Banking System Methods of Payment

Banking System Methods of Payment

• Banks facilitate transactions by channelling funds from surplus to deficit economic units, often using direct or indirect methods.
• Indirect methods, involving intermediaries like banks, are common and allow for efficient, yet profitable, fund transfer.
• Banking services include vehicle safekeeping, cheque accounts (demand deposits), trust services, savings deposits, discounts of commercial notes, business and corporate loans, currency exchange, consumer loans, and equipment leasing.
• Financial advising, venture capital loans, and cash management services are also essential banking functions.
• Laws govern payment systems, such as the Bank Secrecy Act (BSA), which mandates reporting of suspicious transactions (over $1 million daily).

Objectives of the Unit

• Learners should understand bank regulations for payment systems.
• Students should be able to differentiate payment methods available to banks.
• Students should be able to define in-clearing capture, statement rendering, examination, and filing.

Cash Payment System

• Cash is a widely used payment method in Nigeria.
• Currency is printed and distributed through a central bank system and then returned to the central bank for destruction before re-circulation.
• This process circulates only new, high quality notes.

Cheque Payment System

• Cheques are a widely used payment instrument.
• They are considered a reliable method of transferring large sums of money with just one document.
• The cheque payment process involves three key parties: drawer, drawee (bank), and payee.

Types of Cheques

• Cashier's cheques are issued by the bank and drawn on the bank itself
• Teller's cheques are issued by one bank on another bank
• Certified cheques are cheques that have been officially approved by the bank

Cheque Payment Process

• The process begins with the drawer writing the cheque.
• Once presented to the drawee, the cheque is verified and cleared.
• The funds are transferred from the drawer's account to the payee's account if the transaction is valid.

Electronic Fund Transfer (EFT)

• EFT procedures safeguard customer and bank transactions.
• Regulations outline appropriate disclosures for EFT transactions and procedures for resolving disputes.
• Limits on liability for unauthorized transactions exist; 50$ if a bank is notified within 2 days of loss/theft.

Regulations

• Regulations like the Electronic Fund Transfer Act protect customers and banks
• There are stipulations about the amount that can be transferred as well as when and to whom.
• Regulations address procedures for resolving disputed or erroneous electronic transactions.
• Regulations include provisions for stop payment requests.

Examination and Filing

• The process involves sorting cheques based on date, number, and other characteristics.
• Cheques are then organised and bundled.
• Account numbers & automated signature verification are used when creating reports.
• The process may involve separating cheques into individual accounts, in terms of the financial statements produced.

Statement Rendering

• Account statements are generated based on debit/credit transactions.
• A bar code/number sequence is often used to track transactions on statements.
• statements confirm previous months' transactions.