Payments Library

What is EBA?
EBA (Euro Banking Association) develops European payment infrastructures. The association's primary activities involve initiating and developing cost-effective and efficient euro clearing systems such as EURO1, STEP1 and STEP2 (PE-ACH).

• EURO1 — A private sector-owned high-value payment system for cross-border and domestic transactions in euro between banks operating in the European Union.
• PE-ACH — Pan-European Automated Clearing House
• STEP1 — A payment system for processing single cross-border commercial transactions in euro. The system enables banks that operate in the European Union to exchange commercial payments with other STEP1 participants as well as the entire EURO1 community.
• STEP2 — The first PE-ACH for bulk payments in euro for retail credit transfers of up to €50,000 per transaction. Instructions must include the beneficiary's IBAN and BIC of the beneficiary's bank.

What is IBAN?
IBAN (International Bank Account Number) is an account number formatted according to international standards to uniquely identify a bank account in cross-border transactions between European countries.

The International Standards Organization (ISO) and the European Committee for Banking Standards (ECBS) are responsible for the development and implementation of IBAN.

What is a Zengin Code?
The Zengin system is one of three clearinghouses, operated by the Japanese Bankers Association, and serves as an inter-bank on-line messaging system for handling domestic fund transfers. Nearly 13,000 Japanese Zengin bank codes are now available in TGBR.

What is the U.S. Payment System?
The payment system in the U.S. is a network of banks, central banks, securities firms, service providers, and industry-owned utilities that provides both the smooth transfer of funds for business and financial transactions and the timely settlement of securities transactions. There are the two principal wholesale payment systems, Fedwire and CHIPS (the Clearing House Inter-Bank Payments System), their bank participants, the government securities settlement systems operated by the U.S. Federal Reserve System and two principal clearing banks, and the clearing and settlement organizations for corporate and other securities. For its liquidity and risk management, as well as its transaction flow, the payment system depends on well-functioning financial markets and an extensive communications network.

What is the SIC?
The Swiss Interbank Clearing System (SIC) was one of the first Real-Time Gross Settlement (RTGS) systems that provides sequential processing of payments and settlement through the bank's reserve accounts at the central bank. It is an on-line system operating around the clock on all bank working days; while payments can be entered any time and up to 5 days before the value date, settlement is effected during a 22 hour cycle.

What is TARGET?
TARGET stands for the Trans-European Automated Real-Time Gross Settlement Express Transfer System. TARGET is an EU-wide system that was designed for Euro payments. TARGET is available for all credit transfers in Euro between EU countries, including those countries not participating in EMU. There is no upper or lower value limit for TARGET payments. It is possible to make credit transfers to almost all EU credit institutions via TARGET without any limitation on value. With special emphasis on large-value payments related to money market and foreign exchange operations TARGET contributes to reducing systemic risk.

What is the APACS?
APACS stands for the Association for Payment Clearing Services. APACS provides the opportunity for banks and building societies to discuss non-competitive issues relating to money transmission. One of APACS' primary duties is to oversee the major UK payment clearing systems and to uphold their operational effectiveness and financial honesty. In addition, APACS forecasts payment trends, conducts market research and maintains a large body of statistics. The Association is also responsible for creating payments industry standards.

What are the Australian Payment Systems?
Australian Payments Clearing Associate (APCA) owns and operates three general-purpose payments clearing systems. These three systems deal with: Cheques and other paper instruments, Bulk electronic (direct-entry) payments, Large-value electronic payments.

What is the Clearing System in China?
The three clearing systems in China are The Electronic Interbank System (EIS), Electronic Funds Transfer System (EFT), and the Local Clearing House (LCH). EIS and LCH are operated and owned by the People's Bank of China (PBOC), and the EFT is utilized and owned by the four state-owned commercial banks: Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank of China, and Bank of China.

