Communication from treasury back to AP regarding the reconciled payments
Describe the two steps in a lockbox cost/benefit analysis.
(1) Compare the differences in collection float for a company processing center versus for a lockbox provider; note, however that in the case of a retail lockbox, float savings may not be as important as improved efficiency and lower per-item costs. (2) Compare differences between Fixed and Variable costs of a company processing center vs lockbox provider.
Describe three factors that affect the opportunity cost of float.
(1) Dollar amount of collected items (2) The total collection time for items (3) A company's current opportunity cost of funds (usually its ST investment or borrowing rate)
Describe six additional advantages of lockboxes
(1) Efficient Processing (2) Higher levels of security (3) Control and record keeping capabilities (4) Uninterrupted service (5) Scalability (6) Proper segregation of duties
Describe five cases that may require the use of the International ACH Transaction (IAT) format.
(1) In originating or receiving ACH cross-border TSXs (2) When the originator or receiver is a US subsidiary of a non-US company (3) When ACH PMTs are being sent to Eyes living outside US (4) When the full amount of the ACH [PMT is being sent to an account located outside of the US (5) When items are bought or sold over the internet and if the payment involves a cross-border TSX
Describe three items of which a discount fee on a credit card transaction is comprised.
(1) Interchange reimbursement fee (IRF) due to the issuing bank (2) Network Assessment Fee (3) Transaction Fees
Describe three benefits of pre-encoding the dollar amount on the MICR line of a check prior to deposit.
(1) It may receive faster availability (2) It may receive a later cut off time (3) It typically receives lower service charges
Describe three characteristics of on-us-checking.
(1) Occurs when a payee deposits a check in an account at the same bank on which it is drawn (2) Bank simultaneously debits payers account and credit's payee account \(3) The depositor typically receives same-day or immediate availability if funds are available.
Describe five key advantages of the Secure Vault Payments system offered through NACHA.
(1) Only requirement for consumers is the registered users of banks online systems (2) Consumers do not have to send their bank account information to the collecting organization (3) The collecting organization does not have to follow PIC DSS protocols, as with card payments (4) For merchants using Secure Vault, payments are guaranteed within 24 hours, with no NSFs or declines (5) Rates on Secure Vault Payments are lower
Describe the four steps involved in retail lockbox processing, which employs highly automated, high-speed equipment to:
(1) Open envelopes (2) Read machine-scannable info on checks and remittance docs (3) Automatically encode the amount of check (4) Electronically transmit captured data for the purpose of updating AR at the collecting organization
Describe six mandatory records any international ACH transaction must provide to comply with anti-money laundering and OFAC guidelines.
(1) Originator's name/address (2) Beneficiary's name/address (3) Originating bank's name/ID/branch code (4) Receiving bank's name/ID/branch code (5) Reason for PMT
Describe eight types of wire transfer security.
(1) Physical security and limited access to workstations for wires (2) Passwords and PINs (3) Test codes to validate wire TSFs (4) User limits on wire amounts (5) Repetitive wires with set specs (6) Multiple approval levels (7) Segregation of Duties (8) Electronic encryption
Describe four benefits to electronic methods of payments in the collection process.
(1) Predictability of settlement timing and available funds (2) Flexibility of directing payments to any account (3) Ease of transmitting customer remittance information that may accompany the payment to facilitate AR updating (4) Reduced risk fraud
Describe five steps company processing performs for checks.
(1) Receiving/Opening Mail (2) Separating payment from remittance advice (3) Forwarding remittance to AR (4) Preparing Ck for deposit (5) Depositing the checks
Describe six potential benefits of applying image technology to the remittance processing function.
(1) Reduced overall processing costs (2) Increased productivity (3) Improved accuracy (4) Automated updating of AR (5) Improved response time to customer inquiries (6) Faster resolution of lockbox discrepancies
Describe two clearing channels owned and operated by Banco de Mexico (Banxico).
(1) SPEI (Sistema de Pagos Electronicos Interbancarios) is the high-value RTGS system. (2) SICAM (Sistema de Camaras) settles paper based checks and non-urgent electronic payments.
