Ch. 4 Payment Instruments and Systems

Ledger Balance

A bank balance that reflects all entries to a bank account, regardless of whether the deposited items have been collected and are available for withdrawal.

Correspondent Bank

A bank in which another bank has an account (and vice versa) for the purpose of facilitating fund transfers.

Settlement Risk

A form of counterparty credit risk that is related to the probability that a party funding a particular transaction will default on the actual payment or settlement obligation. In a foreign exchange (FX) transaction, settlement risk is the risk that one party to the transaction provides the currency it agreed to sell but does not receive the currency it agreed to buy. Thus, the transaction is not settled.

Fedwire

A high-value, real-time gross settlement (RTGS) transfer system operated by the US Federal Reserve.

Clearing House Interbank Payments System (CHIPS)

A large-dollar funds transfer network operated by The Clearing House Payments Company, a bankowned US company.

Giro

A method of transferring money by instructing a bank to directly transfer funds from one bank account to another without the use of checks. Giro payments are initiated by the payor and can be one-time payments or can be recurring standing instructions for a series of payments. A giro payment is the functional equivalent of an automated clearinghouse (ACH) credit. Also known as postal giro, since many giro systems are run by the postal system within a country

FedGlobal ACH Payments

A service offered by the US Federal Reserve Bank to provide a framework for sending cross-border automated clearinghouse (ACH) transactions to countries around the world (over 35 countries as of 2015).

Merchant Discount

A type of bundled merchant card processing fee in which the merchant is charged one fee by its card processor that covers all of the cost components of the transaction. The term discount is used because this type of fee is typically subtracted directly from any card settlement.

on-us check clearing

A type of check-clearing process that involves a single bank and occurs when a payee deposits a check in an account at the same bank on which it is drawn.

on-we check clearing

A type of check-clearing process that occurs when checks are deposited at a financial institution that are drawn on related financial institutions or on financial institutions that share a common check-processing system, thus eliminating the need to clear the checks through another bank.

Settlement

Actual movement of funds from the payors account to the payees account

Automated Clearing House (ACH)

An electronic network for financial transactions in the U.S. The network processes batches of debits and credits to various financial institutions allowing for fast, safe and efficient transfer of funds.

Interchange Fees

Fees established by the payment card brands that go directly to the issuing bank to cover its costs in issuing cards and in processing card transactions. These fees typically account for the largest portion of overall card fees and represent a fee that is paid to the issuing bank for each transaction.

Government Warrant

In government finance, this is an order to pay that instructs a treasurer to pay the warrant holder on demand or after a maturity date. Warrants deposited in a bank are routed (based on the magnetic ink character recognition line information) to a collecting bank that processes them as collection items. The collecting bank presents the warrants to the government entity's treasury department for payment each business day.

Merchant Acquirer

The financial institution that processes and settles payment card transactions on behalf of a merchant

Clearing

The process in which FIs use the information contained in a payment instruction, such as a check or wire transfer, to transfer money between themselves on behalf of the payor and the beneficiary, either directly or through some external network.

Charge-back

The reversal of a prior outbound transfer of funds from a consumer's bank account, line of credit, or credit card.

Deposit Float

The sum of the daily dollar amount of items in the process of collection (primarily checks) divided by the number of calendar or business days in the account analysis period.

Account-to-receiver transfer

Under the FedGlobal ACH Payments system, this type of transfer allows funds from accounts at a US depository financial institution to be retrieved by any receiver either at a participating bank location or at a trusted, third-party provider in certain receiving countries.