1. Payments Building Blocks Flashcards
(21 cards)
What’s RTGS?
Real Time Gross Settlement
What’s DNS?
Deferred Net Settlement
What’s a PSO?
Payment System Operator
What’s SSP?
Settlement Service Provider
What is a payment system?
A set of common rules and procedures that support the transfer of funds between people, businesses and financial institutions
What is the definition of a payment?
Sum of money, asset, or service exchanged for a good or service.
What are the fundamental differences between payment systems?
How and how quickly settlement is achieved.
What are central banks responsible for?
Maintaining financial stability, monetary policy, money supply, owning SIPS, and regulatory oversight of DNS systems.
What is an SSP?
The Settlement Service Provider, used by all PSOs for settlement. Central banks are the SSP by default.
What is a PSO?
. A Payment System Operator. PSOs operate payment systems, generally DNS systems that connect to RTGS systems operated by central banks. PSOs are often private companies and tend to be regulated by central banks or financial regulators
What is a SIPS?
A Systemically Important Payment System, which has the potential to trigger or transmit systemic disruptions.
What forms does Central Bank Money take?
Money issued by a central bank, held physically (e.g., banknotes) or electronically in a central bank account.
What are Central Bank Accounts used for by commercial banks?
Maintaining reserve requirements.
What is ‘settlement in central bank money’?
Movement of funds between PSP settlement accounts at a central bank. Requires adequate liquidity.
What is Settlement Finality?
Legal concept ensuring irrevocable transfer of an asset, even in bankruptcy. For payments, it means the transfer of funds is irrevocable.
Describe RTGS Payment Systems.
Central bank-owned, immediate payment settlement with finality, funds moved simultaneously with instructions, minimize settlement risk, higher cost, often High Value Payment Systems (HVPS).
Describe DNS Payment Systems.
Private sector-operated, transaction values netted, settlement amounts are balanced at various intervals via RTGS, less liquidity required due to the netting off, lower cost as fewer payments, may introduce settlement risk. Includes instant payment systems and ACHs.
How can Payment Service Providers (PSPs) connect to payment systems?
Directly or indirectly (sponsorship/agency arrangements).
Why do time zones add complexity to cross-border payments?
Payment systems not 24/7 globally, causing delays and higher settlement risk.
What drives infrastructural transformation in the payments industry?
Modernization of platforms, streamlining cross-border payments, reducing settlement risk, adopting new messaging standards (ISO 20022), broadening PSP access, and faster data transmission.
What’s the purpose of central bank money?
- Medium of Exchange: It provides universally accepted settlement of payments in the economy.
- Unit of Account: It underpins the unit in which economic value is measured (e.g., national currency).
- Store of Value: It preserves value over time, allowing deferred payments and saving.
- Settlement Asset for Banks: Commercial banks use central bank reserves (digital central bank money) to settle interbank payments safely and efficiently.
- Anchor of Trust: It reinforces confidence in the broader monetary and financial system by providing risk-free money backed by the state