Describe three ways through which the clearing of checks in the international payments arena are managed.
(1) The central bank (2) Several major banks acting as clearing agents (3) Correspondent relationships among banks
Describe five factors upon which a check's availability is determined.
(1) The paying bank's endpoint (2) The time of deposit (3) The day the check is deposited (4) Type of presentment (RDC, ATM, physical deposit) (5) The bank's availability schedule
Describe five other principal characteristics of wholesale lockbox systems.
(1) They focus on float reduction (2) They offer a combination of manual/semi-automated processing (3) They can handle detailed, non-standardized remittance documentation (4) Provide timely access to information (5) They are customized to meet specific customer requirements.
Describe three primary regulations related to paper-based payment instruments.
(1) UCC Article 3: Negotiable Instruments (2) UCC Article 4: Bank deposits and collections (3) Federal Reserve Regulations CC and J
Describe four ways in which lockbox processing systems help to reduce mail float.
(1) Unique zip code which expedites mail processing (2) Frequent mail pickups are made (3) May be nationwide with facilities close to concentration of customers (4) Utilizing a single processor allows for funds to be concentrated faster
Describe which two factors help companies decide upon a paper-based payment collection system.
(1) Volume of payments (2) Dollar amount of the payments
Describe three manners of categorizing electronic systems for payments.
(1) size of payment (lg vs sm) (2) Urgency of payment (real, same day, urgent) (3) Primary user (bus/wholesale/retail)
Six participants in the clearing process: In some cases, the clearing process (but not the settlement) is handled by this type of entity. One of the best examples of these entities in the area of international payments is CHIPS.
3rd party clearing entity
Ways to outsource AP services: Payment factories
A centralized AP processing center. Often part of a centralized treasury operation known as an in-house bank.
Converting checks to electronic payments: To increase funds availability and reduce check handling, eligible checks received at a lockbox can be converted into electronic debits and processed as ACHs. The company receiving the checks must notify the check writer that checks will be converted. This typically is done by including a statement to this effect on bills or invoices.
AR Conversion (ARC)
Ways to outsource AP services: Integrated or comprehensive AP
Allows a company to outsource all or part of the company's AP and/or disbursement functions.
Four clearing channels available for clearing transit checks: Direct send or direct exchange
As an alternative to using clearinghouses or correspondent banks, banks may arrange to send cash letters directly to a paying bank or to a non-local Federal Reserve Bank. These arrangements enable banks to meet various deposit deadlines and achieve faster clearing times. The collecting bank maintains a depository account with the paying bank or non-local Fed, which is credited with the proceeds of the checks.
Two Canadian systems for the clearing and settlement of payments: It clears both paper-based payment items and electronic items. Although almost all of the daily transaction volume is cleared through it, these transactions represent only a small percentage of the total value cleared because the majority of these items are for relatively small dollar amounts.
Automated Clearing Settlement System (ACSS)
Fields found on business checks: This is an eight-digit field used on business checks...this number is frequently the check number, it assists the drawee bank in providing a variety of account reconciliation services, it is a key in providing stop payment and positive pay services, and it is necessary to prevent check conversion.
Auxiliary on-us field
Three balance measurements and float calculations: The amount of funds available for withdrawal from an account, based on the bank's availability schedule and/or amounts for which availability must be granted under Regulation CC.
Available Balances
Converting checks to electronic payments: Retailers and other entities that accept checks at the POP or other manned bill payment locations can convert eligible checks to ACH debits in the back office. Explanatory signage must be present at the point of presentment, and the merchant/originator must put specific verbiage on the customer receipt indicating that the check may be converted and may clear as soon as the same day.
Back Office Conversion (BAC)
Six participants in the clearing process: These are simply groups of banks or other financial institutions that agree to exchange payment instruments. Members typically clear items on a netting basis and maintain correspondent accounts with each other or the central bank for settlement purposes.
