Payments Domain Concepts
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- ACH - The automated clearing house (ACH) is an electronic funds-transfer system that facilitates payments in the U.S. It is run by the National Automated Clearing House Association (NACHA). 🌐
- CSM - The Clearing and Settlment Mechanisms (CSM) refers to the series of processes underlying all payment transactions exchanged between two payment service providers (PSPs). 🌐
- Clearing - The process of transmitting, reconciling and, in some cases, confirming transactions and establishment of final positions for settlement. 🌐
- Closed Loop - A payment system in which end parties connect directly to each other without intermediaries such as Banks. AMEX and Paypal are the canonical examples. 🌐
- Creditor - The end party that receives a payment/credit transfer.
- Customer to Bank Space - In the Four Corner Model, this is the space that includes the Debtor to Debtor's bank, and Creditor to Creditor's Bank relationships. 🌐
- Debtor - The end party that initiates a payment/credit transfer.
- DvP - Delivery versus Payment (DVP) is a securities industry settlement method that guarantees the transfer of securities only happens after payment has been made. DVP stipulates that the buyer's cash payment for securities must be made prior to or at the same time as the delivery of the security. 🌐
- Four Corner Model - A payment model which includes the following actors: the Debtor (the end party the send the money), the Debtor's bank, the Creditor's bank, and the Creditor (end end party that receives the money). 🌐
- Gross Settlement System - A system in which the transfer of funds occurs individually after each payment transaction is processed in the system. 🌐
- Interbank Space - In the Four Corner Model, this is the space that includes the Debtor's Bank to Creditor's Bank relationship (as well as any other relevant parties such as intermediary banks and CSMs). 🌐
- Net Settlement System - A system in which transactions are exchanged among participants without the transfer of funds. The actual transfer of funds only occurs at the cut-off of the established settlement cycle. When this event takes place, the sum of the value of all transfers a the participants have received and produced is calculated: this is the net settlement position. 🌐
- Netting - The offsetting of obligations between or among participants in the netting arrangement, thereby reducing the number and value of payments or deliveries needed to settle a set of transactions. 🌐
- Nostro Account - An account that a bank holds in a foreign currency in another bank. 🌐
- Open Loop - A payment system in which there is no direct connection between the end parties and the payment systems. The end parties participate in the system through intermediaries such as Banks. Typical examples are Visa and MasterCard: these cards can only be obtained through an intermediary (typically a Bank). 🌐
- PE-ACH - The Pan-European automated clearing house (PE-ACH) is the capability to settle SEPA compliant credit transfers and direct debits across the Eurozone. There is only one implementation of PE-ACH which is STEP2. 🌐
- RTGS - A Real-Time Gross Settlement System (RTGS) performs the debits and credits to the Debtor Bank and Creditor Bank on the spot for each individual transaction, without a deferred netting and settlement process. 🌐
- SIPS - Systemically important payment systems (SIPS) are payment systems could potentially endanger the operation of the whole economy if they fail. Examples are the STEP2, and TARGET2, two pan-European payment systems. 🌐
- STEP2 - The STEP2 SEPA Credit Transfer (SCT) Service is a highly resilient Pan-European Automated Clearing House (PE-ACH) service with full disaster recovery features. It allows banks to send and receive SEPA payments and, at the same time, to reach all other financial institutions in SEPA. 🌐
- Settlement - The act that discharges obligations in respect of funds or securities transfers between two or more parties. 🌐
- TARGET2 - The real-time gross settlement (RTGS) system owned and operated by the Eurosystem. Central banks and commercial banks can submit payment orders in euro to TARGET2, where they are processed and settled in central bank money, i.e. money held in an account with a central bank. 🌐
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