Payments Processing System Elements

Payments Processing System Elements 

Payments are the fiscal instruments that people and commercial encyclopedically use to transfer finances. This helps commercial to mange Cash, DPO and DSO effectively and efficiently. Payments in itself are a veritably vast because of the vacuity of numerous payment systems in a given country and each system have unique way of processing. At the same time payment processing system has to work in agreement with the nonsupervisory demand of the country. Since each country uses to have their unique currency, it adds fresh flavor to processing. Payment geography is each set to change drastically in coming times with the arrival of new technologiese.g. PayPal, Bit coin, Block Chain and SWIFT GPI. 

With gradational technological advancement Payments geography is constantly changing day by day. There are around 750 Payment system throughout the world and with the arrival of PayPal, Bitcoin, Block chain and SWIFT GPI, stage is each set for Payments Landscape to enter in the coming phase. 

This blog provides information about the essential rudiments of a payment processing system and the actors. 

Any Payment Processing system must be characterized by following- 

 

1. Payment System

A payment system is a set of processes and technologies that transfer financial value from one reality to another. Payments are generally made in exchange for the provision of goods, services, or to satisfy a legal obligation. They can be made in a variety of currencies using several styles similar as cash, checks, electronic payments and cards. The substance of a payment system is that it uses cash- backups, similar as checks or electronic dispatches, to produce the disbenefits and credits that transfer value. 

The value that's being transferred is generally stored in repository accounts at banks or other types of fiscal institutions. The banks, in turn, are connected to a set of payment systems that they use to reuse payments on behalf of their guests or depositors. utmost US banks are members of a number of different payment systems similar as NYCE( New York Cash Exchange, a attachment of FIS), CHIPS( Clearing House Interbank Payment Systems) and Fed line( US Federal Reserve Bank network). Non-US banks are connected into analogous public systems similar as CNAPS( China), BOJNET( Japan) and SPEI( Mexico). Banks operating in multiple countries connect to payment systems in each of the countries where they operate either directly or through a pressman

bank. Significantly for the agreement process and for the discussion of lower conventional payment systems, banks in numerous countries generally maintain accounts with their central bank and share in the central bank's payment systems. In the Euro zone, the authorities have taken it a step further by creating SEPA, the Single European Payments Area, under the authority of the European Central Bank( ECB). SEPA was created to give standardized payments recycling and costs among all the colorful countries within the Euro zone. 

 

In the simplest case involving the traditional banking system, payments involve four actors 

The payer Makes the payment and has its bank account debited for the value of the sale. 

The payer's fiscal institution Processes the sale on the payer's behalf. 

The payee's fiscal institution Processes the sale on behalf of the payee and generally holds the value in an account. 

The payee Receives value of the payment by credit to its account. 

This is illustrated in the Diagram 1 at the bottom of the blog. 

In the simple case illustrated then the two banks may choose to transfer payment instructions and finances directly with each other. It's also possible for the banks to use colorful interposers to help grease the sale. 

In the real world the interposers includes central banks similar as the Fed( US Federal Reserve), ECB( European Central Bank) and The Bank of England and clearinghouses similar as CHIPS. There are also information transmission mechanisms similar as SWIFT( Society for Worldwide Interbank Financial Telecommunications) and payment systems similar as Fedwire and BOJNet which also include information transmission systems. realities similar as payroll processors, check printers, systems providers and card systems similar as Visa and MasterCard that are outside of the four corners model also share in the payment process. Non-traditional payment systems similar as Bitcoin/ Bock Chain bypass the banking system nearly entirely by fulfilling the part of fiscal institution, currency and network themselves. 

 

Payment processing involves four introductory way 

Payment instructions are the information contained in a line transfer or check. These instructions are from the payer and tell the paying bank to transfer value to the devisee through the interposers and entering bank. 

Payment generation is when the instructions are entered into the system — published on a check or transmitted via ACH or line. 

Clearing is the process where the banks use the payment information to transfer plutocrat between themselves on behalf of the payor and the devisee. 

agreement is the final step in the introductory process and occurs when the devisee's bank account is credited and the payor's bank account is debited. Final agreement occurs when the banks pass value among themselves, a distinction that has important storeroom counteraccusations . 

The factual payment process will depend on the type of payment instrument that the payer and payee choose to use. 

 

2. Payment Channels 

Processors for the payment processing services can use different channels to make a payment and each has different operating characteristics, rules and agreement mechanisms. Astronomically, all payment systems can be placed into one of the following four payment channels 

Paper- grounded systems similar as checks or drafts. Payments are initiated when one party writes an instruction on paper to pay another. These systems are one of the oldest forms ofnon-cash payment systems. Checks are a common paper- grounded channel and are still extensively used in the United States and a many other countries. 

RTGS( Real Time Gross agreement) or High- Value Payments; called line transfers by utmost people. Cables came into being in the late 1800s with the invention of the telegraph but didn't come extensively used until the early 1900s. 

RTNS, or Real Time Net agreement systems or Automated Clearing House( ACH) batch payments were introduced in the early 1970s and were designed to replace checks with electronic payments. Unlike cables, which are reused collectively, ACH payment process are reused in batches and were firstly intended for small payments under$,000 similar as payroll and consumer deals. 

Cards are a payment channel that includes credit, disbenefit and stored value cards. They're a fast growing member of the styles for making and entering payments. 

 3. Payment Processing and Control 

Payment Processing and Controls is a more individual/ business- centric process conforming of six essential way 

Entry into the obligation to buy goods or services or the incurrence of a legal obligation. This could affect from a purchase order or an oral commitment to make a purchase. 

The obligation is approved and entered into an account system by the payer. 

The payment system, similar as check, ACH, or line, is named keeping in mind that this might have been specified when the obligation was incurred. Since the speed and cost of entering a payment are partial determinants of a dealer's profitability, numerous merchandisers specify payment types and terms. 

inauguration and prosecution of the payment by the purchaser. 

Backing and agreement of the payment. 

sale conciliation between company systems and external bank accounts. 

 4. agreement 

agreement refers to the factual movement of finances from the payer's account to the payee's account. In other words the time at which the payee can actually use the plutocrat involved. It's different from futurity which is the point in time when the payee knows that the plutocrat involved can not be taken back by the payer or the payer's bank. agreement becomes final when a payment is unconditional and irrevocable. 

 

Futurity varies depending on the payment system and the parties involved in the sale. Payment systems that offer immediate and irrevocable value are called Real Time Gross Settlement( RTGS) systems. Others, similar as check grounded systems, give immediate information with value following shortly. But the value occasionally is contingent on the payer or the payer's bank not trying to repudiate the payment, a right which can live for a number of days, depending upon the payment system. This can be a major issue for global companies using numerous different low value payment systems that feed into some kind of cash pooling or attention system. While the quantum of a rescinded payment may not be large, counting for the abortion can prove grueling , particularly when it involves two currencies. 

From the bank perspective the factual transfer of finances, or agreement, can be handled in several different ways. In a domestic transfer, one in which all parties are in the same country, agreement is frequently handled between the banks using common accounts held at their central bank. In the United States these accounts are held at the Federal Reserve Bank and appertained to as reserve accounts. In across-border payment involving further than one country, banks generally use repository accounts with each other, called pressman

accounts, to settle their guests' finances transfers with the pressman

banks using their reserve accounts on behalf of their guests.