Bank Clearinghouse
Three acts or participants in the anti-money laundering (AML) effort: Under this act, banks are required to perform due diligence by determining a customer's identity and monitor transactions for suspicious activity.
Bank Secrecy Act (BSA)
Account reconciliation program (ARP): Partial reconciliation program
Bank lists all items paid in numerical order by check serial number, etc. For each item, the paid report generally shows the serial number, dollar amount and date paid. Listing also available on CD-ROM.
Four bodies or areas related to the European Union: This is the board that provides representation to countries that use the euro and are members of the EU. States such as Monaco, San Marino and Vatican City are not represented on this board because they are not EU members even though they have adopted the euro as their de facto currency.
Board of the European Central Bank (ECB)
Three factors that influence availability: Pre-encoding/RDC/image capture
Businesses may choose to MICR encode dollar amount of check or use RDC to speed up availability
Also known as an official bank check, this type of check is drawn on a bank's own funds.
Cashier's Check
Six participants in the clearing process: In some countries, this bank or these authorities run the clearing system, effectively linking the banks operating in that country.
Central Bank or Monetary/Banking Authorities
This type of check is drawn on a depositor's checking account and funds are withdrawn from the depositors account at the time of certification, to assure payment with a certification or guarantee by the bank.
Certified Check
Cost related to lockbox: Variable
Charges for deposits and per item charge
Three categories of payment systems: paper payment systems
Checks and drafts = PMT instruments to cause TSF of value
Multiple drawee check
Checks that can be presented for payment at more than one bank.
Bank-issued credit cards: Cards issued by gas companies, department stores and other retailers that are only accepted by the issuing company.
Closed-loop cards
The average ledger balance minus the deposit float; not recognized under Reg CC but rater is used by banks to determine earnings credits on account analysis statements (along with deposit float)
Collected Balances
Account reconciliation program (ARP): Full reconciliation program
Company supplies bank with e-file of all payments issued and the bank matches items paid against the file.
Positive pay
Company transmits a file of issued check info to the bank. Only checks on this list will be allowed to clear.
Four methods of clearing and settlement for electronic payment systems: These transactions tend to be categorized as small-value, non-urgent systems that often include both credit and debit types of transfers. In many countries, these types of systems are known as either automated clearing houses (ACHs) or giros and are generally highly automated, batch-processed, net settlement systems. These transactions are now the most common method for making C2B, C2C, and consumer to government payments in most developed countries. In many cases, these electronic payments are also used by businesses and governments back to consumers.
Consumer Electronic Payment Systems
Three methods used to improve efficiency or reduce risk in the payments system: This is an FX settlement, risk reducing multi-currency service, a concept that allows a simultaneous exchange-payment versus payment-of both sides of underlying financial transactions, which eliminates settlement risk. It consists of hardware and software that processes settlement payment instructions, subject to the satisfaction of certain risk management tests, and provides real-time information to the members on the status of their respective payment instructions.
Continuous Linked Settlement (CLS)
Five basic ACH formats: Designed for B2B trade payments, it consists of a standard ACH payment transaction and a variable-length message addendum designed to convey remittance information in the Accredited Standards Committee (ASC) X12 data standard.
Corporate Trade Exchange (CTX)
Five basic ACH formats: Used for the concentration and disbursement of funds within or between companies (B2B). Only a limited amount of remittance information can be sent with this format, so a variation with an addendum exists. This variation is one of the formats used for the US Treasury Vendor Express program in paying commercial suppliers to federal agencies and for B2B payments. It is useful when only a limited amount of information must be transmitted.
Corporate credit or debit (CCD) or CCD plus addendum (CCD+)
Six participants in the clearing process: In this type of banking relationship, two banks have accounts with each other for the purpose of clearing and settlement of payment items between the banks. Generally, smaller banks with limited access to other clearing methods will maintain this relationship with a larger bank to enable more efficient clearing. In most international funds transfers, these banks play a key role in the settlement process. These relationships may be reciprocal or one way.
Correspondent Bank
Four primary mechanisms for the settlement of euro payments and transfers: This traditional clearing channel remains the most common method of cross-border transactions for low value, bulk payments.
