Payment Instruments at International Level

An efficient payment system needs a sound and appropriate legal framework. Here the term ‘legal framework’ refers to the legal environment that comprises the following:

• Various issues such as insolvency and contractual relations among the parties should be addressed by laws and regulations.
  
  
• The integration of laws and regulations with payment systems that includes the fair treatment of various aspects, such as legislation on electronic signature, validation of netting and settlement finality.
  
  
• All the participants of a payment system should agree with rules, standards and procedures.

It is important to note that the legal infrastructure helps in establishing the clear responsibilities for the central bank of a country and other regulatory bodies that include the oversight of the payment systems or the provision of liquidity to the participants in payment systems.

Instruments and Systems Used in Making International Payments

The payment system of a country becomes more insecure and dynamic in nature when it gets operated on international level. The global payment system can be strengthened by facilitating laws on transparency and security of payment instruments, antitrust legislation for the supply of payment services and legislation on privacy. The instruments and systems used for making international payments are:

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

SWIFT is based in Brussels and is the most commonly used term in international banking transactions. It is basically the exchange of standardised financial messages between financial institutions and corporations through a telecommunication platform to facilitate foreign transactions in banking industries.

Established by major financial institutions, SWIFT is the messaging standard used in many payment and settlement systems. SWIFT messaging standards are used by banks, brokers, dealers, corporates, investment managers, etc. to transmit the desired information underlying the foreign transactions

SWIFT is the banking language that is widely accepted and understood in the banking industry. SWIFT messages typically result in monetary transactions between institutions. With a view to securing appropriate governance and improving risk management, the central banks of the Group of Ten (G-10) countries have been cooperating internationally in the oversight of SWIFT. The SWIFT Oversight Forum was established in 2012 to share information on SWIFT oversight activities among G-10 and ten other central banks. ‰

In addition to strengthening the operational management, it is important for SWIFT, as a provider of international messaging services for financial transactions, to continue to enhance its cyber security management in a proper and steady manner against the background of growing sophistication and complexity of cyber attacks in the recent years.

SEPA Direct Debit (SDD)

This is an interbank payment scheme that defines a common set of rules and regulations pertaining to the procedures for making direct debits in Euro.

Automated Clearing House (ACH)

It refers to an electronic network for processing credit and debit card transactions. It is used primarily in the US and Canada. India has its own ACH, known as the National Automated Clearing House (NACH). NACH has been implemented by the National Payments Corporation of India (NPCI). NACH is a web-based solution that is used for facilitating interbank high-volume, similar and repetitive electronic transactions among banks, financial institutions, corporate and government.

Pan-European ACH (PE-ACH)

It ensures the settlement of SEPA credit transfers and direct debits across the Eurozone. It also acts as a business platform for making retail payments of Euro.

Bankers’ Automated Clearing System (BACS)

It is an interbank transfer facility that is operated in UK to process electronic transactions and transfers. The majority of the transactions processed by this system include direct debits and direct credits.

Clearing House Automated Payment System (CHAPS)

It was introduced in London in 1984. It is an interbank payment system for large-value sterling payments based in the UK. It is operated by UK-based Clearing Company Limited. The working of CHAPS is highly dependent on Real-Time Gross Settlement (RTGS) for its normal operations. It gets its IT infrastructure support from the Bank of England (BOE).

Electronic Funds Transfer (EFT)

It refers to a mechanism that facilitates the electronic transfer of money within a bank or bank to bank from one account to another. The use of computer-based systems is done so that the direct intervention of bank staff can be reduced by the significant amount.

Single Euro Payments Area (SEPA)

It aims to ensure that payments within Europe take place as smoothly and effectively as payments take place within a single country.

Real-time Gross Settlement (RTGS)

The RTGS system can be defined as a continuous settlement system of funds transfer prioritising each settlement based on the timing of the order. ‘Real time’ implies that the processing occurs at the actual time and not at a later time. ‘Gross settlement’ implies that the settlement takes place individually based on the received instructions.

The funds settlement takes place in the books of the RBI and is irrevocable. The RTGS system is mainly used for carrying out large-value transactions. The minimum amount that can be transferred through the RTGS system is ` 2 lakhs. No upper ceiling has been specified for RTGS transactions.

SEPA Credit Transfer (SCT)

European Payment Council (EPC) introduced the SEPA Credit Transfer in 2008. It provides rules and regulations in making payments and transferring funds between banks in the EU.