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Flashcards in Chapter 8 Quiz Deck (103)
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1

What are the five non-cash payment systems?

1. Checks
2. Credit, Debit, and other types of cards
3. ACH
4. Fedwire
5. CHIPS

2

A "substitute check" - a negotiable instrument used in the United States to represent the digital reproduction of an original paper check.

Image Replacement Document (IRD)

3

The information coded at the bottom of the check in magnetic ink and used by the clearing agent, often a Federal Reserve bank, branch, or RCPC, to process the check.

Magnetic Ink Character Recognition (MICR)

4

ECP

Electronic Check Presentment- a process that allows financial institutions to exchange digital images of checks instead of paper to increase the speed of the check clearing process.

5

POD

Proof of Deposit- The verification that the dollar amount of a check or draft being deposited is correct. Compared to the amount on the deposit slip.

6

An electronic network for financial transaction in the United States that processes large volumes of credit and debit transactions in batches. There are two such networks, one operated by the Federal Reserve and the other a private network.

Automated Clearing House (ACH)

7

National Automated Clearinghouse Association

A non-profit membership association charged with overseeing the ACH system, which operates the largest EPN in the world.

8

The only private sector ACH operator in the U.S.

Electronics Payment Network (EPN)

9

POP

Point of Purchase- checks converted at check-out terminal at retailers.

10

ARC

Accounts Receivable Conversion- used at lockbox site.

11

BOC

Back Office Conversion-converted at back office of retailers.

12

RCK

Re-Presented Check Entries- used to transmit ACH debit entries instead of returning physical checks.

13

A process in which a check is deposited as many times as necessary in order for it to clear.

Check Re-Presentment

14

ARC

Accounts Receivable Conversion- A process that allows paper checks received in payment for an account receivable to be electronically scanned and converted into an electronic payment through the Automated Clearing House.

15

4 ways ACH differ from checks.

1. Paper (checks) vs. Electronic (ACH)
2. Payment info only (checks) vs. payment plus additional info (ACH)
3. Payer and Payee (checks) vs. originator and receiver (ACH)
4. Value Dated (ACH) - No float

16

CHIPS

Clearing House Interbank Payments System-For international transactions

17

RTGS

Real Time Gross Settlement- funds transfer systems where transfer of money or securities takes place from one institution to another on a "real time" and on a "gross" basis. Settlement in "real time" means payment transactions are not subject to an waiting period.

18

SWIFT

Society for Worldwide Interbank Financial Telecommunications-transmits payment instructions, not value. Settlement occurs via Fedwire, CHIPS, ect.

19

Two primary bank-issued cards.

VISA and MasterCard

20

Three major credit card processes.

1. Authorization-seeks approval and places a hold on account
2. Clearing-Issuing bank charges cardholder account
3. Settlement-funds transfered

21

Four types of cards.

1. Bank cards (debit, ATM)
2. Credit Cards
3. Stored Value Card (SVC)(gift card, payroll card)
4. Smart cards (may be used for physical and system access)

22

PSR

Payment System Risk

23

Systemic Risk

Risk that failure of one bank could cause other failures and collapse of payment system.

24

Credit Risk

Risk that party funding transaction will default on the settlement obligation.

25

Fraud Risk

Greatest risk is checks followed by credit cards.

26

Collection float components

1. Mail float
2. Processing float
3. Availability float
(measured in dollar days)

27

Lockbox

A centralized collection system in that deposited funds are transferred on a frequent basis from the lockbox collection sites to the corporate headquarters bank.

28

Wholesale lockboxes

Corporate to corporate payments (small volume, large dollar payments)

29

Retail lockboxes

Consumer to corporate payments (large volume, small dollar payments)

30

Hybrid lockboxes

Combines aspects of wholesale and retail lockboxes