Correspondent Banking
Two reports that banks may need to file with the Financial Crimes Enforcement Network (FinCEN): Currency Transaction Report (CTR)
Currency Transaction Report: Required for deposits > $10K or >EUR 15K
Three categories of payment systems: Cash payment systems
Currency in physical form. Cash = PMT instrument. TSF of cash = clearing and final settlement
Basic ACH entry formats (other than ARC, POP and BAC): Used for pre-authorized payments that are initiated by consumers using telephone bill paying services.
Customer Initiated Entry (CIE)
Classification of Wires: Drawdown Wires
Debit party must pre-authorize
Classification of Wires: Non-repetitive (free-form) Wires
Debit/Credit parties are different each time
These cards are a variation on the purchasing card where each department is given its own card for general use by that department. The card is linked to the department rather than an individual.
Departmental cards
Cost related to lockbox: Fixed
Deposit fees, box rent
Classification of Wires: Semi-repetitive Wires
Description, date and amount may be changed
Basic ACH entry formats (other than ARC, POP and BAC): Used to clear and settle items that originated as checks but were lost or destroyed.
Destroyed check entry format (XCK)
This service offered through NACHA, utilizes open ACH formats and rules to enable financial institutions, billers and other providers to standardize EBPP transactions. This makes it more efficient for more billers and banks to offered electronic bill presentment to their customers. The primary advantage is that virtually all banks are connected to the ACH system and, by extension, to most billers and consumers. It allows for both standardized billing and standardized payment-only models.
EBIDS (Electronic Billing Information Delivery Service)
Four bodies or areas related to the European Union: All countries who join the EU are members of this body; its purpose is to integrate the economies of EU members.
Economic and Monetary Union (EMU)
Seven ACH system participants: This is a private operator that processes the remainder of ACH transactions; it acts as an intermediary between financial institutions by processing (e.g. receiving, sorting and distributing) ACH transaction files.
Electronic Payments Network (EPN)
This is a Web-based collection method used for consumer payments. It integrates the billing and payment processes, thereby enabling companies to send electronic statements and receive electronic remittances from customers. It may be handled through a company's website or a third-party vendor.
Electronic bill presentment and payment (EBPP)
This is a Web-based collection method used for corporate payments; it has all of the other features of the electronic bill presentment and payment (EBPP).
Electronic invoice presentment and payment (EIPP)
Four primary mechanisms for the settlement of euro payments and transfers: This is an association of major clearing banks that operates a net settlement system, but is used primarily for financial (inter-bank) rather than commercial transactions.
Euro Banker's Association (EBA)
Four bodies or areas related to the European Union: This is the area for which the European Central Bank (ECB) conducts a unified monetary policy and is not a requirement for inclusion in the EU. Great Britain, Denmark and Sweden are not in this area because they retain their national currencies, as well as control over their monetary policy.
Euro Zone
Four bodies or areas related to the European Union: This is the body to whom national governments in the EU delegate some of their sovereignty so that decisions affecting joint interests can be made.
European Parliament
Fields found on business checks: This is a single-digit optional field for special purposes, such as Check 21 codes, located to the immediate left of the routing number.
External Processing Code (EPC)
Seven ACH system participants: This organization processes most ACH transactions; it acts as an intermediary between financial institutions by processing (e.g. receiving, sorting and distributing) ACH transaction files.
Federal Reserve
Three acts or participants in the anti-money laundering (AML) effort: This is an international body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. It is therefore a policy-making body that works to generate the necessary political will to bring about legislative and regulatory reforms in these areas.
Financial Action Task Force (FATF)
Fraud issues that might not be prevented by positive pay: An authorized check is stolen or intercepted by a third party, and then that party endorses and cashes the check. So long as the check amount and the check number are not altered, this type of fraud is not usually detected by standard positive pay.
Fraudulent endorsement
Classification of Wires: Repetitive Wires
Frequent TSFs to same credit parties
These cards are a variation on the purchasing card that do not involve the use of an actual card. A card number is given to a specific vendor and is then used for electronic purchasing and billing purposes.