The clearing system of Hong Kong is equally owned by the Hong Kong Monetary Authority (HKMA) and Hong Kong Association of Banks (HKAB), and is operated by the Hong Kong Interbank Clearing Ltd (HKCL). The system is made up of three parts. These are the Clearing House Automated Transfer System (CHATS), Paper Cheque Clearing (CLG) and Electronic Clearing (ECG).

What is the Clearing system in Japan?
There are three clearinghouses in Japan, and they are operated by the Japanese Bankers Association. These consist of:

• Zengin system — Operated and otherwise known as the inter-bank on-line data telecommunications system for handling domestic fund transfers for third parties such as credit transfers and remittances. Gaitame system — Also known as the Foreign Exchange Yen Clearing System where it provides centralized interbank settlement of the yen funds arising from foreign exchange transactions.
• Bill and Cheque Clearing system — It facilitates the exchange of bills and cheques between financial institutions. It also manages the 'suspension of transactions' system.

What is the Payment System in Thailand?
There is one Electronic Clearing House (ECH) operated by the Bank of Thailand and 92 other clearing houses in Thailand.The clearing area of the ECH covers the Bangkok Metropolis, Nontaburi, Patumtani, Samutprakan, and some parts of Nakornprathorn, Ayuthya and Samutsakorn. Under the ECH, there are two low-value high volume clearing systems. The Electronic Cheque Clearing System (ECS) and Media Clearing System where payments are settled on a multilateral netting basis across the participating financial institutions' current accounts with BOT via Bank of Thailand's Automated High-Value Transfer Network (BAHTNET). The other 92 clearinghouses are branches of participating banks in respective areas of Thailand.

What is the German Payment System?
Deutsche Bundesbank is responsible for the German payment system. Under Article 3 of the Statute of the ESCB and the ECB, one of the ESCB's/ECB's primary tasks is to promote the smooth running payment system. Section 3 of the Bundesbank Act gives the Bundesbank the consent to provide for the execution of payments by banks at home and abroad. The Bundesbank offers its account holders services in cashless payment transactions via 126 branch offices, 2 research centers and 2 payment points. Its link to TARGET gives its customers access to all other large-value payment systems in the EU as well; foreign payment transactions make global payments possible.

What is the United Kingdom Payment System?
The UK payment system is run by the Bank of England. The main UK payment systems are CHAPS, BACS and CREST. CHAPS is the dominant payment system and is done in Sterling (and Euro up until 16 May 2008 when it was terminated). BACS is the UK's automated clearinghouse which provides retail payment services that include direct debit, credit and standing order. Finally, CREST is the settlement system that settles UK equities, corporate bonds, gilts and money market instruments. CREST is responsible for settling the most payments in a given day.

CHAPS
CHAPS (Clearing House Automated Payment System) is an electronic transfer system for sending same day value payments from bank to bank. It operates in partnership with the Bank of England in providing a payment and settlement service for banks. The CHAPS Clearing Company had operated two separate Clearings, CHAPS Sterling and CHAPS Euro until 16 May 2008 when CHAPS Euro was terminated.

The CHAPS Sterling payment system, developed in 1984, is one of the largest real-time gross settlement systems in the world, second only to Fedwire in the United States. CHAPS offers its members and their participants an efficient, risk-free, reliable same-day payment mechanism. Every CHAPS payment is unconditional, irrevocable and guaranteed.

BACS
BACS (originally an acronym for Bankers' Automated Clearing Services) is responsible for bulk electronic clearing and the management and provision of related payment services to the UK banking industry. It has been operating for over thirty years and is among the largest automated clearing houses in the world.

What is the Russian Payment System?
The Russian payment system is regulated by the Civil Code of the Russian Federation and several federal laws, the most important of them being the Federal Law on the Central Bank of the Russian Federation (Bank of Russia) and Federal Law on Banks and Banking Activities, and the Bank of Russia rules and regulations issued in pursuance of these laws. The relationship between the Bank of Russia and its clients and between credit institutions and their clients are regulated by correspondent account (subaccount) or bank account agreements. These documents provide a legal basis for the functioning and further development of the Russian payment system. The Bank of Russia informs the banking community and the public about the amendments and changes made to its rules and regulations and the decisions on technical modifications in the Russian payment system.

