The ‘payments system’ refers to arrangements which allow consumers, businesses and other organisations to transfer funds usually held in an account at a financial institution to one another. It includes the payment instruments – cash, cheques and electronic funds transfers which customers use to make payments – and the usually unseen arrangements that ensure that funds move from accounts at one financial institution to another.
Payments Clearing in Australia
Most payment systems involve two or more financial institutions and/or other payments providers, requiring payments to be ‘cleared’ between them. For instance, details of a cheque drawn on one financial institution and deposited at another must be returned to the first financial institution so that it can debit its customer’s account and verify that the customer has sufficient funds.
Arrangements for clearing most payment instruments in Australia are coordinated by the Australian Payments Clearing Association (APCA). APCA is a limited liability company with a board of directors drawn from its shareholders – banks, building societies and credit unions. APCA manages clearing for cheques, direct entry payments, ATMs and debit cards and high-value payments.
Other payments clearing systems independent of APCA include credit cards (MasterCard and Visa) and the BPAY system for payment of bills. There are also two securities settlement systems with separate payment arrangements. They are the Austraclear System which settles trades in CGS and other debt securities and the Clearing House Electronic Sub-register System (CHESS) for settlement of equity trades.
When payments are cleared between institutions, they accrue obligations which must be settled. In Australia, final settlement of obligations between payments providers is by entries to their Exchange Settlement (ES) accounts at the Reserve Bank. Large-value payments are settled one-by-one on a real-time gross settlement (RTGS) basis, while retail payments are settled as a batch on a deferred net settlement basis. The Reserve Bank has established a policy setting out criteria that payments providers must meet to open an ES Account.
Also read about Role of Reserve Bank in maintaining Payment Systems in Australia