Ghost Card
Four methods of clearing and settlement for electronic payment systems: These transactions occur when each transaction results in a separate value transfer between the payer and payee. In most systems, the settlement is on a real-time basis; if so, payments are considered final at the time they are processed.
Gross Settlement Systems
five types of non-cash payment systems. Which types of transactions mechanism is used-in terms of volume and monetary amount: ACH
High Volume, Low Value Monetary TSXs
five types of non-cash payment systems. Which types of transactions mechanism is used-in terms of volume and monetary amount: Card-based systems
High Volume, Low Value Monetary TSXs
five types of non-cash payment systems. Which types of transactions mechanism is used-in terms of volume and monetary amount: Check and other paper-based instruments
High Volume, Low Value Monetary TSXs
Fraud issues that might not be prevented by positive pay: A financial institution or a company accepts or cashes an item in good faith that subsequently turns out to be fraudulent.
Holder in due course
Three methods used to improve efficiency or reduce risk in the payments system: This is a global messaging standard for the financial services industry that is used for transmitting information related to securities, payments, financial reporting, international trade and foreign exchange. It is part of the ongoing development of SEPA payments standards and the next generation of SWIFT messaging.
ISO 20022 Global Standards
Four clearing channels available for clearing transit checks: Correspondent Bank
In correspondent bank clearing, the collecting bank maintains a depository account with another bank. The collecting bank sends checks to the correspondent bank, which presents the items to the paying bank through a local clearinghouse or the Fed. The collecting bank's depository account at the correspondent bank is then credited with the proceeds of the checks.
Lockbox technology: Read handwritten or typed information.
Intelligent Character Recognition (ICR)
Four primary mechanisms for the settlement of euro payments and transfers: Pan-European banks continue to use these systems through which they can access local clearing channels directly.
Internal networks and local clearing channels.
Five basic ACH formats: An ACH debit or credit entry that is part of a payment transaction originating from, or transmitted to, an office of financial agency located outside the territorial jurisdiction of the US.
International ACH Transaction (IAT)
Basic ACH entry formats (other than ARC, POP and BAC): Used for payments that are not pre-authorized but are initiated by consumers over the internet.
Internet Initiated Entry (WEB)
Controlled disbursement
Is a bank service that provides same day notification to a company of the amount of checks that will clear against the account.
Two Canadian systems for the clearing and settlement of payments: An electronic wire system managed by the CPA to facilitate the transfer of irrevocable payments in Canadian dollars in real time. Though there are no minimum payment values or volume requirements, it is primarily used for a small volume of large-value, time-sensitive payments. Funds are transferred between participating financial institutions virtually instantaneously, and the money is credited to the beneficiary's account on a timely basis. Because all of these payments are immediately final and irrevocable, the beneficiary may withdraw the money, invest it or use it to make another payment, confident that the incoming payment will not be reversed for any reason.
Large Value Transfer System (LVTS)
Three balance measurements and float calculations: Bank balances that reflect all entries to a bank account, regardless of whether the deposited items have been collected and are available for withdrawal.
Ledger Balance
Advantages of using a lockbox: Processing float is reduced.
Lockbox = 24/7. Eliminates companies intermediary role.
five types of non-cash payment systems. Which types of transactions mechanism is used-in terms of volume and monetary amount: CHIPS
Low Volume, High Value Monetary TSXs
five types of non-cash payment systems. Which types of transactions mechanism is used-in terms of volume and monetary amount: Fedwire
Low Volume, High Value Monetary TSXs
Lockbox technology: Captures the machine-readable information on a check.
Magnetic Ink Character Recognition (MICR)
Electronic disbursement methods that are accepted or are gaining increased acceptance: Purchasing/procurement cards
Many companies use these cards for small-dollar purchases of supplies and service contracts.
