Payment Systems

Paying (e.g. for goods and services, monthly bills, rent, taxes and other levies) and receiving payments (wages, child benefits and other social transfers) is a vital part of our everyday life.

The most traditional means of payment is cash, where the payment is executed directly between the payer and the payee. Users also have other payment instruments at their disposal, where, irrespective of the type of instrument used, the aim is always the same: to transfer funds from the payer’s account to the payee’s account. When we want to transfer our funds to the payee’s account, we order this service from our payment service providers using a payment order. This can be done remotely (e.g. via electronic banking), or directly at a bank counter.

The execution of the payment order then takes place in several ways. When the payer and the payee have accounts open at the same payment service provider, the transfer of funds is executed internally. If they each have their accounts open at their own payment service provider, settlement is executed either through  correspondent accounts at the payment service providers, or more  commonly via payment systems. These constitute an agreement between payment system participants on joint rules for the transfer, verification, sorting and confirmation of orders, the clearing of money claims and liabilities, and settlement between the payment system participants.  We distinguish beteween real time gross settlement payment systems  and net settlement payment systems.  Within the former, payments are settled on continuous basis in real time, within the later, payments are not settled in real time, but at cut-offs, when only the difference between incoming payments and outgoing payments is settled.