Introduction to Payments
Payments exist as a result of trade, and all trade is based on the existence of a willing buyer and a willing seller.
The need to move money in order to make timely payments is one of the fundamental financial needs of individuals and businesses everywhere in the world. Facilitating this movement is also one of the core services offered to the customers of financial institutions and, increasingly, by non-financial institutions. The importance of payments to society and the economy cannot be overstated.
The issues surrounding payments impact all aspects of the economy, all members of society and every corner of the financial markets. Governments depend on payments to receive taxes and pay benefits. Businesses pay wages to their employees and purchase goods and services from their suppliers. In turn, they receive payments for the sale of their products and services. Individuals rely on payments to receive their income, which enables them to pay for purchases several times in a day and settle their recurring obligations. Value is transferred among participants in the economy continuously and increases as the economy grows.
A country’s payment system must be efficient so that money can quickly move among market participants for productive use, thereby promoting greater activity in the economy.
Properly functioning payment systems serve to:
- Enhance the stability of the financial system.
- Reduce transaction costs in the economy.
- Promote efficient use of financial resources.
- Improve financial market liquidity.
- Facilitate the conduct of monetary policy.
Achieving these objectives is not simple. It requires that the suppliers of payment services have a strong understanding of the:
- Market dynamics.
- Needs of each of the participants.
- Economic considerations.
- Payment process itself.
- The regulatory environment.
A payment system consists of instruments, procedures, systems, legal frameworks, and funds transfer mechanisms that ensure the circulation of money and its associated information.
Typically, payment systems facilitate:
- The transfer of money between two parties.
- The final settlement of the obligations resulting from payment transactions between banks.
- The origination and finalisation of non-financial transactions (e.g. balance enquiries).
Payments are typically either credit push or debit pull. Please visit Debit Payments and Credit Payments pages for more.