ACH: Value Dating
Means the ACH PMT instructions include settlement dates, generally 1-2 days until release
Six additional paper payment instruments: A prepaid instrument issued by parties such as companies, banks or the US Postal Service. The purchaser is the instrument's payer, and this instrument is the obligation of the issuer.
Money Order
Advantages of using a lockbox: Availability float is reduced.
More efficient technology
Electronic disbursement methods that are accepted or are gaining increased acceptance: Electronic benefit transfers and payroll cards
Most state governments now use electronic benefit transfer systems for the disbursement of benefits under food stamp programs.
Seven ACH system participants: This is a membership organization of financial institutions that establishes and administers the rules, standards and procedures that enable members to exchange ACH payments on a national basis; they also levy fines for violations of the rules.
NACHA - The Electronics Payment Association
Four methods of clearing and settlement for electronic payment systems: These transactions occur when many transactions are combined and then sorted by sending and receiving banks. At the end of day the net amount either owed by or owed to each bank is determined and only the net amount of value is actually transferred. At this point, electronic credit transactions are considered to be final. Electronic debits may be reversible under certain specified circumstances; all of the individual transactions are, of course, accounted for on a bookkeeping basis, with each bank making the necessary debits and credits to individual accounts.
Net Settlement Systems
Ways to outsource AP services: Freight payments
Offered by some banks and 3rd parties. Specialists pay all of a shippers' freight bills, audit bills, as well as provide reports that help a company compare costs for different routes and carriers.
Three acts or participants in the anti-money laundering (AML) effort: This office of the US Dept. of the Treasury administers and enforces economic and trade sections based on US foreign policy and national security goals. Its objective is to identify and target threats to the national security, foreign policy or economy of the US> These threats generally come from specifically targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other potential threats.
Office of Foreign Assets Control (OFAC)
Bank-issued credit cards: Cards that are accepted anywhere the card logo is displayed
Open-loop cards
Lockbox technology: Reads pre-printed information on remittance documents
Optical Character Recognition (OCR)
Seven ACH system participants: This is the financial institution that acts as an intermediary to an ACH TSX by initiating either a credit or debit TSX.
Originating Depository Financial Institution (ODFI)
Seven ACH system participants: This is the party to an ACH TSX that may initiate either a credit or debit transaction.
Originator
Types of debit cards: These debit transaction cards facilitate consumer authorization and authentication through the entry of a PIN at the POS terminal. Authorization and clearing are generally immediate and are facilitated by network operators, such as MC, Visa, NYCE, STAR, Interlink and Accel/Exchange.
PIN based
Converting checks to electronic payments: Many retail outlets have systems that allow customers to have checks scanned, capturing the account information from the MICR line at the POP. The MICR line data are converted into an ACH debit, and the check is voided and returned to the customer, who then signs a debit authorization in the form of a register receipt.
POP Check Conversion
Six additional paper payment instruments: A payment instrument resembling a check that is drawn against the payer rather than the bank. It is handled like a check through the clearing process, but the responsibility for paying the draft lies with the drawee.
Payable through draft (PTD)
Two parties involved in the TSF of monetary value: Party receiving the payment
Payee or beneficiary
Two parties involved in the TSF of monetary value: Party making the payment
Payer
Six participants in the clearing process: This bank or financial institution is where the payer's account resides. For settlement to occur, value must be transferred from the payer's account at this bank to the account at the payee's bank.
Paying Bank
Four methods of clearing and settlement for electronic payment systems: These transactions manage the processing of payments using debit, credit, stored-value and smart cards as the payment instrument.
Payment Card Systems
Ways to outsource AP services: Payroll services
Payroll Services
Payable through draft (PTD)
Popular disbursement device for the payment of insurance claims. Allows a company the time to ensure that all terms have been met before releasing funds.
ACH: Memo Posting
Practice of noting an ACH credit or debit entry early in the day when actual debit/credit will not be applied until next day.
Six additional paper payment instruments: A payment instrument that authorizes the payee to draw/draft against the payer's account. The payee, rather than the payer, initiates the transaction. Mortgage, insurance and other recurring payments may be made this way. Over the last few years, most of these payment instruments have been preplace by ACH debits.
