Payments

PAYMENT

PAYMENT

By,

RAJIV. A

PAYMENT

MEANING:

The most primitive form of payment is

Barter.

HISTORY:

A payment is the transfer of an item of value from one party to another in

exchange for the provision of goods, services or both, or to fulfil a legal

obligation.

The direct exchange of goods and services for other goods and

services.

And a few others do not

Few involves cash

You Make hundreds of payments every year

But there is an increasing number of times when you pay with methods that does not involve cash.

OVERVIEW PAYMENT

You’re at a restaurant, and pay by a debit or credit card;

You send demand draft to your brother;

You issue a cheque;

You Make an online Payment via direct bank debit to purchase railway tickets.

Examples: PAYMENT

Payments Card-based

Payments

Involves instruments such

as Cheques and Demand

Draft

Involves instruments such

as Debit and Credit Cards

Includes ECS,

NEFT, RTGS

TYPES OF PAYMENTS:

PAYMENT

PAPER-BASED PAYMENTS:

Paper based payments include Cheques and Demand Draft.

First let us understand a few terminologies before proceeding forward.

Payee: A person to whom money is paid or is to be paid.

Payer: A person who pays.

Drawer: One that draws an order for the payment of money.

Drawee: The bank or other financial institution where the cheque can be presented for payment.

PAYMENT

CHEQUE:

A Cheque is a payment instrument in a specified format, using which, the payer instructs his bank to allow a debit from his account.

PAYMENT

It is drawn on a specified banker (i.e., it cannot be drawn on ‘any bank’).

1

2

3

4

5

6

7

1) Drawee, the financial institution where the cheque can be presented for

payment

2) Payee

3) Date of issue

4) Amount in numbers

5) Amount in words

6) Signature of drawer

7) Account Number

SAMPLE:

PAYMENT

TYPES OF CHEQUE:

CHEQUEBEARER

CROSSED

SELF

POST-DATED

STALE

PAYMENT

TYPES OF CHEQUE:

Bearer /Open /Uncrossed Cheque: The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attaches his signature and nothing else.

Self Cheque: A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account.

Crossed /Account Payee Cheque: The issuer specifically specifies it as account payee on the left hand top corner or simply crosses it twice with two parallel lines on the right hand top corner.

PAYMENT

Post dated cheque: A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date.

Stale Cheque: If a cheque is presented for payment after three months from the date of the cheque, it is called as a stale cheque. A stale cheque is not honoured by the bank.

PAYMENT

Demand Draft is a cheque that contains an order of one branch of

a bank (Drawer branch) directing another branch of the same bank

(Drawee branch) to pay on demand a certain sum of money to a

specified beneficiary (Payee).

DEMAND DRAFT:

SAMPLE:

PAYMENT

CARD BASED PAYMENT:

The card is made out of plastic, the payment of instruction is

electronic. When an individual swipes a card and keys in their

PIN, an electronic authorized payment instruction is created.

The instruction to pay is created electronically, unlike in a cheque

where the instruction to pay is in a specific paper format.

The payment of instruction is electronic, however it has been put

into a different head to simplify.

PAYMENT

TYPES OF CARD-BASED PAYMENT:

DEBIT CARD

CREDIT CARD

CARD-BASED

PAYMENT

DEBIT CARD:PAYMENT

An electronic card issued by a bank which allows the bank’s

clients access their account to withdraw cash or pay for goods and

services.

Ravi uses his debit card to buy an air ticket of rupees

4000. He swipes his card and enters his PIN. The

bank(called the ‘Issuer’ or ‘Issuing Bank’) pays the

airline’s (merchant’s) bank on his behalf, after first

debiting his account.

EXAMPLE:

Personal Identification Number(PIN) is a numeric password shared between a user and a system, that can be used to authenticate the user to the system.

CREDIT CARD:

PAYMENT

A credit card allows the cardholder to pay for goods and services

based on the holder's promise to pay for them.

EXAMPLE:

Ravi uses his credit card to buy an air ticket of rupees

4000. In case of credit card, the bank(called the ‘Issuer’

or ‘Issuing Bank’) pays the airline’s (merchant’s) bank.

It does not debit his account, but records it as a loan

given to Ravi and will charge interest on him if he

doesn’t pay before the due date.

The issuer of the card (Issuing Bank) creates a revolving account and

grants a line of credit to the consumer (or the user).

ELECTRONIC PAYMENT: PAYMENT

In Electronic Payments, there is no physical payment instrument.

ECS

NEFT

RTGS

Electronic

Payments

TYPES OF ELECTRONIC PAYMENT:

The instructions are purely processed electronically, with the value passing from one bank account to another bank account.

ELECTRONIC CLEARING SERVICE(ECS):

ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature.

PAYMENT

EXAMPLE:

Ravi makes monthly payments to Idea Cellular, his cell

phone service provider. He can give a onetime

authorization to Idea Cellular, authorizing them to debit

his account for the bill amount every month. Idea will

then request its bank to collect these payments in bulk

for all such customers.

NATIONAL ELECTRONIC FUND TRANSFER(NEFT):

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer.

PAYMENT

EXAMPLE:

Ravi makes monthly payments to Idea Cellular, his cell

phone service provider. He can choose to make payment

every month, electronically. For this he needs to have the

Idea Cellular’s bank, branch and account number.

REAL TIME GROSS SETTLEMENT(RTGS):PAYMENT

RTGS can be defined as the continuous settlement of funds transfers individually on an order by order basis.

EXAMPLE:

Ravi cannot use the RTGS electronic payment system –

unless his bill crosses Rs 2 lakh. If it does, and he’s in a

hurry to transfer the funds, he can again give an

authorization to his bank as in the case NEFT. Idea

Cellular will get the funds immediately.

The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is Rupees 2 lakh.

PAYMENT

EXERCISE: TRUE OR FALSE

Payee is a person to whom money is paid or is to be paid.

A Stale Cheque is honoured by the bank.

TRUE

FALSE

The minimum amount to be remitted through RTGS is Rupees 1 lakh.

PIN is Personal Identification Number

NOTE: Please do not click in between the Exercise.

• http://en.wikipedia.org/wiki/Payment• http://en.wikipedia.org/wiki/Cheque• http://readanddigest.com/what-are-

the-different-types-of-cheques/• http://www.investopedia.com/terms/d

/demanddraft.asp• http://www.rbi.org.in/scripts/FAQView.

aspx?Id=55• http://www.rbi.org.in/scripts/FAQView.

aspx?Id=60• http://www.rbi.org.in/scripts/FAQView.

aspx?Id=65

SOURCE:PAYMENT

THANK YOU

PAYMENT