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Appendix 1:Payments System Structure
By Robert Tripp, November 2004
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The diagram below shows a breakdown of the main functions inherent in most payment systems.
- This function is essentially a routing and sorting function. This applies to authorisations, settlements and exception conditions. It can be centralised in the country (e.g. BACS in the UK for low value sterling payments) or partially distributed across banks (e.g. CHAPS in the UK for high value sterling payments).
- This function is also a routing and sorting function, albeit this time between countries. It often has a foreign exchange translation function. Examples of this type of hub are TARGET (partially distributed across countries for high value real time euro payments) and MAESTRO in Waterloo (centralised for debit card payments).
- Banks act as mini hubs for payments within a banking group but more importantly they convert the payment instructions into authorisation and accounting entries. They store a lot of payment related static data (standing order records, standard settlement instructions (SSIs), etc). They format the interbank payments messages and files normally to a country specific standard. Sometimes customers require communications in relation to payments, particularly high value payments, such as phone, fax, email alerts of an incoming payment. Banks provide this function. Perhaps most importantly of all, they do all the error processing.
- These are the devices and computer systems that generate the payment instructions. Examples would be Merchant Point of Sale systems, Standing order systems, Corporate Electronic Banking Terminals in the offices of finance directors of large and medium sized companies. They can also store payment related static data, e.g. employee bank details. Finally they format the payment instructions to the standard required for the bank that acquires the instructions. The payment instruction is often in a format specific to the bank and/or the payment type.
This abstract representation is created in this way so as to facilitate an understanding of where costs could be saved. The kinds of payment type that can be modelled in this way are as follow:
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