What is the French Payment System?
The Paris financial centre has two systems for the settlement of large-value payments: the Transferts Banque de France (TBF) system, which is the French component of TARGET, and the Paris Net Settlement (PNS) system. Both systems are accessed through a single technical platform managed by CRI. The real-time bridge between the two systems means that institutions can allocate liquidity between both according to their needs.

• The TBF system — The TBF system went live in October 1997. Operated by the Banque de France, this is a real-time gross settlement (RTGS) system providing continuous transaction-by-transaction settlement without netting. Settlement is in central bank money and is irrevocable and unconditional, with the result that payment finality is guaranteed on a continuous basis throughout the day. As well as processing large-value interbank credit transfers, TBF provides settlement for monetary policy operations and for balances in "ancillary" systems for the exchange of retail payments, securities transactions and futures. Furthermore, as the French component of TARGET, TBF allows its participants to make euro cross-border transfers under the same conditions as domestic transfers.
• The PNS system — The Paris Net Settlement (PNS) system started up on 19 April 1999. It replaced the Protected Net Settlement system (Système Net Protégé - SNP) that had been in place since 1997. PNS is run by CRI, a company owned jointly by the Banque de France and nine credit institutions. A real-time system operating on a net basis, PNS provides final and continuous settlement for transfer operations in central bank money accounts held by participants. Payments processed in PNS have declined in terms of turnover and value since 2002. PNS handled an average of around 26,000 transfers a day in 2006, with a value of EUR 58 billion.

What is the Clearing System in Italy?
The Italian clearing system is composed of a SwiftNet-based RTGS system, Banca d’Italia Regolamento Lordo (BI-REL), which is linked to the European Central Bank’s clearing system TARGET, and a low-value net settlement system, Banca d’Italia Compensazione (BI-COMP).

Managed by the Banca d’Italia, BI-REL handles all urgent domestic electronic credit transfers exceeding €500,000 as well as all cross-border payments. Clearing and settlement occurs on a same-day basis and with immediate finality. Participation is either direct or indirect. All participants can access BI-REL via SWIFT, which links system participants directly to Banca d’Italia. Transactions are transmitted between the BI-REL participants and Banca d’Italia via the SWIFT Y-Copy service.

Rete Dettaglio — an electronic low-value clearing system that clears all low-value electronic payments (low-value credit transfers, direct debits, ATM and POS transactions as well as truncated cheques and bankers’ drafts). Rete Dettaglio is managed by Societa Interbancaria per l'Automazione (SIA), the Italian interbanking payments system technology and services provider. The standard clearing cycle for credit transfers is two days.

Recapiti Locali — a paper-based clearing system managed by Banca d'Italia for the clearing of all paper-based items that cannot be truncated, i.e. on average, any cheque above €12,500 or bankers' drafts exceeding €3,000. The normal clearing cycle is two days. However, an intra-day deposit cut-off time of 09:00 CET for presentation the following day - can affect the length of this cycle.

What is the Swedish Payment System?
In terms of transaction volumes, the Swedish payment system is dominated by the giro systems, the Bankgirot system and the Postgirot system, which account for more than 71% of all non-cash transactions. A growing proportion of the transactions in both systems are initiated electronically — around 86% in terms of value — and both the Postgirot and the Bankgirot administer systems for credit transfers initiated electronically via the internet. “The RIX system, the settlement system owned and operated by the Riksbank, is the hub of the Swedish payment system. The system, developed during 1988-90 and implemented in 1990, operates on an RTGS basis. The RIX system settles payments in both Swedish kronor and euros. Until 31 December 1998, the system was used exclusively for Swedish kronor. Even though Sweden is not fully participating in EMU, the RIX system was adjusted to handle euro payments as well when the member states participating in EMU introduced the euro as a common currency on 1 January 1999. The RIX system therefore consists of two parallel but separate systems, K-RIX for settlement in Swedish kronor and E-RIX for settlement in euros.”

