Group 4

A payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money

In simple terms, money is regarded as cash

(i.e., notes and coins issued by the government or central bank) or claims against credit institutions in the form of deposits. The use of bank deposits to make payments has become an important medium in most developed countries and to make a payment, the payer must issue an instruction in the form of a paper-based instrument (e.g. a check) or an electronic instruction (e.g. using a credit or plastic card).

The effectiveness of payment activities is fully dependent on the arrangements that facilitate fund transfers between members and it is through these arrangements that constitute a payment system. Payment Systems consist therefore of networks that link the members with existing rules and procedures for the use of this infrastructure. A Payment System normally requires the following:

 Standard methods of transmitting payment messages between members Agreed means of settling claims within the members/participants (normally through the deposits of the members/participants with the central bank) Common operating procedures and rules (admission, fees, operating hours)

Payment systems are vital part of the economic and financial infrastructure. Their efficient functioning, allowing transactions to be completed safely and on time, makes a key contribution to overall economic performance. Payment systems, however, can also involve significant exposures to risks for members. It is for this reason that central banks have always taken into account the design and operation of payment systems additional control features to mitigate these risks.

WHAT ARE THE MAJOR PAYMENT INSTRUMENTS IN THE PHILIPPINES?

Check
A written order from one party (the drawer) to another (the drawee, normally a bank) requiring the drawee to pay a specified sum on demand to the drawer or to a third party specified by the drawer.

Credit Card
A card indicating that the holder has been granted a line of credit. It enables the holder to make purchases and/or withdraw cash up to a prearranged ceiling; the credit granted can be settled in full by the end of a specified period or can be settled in part, with the balance taken as extended credit. Interest is charged on the amount of any extended credit and the holder is sometimes charged an annual fee. Credit cards in the Philippines are usually issued by the banks which have formed part of their marketing strategy to increase the number of their customer base and improve income that can be generated from retail and consumer business. Credit card use is no longer limited to the ordinary purchase of goods and services by the cardholders. Banks have expanded its usage for other purposes such as cash advance, easy installment plan for purchases, link-up to savings and checking accounts of cardholders etc. to attract more customers. The most common credit cards being used are the Visa, MasterCard, BanKard, JCB, Unicard, Diners Card, and American Express Card.

Debit Card Debit Cards enable the holder to have his purchases directly charged to funds on his account at a deposit-taking institution (may sometimes be combined with another function e.g. that of a cash card or check guarantee card) The existing ATM networks (BancNet, MegaLink, ExpressNet, Nationlink and Encash) have developed their own Point-of-Sale (POS) System to allow their depositors to pay for their purchases electronically through their ATMs for credit to the retailers account.

Stored Value Card

Stored Value Cards are prepaid card in which the record of funds can be increased as well as decreased. Also called an electronic purse. In the Philippines, these cards are commonly single use instruments and non-reusable. Typical examples of single use cards are those issued by the the Light Rail Transit Authority, Metro Rail Transit Authority, and telecommunications companies. A bank pioneered also the use of multi-purpose reloadable e-Cash that can be used for cash withdrawal through the banks counter or automated teller machines or payment of bills to the accredited establishment of the e-Cash issuer.

Electronic Money

A value stored electronically in a device such as a chip card or a hard drive in a personal computer.11 Also known as e-money. The BSP classify e-money further as monetary value stored electronically in an instrument or device which can be converted back to cash, and if issued by a bank, shall not be considered as deposit. Two of the most popular form of e-money in the Philippines are SMART Money and Globes G-Cash.

Electronic Check Clearing System (ECCS) Operated by the Philippine Clearing House Corporation, ECCS is the system used to facilitate the exchange of checks issued by banks for processing and settlement through their DDAs with the BSP.

Electronic Peso Clearing and Settlement System (EPCS)

The Electronic Peso Clearing and Settlement System is an interbank account-to-account fund transfer system that supports bulk, recurring, non-time sensitive payment and collection transactions. This is considered a cost-efficient means of transacting payments and collections and considered as a robust alternative to check payments. EPCS is operated by the Philippine Clearing House Corporation.

Philippine Domestic Dollar Transfer System (PDDTS) This system allows online, real time settlement of domestic interbank US Dollar transfers/trading. In addition, it provides a facility for online inquiry and settlement of foreign exchange transactions, where the PDDTS participants enter interbank US Dollar and Peso transfer instruction in a single screen. The US Dollar leg is settled via PDDTS using their US Dollar accounts with Citibank as settlement bank. The Peso leg is transmitted via the PDS Settlement Highway (PSH) to the Philippine Payments and Settlements System (PhilPaSS) for settlement through the banks DDAs maintained with Bangko Sentral ng Pilipinas.

PDS Settlement Highway (PSH) The PSH, which is operated by the Philippine Dealing System (PDS) Group, enables the real time settlement of various investment trading activities including, but not limited to the following: settlement of the Peso leg of US Dollar interbank transfers/trading (via Payment vs. Payment system or PvP), settlement of interbank/interdealer repurchase transactions and securities trading (via Delivery vs. Payment system or DvP), tertiary or public market trading (via expanded Delivery vs. Payment system or eDvP) distribution of interests and dividends from registries, custodians or the depository.

Automated Teller Machine (ATM)

ATMs, being used in a variety of retail payment transactions, have
been an indispensable payment instrument nowadays. The system that connects the ATM consortiums now enables cashless payments for purchases made by ATM cardholders. What the system does is it debits the ATM cardholders account with his bank for every purchase made using his ATM card thus, making transactions safer and more efficient.

Philippine Payments and Settlements System (PhilPaSS) The Philippine Payments and Settlements System or PhilPaSS is the system name where both processing and final settlement of fund transfer instructions can take place continuously (i.e. in real time). As a gross settlement system, it enables individual settlement of payment instructions, that is, without netting debits against credit. As a real time settlement system, the system effects final settlement continuously rather than periodically at pre-specified times provided that a sending bank has sufficient balances or credit. The settlement process is based on real time transfer of central bank money.

WHY ARE PAYMENT SYSTEMS IMPORTANT?

A. Payment systems allow safe and timely completion of transactions. Various payment systems are normally used by companies to buy or sell goods and services; individuals rely on them to receive their salaries and for retail purchases; and the government depends on them to receive taxes and pay benefits.

B. Payment systems allow the customers of one bank to make payments to other banks thereby minimizing the risks of fraud and erroneous payments to illegitimate creditors.

C. Payment systems are vital to the operation of

financial markets as they are used to settle trading of various financial instruments such as government securities, commercial paper, stocks, foreign exchange and derivatives.