Unit 7 PDF: Banking System Methods

bank to another in the same zone takes two to three days and among different zones took more days. However with respect to modernization of Banking system,structures and payments, the methods described subsequently are now prevalent. 2.0 OBJECTIVES At the end of the this unit the student sho...

bank to another in the same zone takes two to three days and among different zones took more days. However with respect to modernization of Banking system,structures and payments, the methods described subsequently are now prevalent. 2.0 OBJECTIVES At the end of the this unit the student should amongst other things be able to:  The regulations governing Bank payment systems  Determine the different Bank payment methods available  Know the meaning of In-clearing capture, statement rendering, Examination & filing 3.0 MAIN CONTENT 3.1 BANKING SYSTEM METHOD OF PAYMENT The function of channelling funds from surplus economic units to deficit economic units often take place via two major channels. The direct and indirect channels. However, when channelling of fund involves an intermediate(middleman), we are concurrent with the indirect method. However, the banks as intermediary are not in business only to channel fields inexpensively and efficiently, but also in business to make profit. In the attempt to making these funds channelling aspect effectively, they attempt to create efficient and effective payment system. Bank services includes safe keeping of vehicles, offering of cheque in accounts(demand deposit), offering of trust services, savings deposits, discounting commercial notes and making business and corporate loans, currency exchanges, granting consumer loans, offering equipment leasing financial advising, venture capital loans and cash management. However, the payment method of the banking system are actually regulated by law; and some of the laws governing payment system are: Bank Secrecy Act (BSA), which places straight reporting requirements on banks for deposits, withdrawals or exchange of money that appears suspicious (infact any account that transact above 1M a day) will have to part up a disclosure as per the money laundry Act. REGULITION E: This is electronic fund transfer Act, which provides protection and procedures for customer and bank transacting pre authorized EFT payment, as well as ATM and POS transactions. The regulation details the disclosure required when transactions are initiated, transferred, and are receiving. It also outlines customer and bank responsibilities for reporting and resolving disputed or erroneous electronic transaction and stop payment on pre authorized payment it places different limit on liability fr authorizes transfer depending on how promptly the consumer notifies his or her bank. If a bank is notified within two days of leaving of a loss or theft of a debit card, consumer’s liability for unauthorized transaction up to a total of $50. therefore wanting buyer can add to the consumer’s liability. REGULATION J: This regulation concerns cheques and funds transfer, as per cheque collection and returns, cash and non cash items processes through central bank, as well as fund transfer through feel wire. It is basically to provide rules for affecting all returning items and settle balance. REGULATION CC: This one concerns expedited funds availability Act, which requires depository institution to make funds deposit into transaction accounts available for withdrawal within a set availability schedule. This depends on the nature of cheque involved (casher’s or personal cheque) and whether the chque is local or non-local Bank only hold funds beyond general funds available schedule under certain “safeguard” exception are if a bank involves an exception it must unify the customer in writing, *educate customer about substitute cheques and provides special customer notices in certain situation. *provides warranties and identities to protect the parties handling substitution cheques *establish a process by which customers may receive an expedited re-credit of amounts paid if they believe a substitution cheque they received was incorrectly charged to their account  3.2 PAYMENT SYSTEM 3.2.1. CASH PAYMENT SYSTEM: this is one payment system that require everyone uses to large extend. Cash is printed by the Nigerian printing, unity and security conform and it is then processed through central bank system to consumers and actually back to the central bank for destruction. It is often said that bad (dirty-paper) money drives away good money because it goes round and round until it ceases to go round by finding its way back to CBN for destruction and only then can crisp (new) notes circulate freely. Nigeria security Central Bank of Nigeria Holds new currency in Protecting &Monitory Delivers new currency Agents Governor of custody until issued Company CBN CBN sorts and court deposit Orders for new currency CBN currency, destroy old currency replace with fit and new Cash issued to all currency depository institution Excess cash shipped to Central Bank and other deposit institutions /Money deposit Banks CBN for credit reserve account Cash past out cash Deposited Indirect debts and business depositions 3.2.2 CHEQUE PAYMENT SYSTEM: Cheque is another method and a government method of making payment. This is so because a huge sum of money maybe contained injust one small piece of paper/document. A complete cheques chooses three parties – the drawer, drawee and payee, and ofcourse it tells a bank how much money should be transferred, when it should be