Pre-Authorized Draft
Five basic ACH formats: Consumers authorize a company or a financial institution to credit or debit (B2C) an account for normally recurring payments in fixed amounts.
Pre-arranged Payment or Deposit (PPD)
Time Draft
Presented with documents that verify terms. If all documents are available the draft is payable on a specified future date.
Sight Draft
Presented with documents that verify terms. If all documents are available the draft is payable on presentment.
These cards are used by businesses for the purchase of supplies, inventory, equipment, and service contracts. They're typically used for varying purchases, either low- or high- volume, with spending limits established on an individual card bases. Purchases can be limited to approved vendors and suppliers, as determined by the merchant category code of the vendor or supplier.
Purchasing Cards
Five basic ACH formats: Used to transmit ACH debit entries in place of a paper check after it has been returned for insufficient or uncollected funds.
Re-presented check entries (RCK)
Seven ACH system participants: This is party to an ACH transaction that takes delivery of either a credit or debit transaction from another part.
Receiver
Six participants in the clearing process: This bank or financial institution is where the payee's account resides. Value must be transferred to the payee's account at this bank.
Receiving Bank
Seven ACH system participants: This is the financial institution that acts as an intermediary to an ACH transaction by taking delivery of either a credit or debit TSX from another party.
Receiving Depository Financial Institution (RDFI)
Six additional paper payment instruments: Payment instruments that are similar to pre-authorized debits, except they are generally created for a one-time payment rather than for a recurring payment. They are vulnerable to fraud because they do not bear a signature or other readily verifiable indication that payment has been authorized. According to Reg CC, any bank that transfers or presents this payment instrument warrants that the check is authorized by the person on whose account the check is drawn. As a result, many banks refuse to accept these for deposit.
Remotely Created Check (RCC)
Classification of Wires: Standing Wires
Repetitive wires take place when certain criteria are met
Fields found on business checks: This is a nine-digit code that identifies which financial institution the check is drawn upon. The first two digits must be in the ranges 00 through 12, 21 through 32, 61 through 72, or 72 through 80. The third digit represents the particular office of a Federal Reserve Bank serving the drawee bank. The fourth digit is the availability classification. The Bank Identification Number makes up the following four digits and the last digit is known as the check digit.
Routing Number
This service allows organizations involved in collecting consumer payments to offer an alternative to the traditional credit card or direct debit types of payment. If the consumer's bank offers online banking services, then this system allows for the creation of an ACH credit transfer of funds from the consumer's bank to the collecting organization's bank.
Secure Vault Payments
Types of debit cards: These cards bear the logos of Visa, MasterCard or Discover and are processed in the same manner as credit card transactions using those network operators. The customer signs a receipt at checkout time.
Signature based
Most of the credit card companies offer their account holders the ability to generate a disposable card number to provide additional purchasing security. These card numbers look like regular credit card numbers, including embedded expiration dates and security-codes, but they will only work once.
Single use cards
These payment devices look like credit cards. But they contain an embedded microprocessor. Each TSX made updates the card's memory. These cards can be used only with special card readers that can read and write to the card and are widely used in Europe and the UK.
Smart Cards
Imprest account
Sometimes used as petty cash account. Maintained at a prescribed level for particular purpose.
Six additional paper payment instruments: This is an order to pay that instructs a state treasurer to pay the warrant holder on demand or after a maturity date. Those that are deposited in a bank are routed (based on the MICR line information) to a collecting bank that processes them as collection items. The collecting bank presents these to the government entity's treasury department for payment each business day. They are issued for payroll purposes, AP to vendors, to local governments, to taxpayers receiving tax refunds and to owners of unclaimed monies.
State Warrants
These cards may be offered by financial institutions, retailer and other service providers, and they can be branded open-loop cards or private-label, closed-loop cards. Generally the open-loop cards can be used almost anywhere while the closed-loop cards can only be used at one selected merchant (or perhaps a few). The most common type is the gift card. The payroll card is offered as an alternative payment method to EEs who do not have bank accounts and cannot accept direct deposit of their paychecks.
