Electronic Banking. Outline Retail payments and financial services Electronic banking products for the wholesale market Electronic money Large-dollar transfers. Electronic Banking.
Finance charge = 3% or $9.
Interest rate on cash advance = 19.99% or $3.97.
Annual Percentage Rate (APR) = ($9 + $3.97) x 12/$300 = 51.88%
Interest rate accrues daily until payment is made in full.
Conclusion: cash advances are encouraged due to high yields for banks.
On-line accounts for transfer over the internet
Stored value cards and smart cards that can be reloaded with funds for payments
Fast and convenient, can be used over internet.
Not all merchants accept all forms of electronic money. Security and privacy could be problems. Need to verify identity.
Government policy is unclear on deposit insurance, who can “coin” digitized money, and control of this money supply.
Fedwireis a real-time gross settlements (RTGS) system that processes each transaction individually rather than in batches. The Fed grants finality (or assumes credit risk of transfer).
CHIPS, located in New York since 1970, is for international funds transfers. Operated since 1970 as an electronic replacement for paper checks in international dollar payments. Multilateral netting is provided to get each participant’s single net position vis-à-vis other participants. Largest privately operated payments system with settlement risks (e.g., credit risk, unwinding risk, liquidity risk).
S.W.I.F.T. in Belgium is cooperatively owned by banks around the world. This system is used primarily for communications, and CHIPs and Fedwire handle payments transfers.