transferred and to whom. It is a universally accepted method until sets of rules govern their negotiability, transferability, liability of parties and processes. A CHEQUE: is a negotiable instrument involves three parties: the person write the cheque (drawer), the person to whom the cheque is written (payee) and the bank that house the chequing account (the drawee). It is a consequent way of making payment for goods, services and other obligation, for the drawer. For the payee, a conviction of the cheque will be exchange for cash at a bank teller or credited to the payee’s account in a bank. It has some basic features – (i) it is payable to bearer if not crossed. (ii) unconditional order or promise to pay. (iii) amount certain in money. (iv) payable on cleared or determinable future debt written and signed. Types of Cheques In addition to personal and business cheques, banks provided cashier’s cheques, teller’s cheques or certified cheque for payment transactions (i) Cashier’s Cheque: this one is issued by the bank and drawn on the bank, having makes the bank both the drawer and the drawee. Often bank use it to pay their own obligation. (ii) TELLER CHEQUE: this one is issued by one bank and drawn on another bank or payer. The issuing banks obligation for this cheque is the same on cashier’s cheque. The payer bank provides customer services to both the consumer and the issuing house. (iii) CERTIFIED CHEQUE: This one is a draft, as it is accepted by the bank on which it is drawn. It is depositor’s cheque stamped certified, with a signature and data. The original order to pay is transferred to the banks promise to pay. They are legal  liabilities of the bank. Is complete the process of certifying a cheque, the bank places an official bank stamp and signature on the cheque, after confirmation of the personal cheque above the funds for the cheque, debiting the customer’s account and creating a certified cheque outstanding account. The magnetic ink character recitation. (MICR)line is general with certified cheque account number or mutilated so that it can’t pass through the customer’s account. THE CHEQUE PAYMENT PROCESS Okon: Drawer Victor’s Shipping Okon’s Cheque Ltd Payee Deposit money Okon’s cheque account bank statement CBN Clearing Agent Okon’s Bank Drawee The payment process starts when the cheque is transferred from one person or company to another person or company. The authorization is in signing the bottom of the cheque when it is presented before the bank for payment and then a collection process begun, which results in the transfer of money from the drawer’s account to the beneficiary or beneficiary’s account (payment) DRAWER: In the cheque payment process, the drawer starts up by writing a cheque on his or her account payable to an identifiable person, bearer or cash. IDENTIFIABLE PERSON: in this instant case, the cheque, requires endorsement by the identifiable person and delivery or transfer of the cheque in the course of negotiation. Effort must be made to ascertain the validity of all endorsement. CHEQUE PAYMENT AS “AND OR OF”: This is a cheque payable to joint payees (Bills and Bright) and as such requires the endorsement of both persons. However, is it in payable to one or the other (Bill or Bright), the other can negotiate the cheque. BEARER CHEQUE: This one is not to a specified or identifiable person and it could be studied were delivery alone and case, negotiation is by endorsement. Any person with such instrument (Payable to bearer) is the holder of same. However, if the bearer takes the cheque to a teller to obtain cash, he is expected to endorse it in ordedr to identify who is collecting the cash. HOLDER IN DUE COURSE: The person in position of a cheque in the holder and one entitled to receive payment of the instrument, whereas holder in due course in one who holds a negotiable instrument (cheque) and who takes the instrument for (i) Value (ii) in good faith (iii) without notice that it is over due or dishournoured (iv) without knowledge that it has an unauthorized signature or is altered. (v) without knowledge of claims to the instrument or defences against payment. THE PAYEE: The payee is one who accepts the cheque from the drawer. He can transfer the cheque to another person, is to cash or keep it in his account. What happens to the cheque is a function of the type of endorsements. TYPES OF ENDORSEMENT ARE (i) Endorsement In Bank: This is the signature of the payee and it therefore becomes a bearer negotiated without other endorsement. (ii) A Special Endorsement: This one means another designated person. It may state “pay to the order of” and then the payee signs under that statement. Only the designated person can negotiate the cheque. This could be used If the payee is mailing the cheque to another. (iii) Restrictive Endorsement: Here the payee or other holder of a cheque restricts the purpose for which the cheque may be used. The most common one is “For  deposit only” and if endorsed this way, it can only be for deposit to an account only, as any other used is prohibited, just like crossed cheque. BANK (DEPOSITORY): This is a bank in which a cheque is first deposited. It may be the paying bank (Drawee) if the cheque is drawn on, payable at, or payable through the bank. From there it is enlisted, proofed, captured, sorted and cleaned for presentment to the drawee. PAYING CHEQUE: A bank is under obligation to pay a cheue that is properly payable and presented by his customer. When a person presents a cheque deposited or negotiated for cash at the bank on which it is drawn (ou-us cheque) to a teller, it is deposited in an account or paid over the counter. If it is accepted or paid by mistake, it is deemed not to have been paid in spite of final payment. Owners cheque usually presents a high risk to the bank, therefore the teller. Must business non-visual (is there a stop payment order please? It’s a hold been an the account, is there sufficient balance to cover the cheque, and is the account balance available to the drawer) as this concern paying a cheque. The visual elements concern cashing a cheque item is the item an actual cheque drawn on the bank is the signature genuine and authorized? Has the cheque been altered? Is the cheque properly dated? Is the cheque properly endorsed? However, online system now allows tellers to view an image of the banks record of the customers signature so it can be compared to the actual signature on the cheque. THE DRAWEE: The Drawee (Paying Bank) receives cheque from other banks through a clearing house and bank must follow before payment procedure irrespective of how the cheque was received. IN-CLEARING CAPTURE: Here a bank or CBN presents cash letters to the drawee, who then prepare the cheque for capture, and after capturing of the date settlement of the cheque is then effect. The entire MICR it must be captured though, if not cheques are rejected and the error is corrected before posting. POSTING: Here data capture runs (over the counter and in-clearing item) are stayed through the day and after total completion of the capture runs at the end of the day, transactions are posted to accounts. Posting is actually the process of adds deposits to an account balance and substracting cheques and other withdrawals from the balance. Deposit and other credits are posted first, before debits. E-CAPTION ITEMS: These are cheques rejected due to various reaction (stop placed on the account insufficient fund)from the normal posting process and as such requires special handling. Each exception item requires action and whatever the reason cheque drawn on an account are when a hold is placed must be rejected, examined, paid or returned. The proper thing must be done. It can be represented after correction. EXAMINATION AND FILING: With the nature of traffic of most banks, bill filing procedures becomes imminent, as cheques are sorted daily by statement cycles and filled in bundles. After the examination of datails (signature, date, number etc) they are separated, sorted into account number sequence using letter filing based or image based automated signature verification. After the sequence with a divider to separate accounts, returned cheques are taken to a statement preparation area for processing. STATEMENT RENDERING: In a typical statement rendering process, statement are printed in account number sequence and cheques are sorted into account number sequence. Then a bar code flowing number of debit items is printed on the statement. Thereafter, cheques are controlled and it the number equals that on the statement, they are enveloped, sealed and stamped for postage. When a customer receives a statement in the mail listing previous months clearing account deposits and debits the cheque payments process had come full cycle. 4.0 Conclusion * from here. Banks are institutions licensed to carry out banking functions, among which is to open accounts for customers to make deposits, safeguard valuables and provide credits. However in order to payment for transactions simple and efficient, they embark upon intermediary and other effective services to the public. In the course of the performance of their function the need to interact among banks, especially on behalf of their customers becomes imperative, leading them to working out an arrange for the settlement of cheques differentials in value among banks giving the license to Participate in this process called clearing. Clearing Banks are actually licensed banks, as well as banks approved by CBN to go to the clearing house to facilitate the matching and settlement of accounts via issued cheques of the approved banks. The banks that are not licensed to participate in the clearing house do take part indirectly by having any of the participating banks as their correspondent banks. 5.0. Summary Clearing banks are basically banks that have the approval to be a part of the CBN cheque clearing and matching process. They maybe Banks operating the unit, branch or correspondent banking principles. In all the function of clearing allows the payment mechanism to flow freely and clearly, so that errors can be detected and corrected when noticed, thereby building trust and confidence; which is the cornerstone of banking. 6.0 Tutor Marked Assignment 1. The structure of a bank in a dynamic sense encompasses various characteristics that shape or determine its individuality. Evaluate this statement and comment on the structure of clearing banks in Nigeria. 2. Design an appropriate structure for a small bank specifying the lines of communication and chain of command. 3. Examine the impacts of universal banking on the marketing of financial services in Nigeria. 4. Differentiate between unit banking and branch banking. What factors encourage the existence of unit banks 5. J Write short notes on, bank, banker and clearing banks. 7.0 References Jombo, O.C. (2003). Elements of Banking. Owerri: Barloz Publishers Nzotta, S.M. (2004). Money, Banking and Finance: Theory and Practice. Owerri: Hudson- Jude Publishers Oleka, C.D. (2006). Fundamentals of Money Banking and Financial Markets. Enugu:Academic publishing Company.