Automated Clearing House (ACH)

a type of payment system designed to allow corporations and consumers to reduce or eliminate the use of paper checks when making routine high-volume, low value payments. Salaries, consumer and corporate bill payments, interest and dividend and social security uses this.

Automatic Teller Machine (ATM) Card

a payment card issued to a person for activating Automated Teller Machines

Correspondent Bank

a bank that holds deposits for other banks and performs services, such as check clearing. The deposit balance is a form of payment for services

Counterparty

one party to a trade

Custodian

an entity, often a bank, that safe keeps securities for its customers and may provide various other services, including clearance and settlement, cash management, foreign exchange, and securities lending.

Credit Card

a payment card issued to a person for purchasing goods and services and obtaining cash against a line of credit established by the issuer.

Daylight Overdraft

a negative position in an institutions Federal Reserve account

Default

failure to complete a funds or securities transfer according to its terms for reasons that are not technical or temporary, usually as a result of bankruptcy

Delivery-vs-Payments system (DVP)

a system that ensures that the final transfer of one asset will simultaneously occur if, and only if, the final transfer of another asset occurs

Depository

facility for holding securities in either a certified or an certified form. Allows securities transfers rough book-entry.

Depository Institution

an institution that holds funds or marketable securities, usually under a specific agreement

Direct Deposit

electronic deposits or credit - usually via ACH - to an individual's bank account.

Direct Debit

electronic transfer - usually via ACH - out of an individual's checking or savings account to pay recurring bills.

Electronic Benefits Transfer (EBT)

a type of EFT system involving the transfer of public entitlement payments such as welfare or food stamps, via direct deposit or point-of-sale technology.

Electronic Commerce (E-Commerce)

a broad term encompassing the remote procurement and payment by businesses or consumers of goods and services through electronic systems, such as the internet

Electronic Data Interchange (EDI)

the communication of trade-related information among business partners in a structured, standardized, machine-readable electronic form

Electronic Funds Transfer (EFT)

a generic term describing any transfer of funds between parties or depository institutions via electronic data systems.

Finality

an irrevocable and unconditional transfer of payment which occurs during settlement

Financial EDI (FEDI)

an instrument for settling invoices by initiating payments, processing remittance data and automating reconciliation via the exchange of electronic messages

Foreign Exchange Settlement Risk (aka Herstatt Risk)

the potential loss of principal associated with settling transactions sequentially instead of simultaneously, can be a time zone difference

Hybrid Settlement System

a combination of a real-time gross settlement system and a multilateral net settlement system. Combines features, including risk control measures, of gross and net settlement systems

Large-Value Transfer System

a type of wholesale payment system used primarily by financial institutions in which large values of funds are transferred between parties. Fedwire and Chips are the systems in the U.S.

Multilateral Netting

an arrangement among three or more parties to net their obligations. Transfers are irrevocable but are only final after the completion of end-of-day settlement

Net Debit Cap

the maximum dollar amount of daylight overdrafts an institution is permitted to incur in its Federal Reserve account. It helps reduce the credit risk to the Federal Reserve and taxpayers by limiting losses should an institution fail.

Net Settlement Systems

a system in which banks continually send payment instructions over a period of time, with final transfer occurring at the end of the processing cycle. During the period, a record is kept of net debit and credits

Payment

a transfer of value

Payment System

the mechanism - the rules, institutions, people, markets and agreements - that make the exchange of payments possible

Payment vs. Payment

a mechanism in a foreign exchange settlement system which ensures that a final transfer of one currency occurs if and only if a final transfer of other currency or currencies takes place

Point-of-Sale (POS) Network

a network of banks, debit cardholders, and merchants that permit consumers to electronically make direct payment at the place of purchase.

Point-of-Sale (POS) Card

a payment card issued to a person for purchasing goods and services that substitutes an electronic transfer of funds for cash, checks or drafts

Real-Time Gross Settlement (RTGS) System

a system is said to pirate in real-time if each payment is processed as it is initiated which provides immediate finality - rather than in batch. Reduce Herstatt Risk. Fedwire uses this.

Reserve Account

a non-interest earning balance that depository institutions maintain with the Federal Reserve bank or with a correspondent bank to satisfy the Fed's reserve requirements. Plays a central role in the exchange of funds between a depository institutions.

Reserve Requirements

the percentage of deposits that a bank or other depository institution may not lend out or invest and must hold either as vault cash or on deposit at a Federal Reserve Bank.

Retail Payments

small-dollar payments made in the goods and services marketable

Securities Settlement System

full set of institutional arrangements for confirmation, clearance, and settlement of securities trades and safekeeping of securities

Settlement

final step in the transfer of ownership involving the physical exchange of securities or payments. Can be gross or net. Gross means each transaction is settled individually. Net means that parties exchanging payments will offset mutual obligations to deliver identical items, at a specified time, after which only one net amount of each item is exchanged

Settlement date

the date on which the parties to a transaction agree that settlement is to take place

Smart-Card

a card-based payment system that stores values for transactions on a computer chip instead of a magnetic stripe. Can be reloaded through a number of methods. Often used in closed systems for specific types of purchases but do not have to be so restricted. Also allows the owner to keep a variety of information with them at all times

Wholesale Payments

large-value payments used primarily in the financial markets

Batch Processing

the transmission or processing of a group of related payment instructions

Book Entry System

an accounting system that permits the transfer of assets without the physical movement of paper documents or certificates.

NBES

US book-entry system. Made via Fedwire

Check

a retail payment instrument consisting of a written order from one party to another

Clearance

the process of transmitting, reconciling, and in some cases, confirming payments orders or financial instrument transfer instructions prior to settlement.

Clearing Corporation (aka Clearinghouse)

a central processing mechanism through which financial institutions agree to exchange payment instructions or other financial obligations. Exchanged at a designated time based on the rules and procedures of the clearing corporation

Clearing Account

deposit account held by banks and thrift institutions at the Federal Reserve. They are held if their required reserve balances are not large enough to cover the dollar volume of their check clearing and other transfers of funds through the Federal Reserve

Confirmation

the process in which the terms of a trade are verified either by market participants directly or by some central entity.