What is RIX?
Via E-RIX, the RIX system is linked to the ESCBs TARGET system. The rules for the TARGET system are issued by the ECB. On the basis of the ECBs TARGET Guideline and the multilateral agreement on TARGET concluded between the ECB and the NCBs of the European Union, the Riksbank has implemented the provisions of the Guideline and the multilateral agreement at the national level. The national regulation for Sweden is stated in the “Rules and Regulations for settlement of payments in RIX”. Rules for the settlement of payments in Swedish kronor, which takes place in K-RIX, are also included in these rules and regulations. There are three agreements between the Riksbank and the participant: (a) an accession agreement, (b) an agreement on credit and deposits, and c) a pledge agreement for credit in RIX. The agreements are appended to the Rules and Regulations for settlement of payments in RIX, which are publicly available.

What are some Standard Entry Class Codes?

ARC
Accounts Receivable Entries. Checks received by a merchant through mail or drop box and presented as an ACH entry.

BOC
Back Office Conversion. Checks that are converted from paper to an electronic debit at a centralized location.

CCD
Corporate Cash Disbursement. Primarily used for business to business transactions.

DNE
Death Notification Entry. Issued by the Federal Government.

POP
Point-of-Purchase. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.

POS
Point-of-Sale. A debit at electronic terminal initiated by use of a plastic card. An example is using your Debit card to purchase gas.

PPD
Prearranged Payment and Deposits. Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.

RCK
Represented Check Entries. A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.

TEL
Telephone Initiated Entry. Verbal authorization by telephone to issue an ACH entry such as checks by phone. TEL code allowed for inbound telephone orders only. NACHA disallows the use of this code for outbound telephone solicitations calls.

WEB
Web Initiated Entry. Electronic authorization through the Internet to create an ACH entry such as PayPal.

XCK
Destroyed Check Entry. A physical check that was destroyed because of a disaster can be presented as an ACH entry.

What is Check 21?
The Check Clearing for the 21st Century Act (Check 21) was signed into law on October 28, 2003, and became effective on October 28, 2004. Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. The law facilitates check truncation by creating a new negotiable instrument called a substitute check, which permits banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks. A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checks.

What is CHIPS?
The Clearing House Interbank Payments System (CHIPS) is the main privately held clearing house for large-value transactions in the United States, settling well over US$1 trillion a day in around 250,000 interbank payments. Together with the Fedwire Funds Service (which is operated by the Federal Reserve Banks), CHIPS forms the primary U.S. network for large-value domestic and international USD payments (where it has a market share of around 96%).

What is China’s National Advanced Payment System?
"China's National Advanced Payment System, or CNAPS, has been a major project to modernize the China's payment systems since early 1990s. The design of CNAPS is heavily influenced by the current Chinese realities and demands as well as the long term forecasts and experiences of other developed countries. The main components of the CNAPS project include: To set up the technical infrastructure for China’s modern payment system, namely, a nation-wide data communication network which connects various banking institutions to the national and regional processing centers. This supporting technical infrastructure is called China National Financial Network (CNFN); and to develop payment processing systems, namely, CNAPS, including RTGS-based High Value Payment System (HVPS), Bulk Electronic Payment System (BEPS) for processing payment transactions of low value, bank card authorization system and a book-entry system for settlement of Government Securities.

What is SEPA?
The Single Euro Payments Area (SEPA) initiative for the European financial infrastructure involves the creation of a zone for the euro in which all electronic payments are considered domestic, and where a difference between national and intra-European cross border payments does not exist. The project aims to improve the efficiency of cross border payments and turn the fragmented national markets for euro payments into a single domestic one: SEPA will enable customers to make cashless euro payments to anyone located anywhere in the area using only a single bank account and a single set of payment instruments. The project includes the development of common financial instruments, standards, procedures, and infrastructure to enable economies of scale. This should in turn reduce the overall cost to the European economy of moving capital around the region (estimated today as 2%-3% of total GDP).