Stored value cards (SVCs)
Three methods used to improve efficiency or reduce risk in the payments system: This is an initiative used by companies in the financial industry to optimize the speed at which transactions are processed. This is performed by allowing information that has been electronically entered to be transferred from one party to another in the settlement process without manually reentering the same pieces of information repeatedly over the entire sequence of events.
Straight-Through Processing (STP)
Two reports that banks may need to file with the Financial Crimes Enforcement Network (FinCEN): Suspicious activity report.
Suspicious Activity Reports
Four primary mechanisms for the settlement of euro payments and transfers: This payments system provides real-time settlement for cross-border electronic payments in euros. It is used primarily for urgent, high-value payments and an important function is to enable central banks to mobilize liquidity around Europe in order to abide by monetary policy objectives determined by the European Central Bank (ECB).
TARGET2
Electronic disbursement methods that are accepted or are gaining increased acceptance: Direct deposit
TSFs made from a company's account to the account of EE's, shareholders, vendors and trading partners using ACH credit transactions.
Basic ACH entry formats (other than ARC, POP and BAC): Used for payments that are not pre-authorized but are approved by consumers over the phone.
Telephone Initiated Entry (TIE)
Electronic disbursement methods that are accepted or are gaining increased acceptance: Federal and state tax payments
The Electronic Federal Tax Payment System (EFTPS) is the primary method for collecting and accounting for federal taxes withheld by employers from individuals' salaries and wages as well as corporate business and excise taxes.
Four clearing channels available for clearing transit checks: Federal Reserve System (Fed)
The Fed also acts as a check-clearing agent. Depository banks can send checks or images to the Fed, who will then clear the check and transfer values from paying banks to depository banks.
Describe three ways that documents or payment information are moved from one bank or financial institution to another.
The paying bank and receiving bank communicate: (1) directly (2) through correspondent bank(s) (3) through clearing house, gov authority or 3rd part.
Four clearing channels available for clearing transit checks: Clearinghouses
These are either formal or informal associations formed by banks in a geographic area to permit the exchange of items drawn on member participants. Representatives from member banks make daily, or sometimes more frequent, presentments at the clearinghouse. The net value (i.e. dollar amount of items submitted less items received and calculated on a bank-by-bank basis) is transferred between the banks by debiting and crediting correspondent accounts or through reserve accounts that each bank maintains with the local Federal Reserve Bank.
Two deposit related deadlines established by banks and determine when funds become available: Bank's ledger cutoff time
Time a deposit must be received to be posted. Received after cutoff time, amount posted next day.
Two deposit related deadlines established by banks and determine when funds become available: Deposit deadline
Time when an item must be ready for transit at depository banks processing center.
These credit cards are used by businesses for employee travel purposes.
Travel Cards
Six additional paper payment instruments: These prepaid instruments are similar to money orders. Two signatures usually are required by the purchaser: one at issuance and one at the time the check is used to pay for goods or services. Some issuers of these instruments are moving to replace them with various types of stored-value cards to improve processing times and reduce fraud.
Traveler's Checks
Zero balance account
Typically disbursement accounts on which a company issues checks, initiates ACH debits or wire transfers. The end-of-day balance is maintained at zero.
Organizations that receive ACH payments but do not wish to divulge confidential banking information to those sending the payments may use this unique account identifier issued by financial institutions. It allows organization to receive electronic payments without providing the payer with their bank account numbers.
Universal Payment Identification Codes (UPICs)
Three factors that influence availability: As-of adjustments
When a check takes longer to clear than the initial availability that was granted, a bank may add the additional time as part of the collected balance calculation. This practice is referred to as making an as-of adjustment. If a bank originally granted on-day availability but actually cleared the check in two days, then one more day of float is added in calculating collected balances.
Three categories of payment systems: Electronic Systems
Wire and ACH payments
Three factors that influence availability: Reject items
missed deposit deadlines, and additional processing fees are the result
