Money Transfer

1. Money Transfer Lecture Objectives : • To define money transfer • To explain different methods of domestic money transfer • To explain different methods of cross-border money transfer • To discuss the advantages and disadvantages of banker’s draft and telegraphic transfer / SWIFT

2. Money Transfer Money transfer refers to the mechanism of moving a certain amount of money from one party to another through the financial system.

3. Methods of domestic money transfer in Hong Kong Cheque A cheque is a bill of exchange drawn on a banker payable on demand. The drawer is the person who has signed the cheque, the drawee is the bank on which the cheque is drawn and the payee is the person to whom the cheque is payable and who is to receive the money. Cheques are the predominant type of domestic non-cash payment. Cheques are cleared at the end of the day through the Hong Kong Interbank Clearing Limited which is the clearing house jointly owned by the Hong Kong Monetary Authority and the Hong Kong Association of Banks.

4. Methods of domestic money transfer in Hong Kong Debit cards and Electronic Fund Transfer at Point of Sale Electronic Payment Services Company (HK) Limited launched the Easy Pay System (EPS), a secure cashless payment system, in 1985. It is a convenient retail electronic payment system. A merchant can swipe a consumer’s Automated Teller Machine (ATM) card (a debit card) or credit card with ATM function and key in the amount, then the consumer keys in the Personal Identity Number (PIN), the customer’s bank account will be debited and the merchant’s bank account will be credited with the amount, and a receipt is issued for the payment.

5. Methods of domestic money transfer in Hong Kong Phone Payment System (PPS) Electronic Payment Services Company (HK) Limited teamed up with PCCW to introduce the Phone Payment System (PPS) in 1993 which was also extended to the internet in 1999. PPS is a simple phone and online bill payment system that offers customers the convenience of being able to settle bills at any time and at anywhere. A customer has to bring his / her ATM card or credit card with ATM function along to a terminal located at selected PCCW outlet to open an account. The customer can choose a PPS access code and receives an account number. After that, the customer can pay his / her bills or outstanding credit card amounts through the phone or online through the internet.

6. Methods of domestic money transfer in Hong Kong Standing orders and direct debits The autopay services offered by commercial banks in Hong Kong include the standing orders and direct debits. A standing order is an authorization to the bank to make a periodic payment from an account whereas a direct debit is an authorization to the bank to debit a bank account for an utility payment. The autopay services are conducted by the Hong Kong Interbank Clearing Limited as a function of an automated clearing house.

7. Methods of cross-border money transfer Banker’s draft A banker’s draft is a cheque with the drawer and the drawee are usually the same bank. If the drawer and the drawee are not the same bank, they should maintain accounts with each other to settle the draft amount. Usually the drawer bank will credit the draft amount to the drawee bank’s account first. The draft is authenticated by verifying the drawer bank’s authorized signature.

8. Methods of cross-border money transfer Telegraphic Transfer A telegraphic transfer is an authenticated order sent through telex addressed by the remitting bank to another bank to pay a sum certain in money to a named beneficiary. A telegraphic transfer is authenticated by a test key. The test key is a coded system of numbers which the message receiving bank can use to verify the genuineness of the telex.

9. Methods of cross-border money transfer SWIFT SWIFT stands for Society for Worldwide Interbank Financial Telecommunication, which is an international communication network connecting over 7,000 financial institutions in 198 countries to speed up the international money transfer and message exchange among members.

10. Methods of cross-border money transfer SWIFT At first, SWIFT used the computer systems of the participating financial institutions which were connected through cable network. SWIFT included some forms of coding which was checked by the recipient member to prove the authenticity of the instruction or message. The SWIFTNet was developed in 2001 as an online real-time message transfer system between members.

11. Advantages and disadvantages between banker’s draft and telegraphic transfer / SWIFT Accuracy and reliability A banker’s draft mailed by the customer himself could be lost, stolen or destroyed in transit. Additional costs are incurred in stopping payment of the banker’s draft. The telegraphic transfer / SWIFT is more reliable than the banker’s draft.

12. Advantages and disadvantages between banker’s draft and telegraphic transfer / SWIFT Cost Telegraphic transfer / SWIFT is more expensive than banker’s draft. But for a large amount of money to be remitted, the interest saving definitely overrules the fee saving.

13. Advantages and disadvantages between banker’s draft and telegraphic transfer / SWIFT Speed Telegraphic transfer / SWIFT is the speediest method of money transfer.

14. Value Date of Fund A money transfer can be executed in two types of fund : Same-day funds are the equivalent of cash and are available for use by the beneficiary on the day the transaction is processed. Next-day funds are available for use by the beneficiary as cash on the next business day after the transaction is processed.

15. Procedures of executing incoming remittance • Authenticate the payment order received and check the availability of fund • Advise the beneficiary about the receipt of remittance • Verify the identity of the customer as the beneficiary • Credit the customer’s account with the amount after deducting any banking charges

16. Procedures of executing outgoing remittance • Authenticate the customer’s remittance instruction and check the availability of fund • Debit the customer’s account with the amount and any banking charges • Choose the overseas branch or the correspondence bank to place the payment order • Prepare and send out the payment order

17. SWIFT’s roles in international money transfer The market infrastructure segment consists of communication between central financial institutions and their members. Players include payment clearing systems, central banks and other central clearing infrastructures. Thebank-to-bank segment consists of communication between financial institutions and their correspondents, counterparties and branches, including the traditional and ubiquitous use of payment initiation messages (MT 1xx and MT 2xx) as well as statement reporting messages (MT 9xx).

18. SWIFT’s roles in international money transfer The bank-to-client segment consists of communication between financial institutions and their corporate customers. This means wholesale and retail payment initiation as well as cash and statement reporting.

20. Hong Kong Interbank Payment Systems The Hong Kong Interbank Clearing Limited (HKICL) manages the operation of the interbank payment and settlement systems. The HKICL took up the Clearing House Automated Transfer System (CHATS) and the electronic clearing (ECG) of bulk volume low value items 1996, and the paper cheque clearing (CLG) in 1997. All licensed banks are direct participants in the interbank payment system. Other Authorized Institutions, like restricted licence banks and deposit-taking companies, do not have direct access to the interbank payment system.

21. Hong Kong Interbank Payment Systems Paper cheques are settled on the next day on a batch run basis. They are settled after the returned items have been identified and adjusted in order to eliminate the settlement risk related to the returned items. Cheques presented to HKICL are sorted and sent to the drawee banks overnight. The drawee banks would check for balance in the drawees' accounts and return all dishonoured cheques to HKICL on the next day (Day D+1). Only cheques presented on Day D and are not returned would be settled on day D+1.

22. Hong Kong Interbank Payment Systems The electronic clearing is designed to handle low value bulk volume items generated by EPS, PPS and Autopay.

23. Hong Kong Interbank Payment Systems Since 1996, CHATS Payment Instructions have been settled on a real time gross basis. CHATS is designed for large value interbank payments. All licensed banks must join CHATS and be connected to the Clearing House computer operated by HKICL. There are two types of CHATS Payment Instructions - Value Today or Value Tomorrow. The implementation of the Real Time Gross Settlement (RTGS) system has significantly reduced the settlement risk in CHATS payments. All licensed banks are requested to open a Settlement Account with the HKMA for the account of the Exchange Fund. Once fund transfers are effected by the paying bank across the books of the HKMA, settlement is final and irrevocable.