Automated clearinghouses are among the rapidly evolving retail electronic settlement systems that are helping to reduce the use of cash and checks as a means of payment.(hereinafter - ARP or Automated Clearing House - ACH). ACH is a type of clearing houses (see Chapter 2) and is a system for clearing payment orders in electronic form, which are exchanged by financial institutions - participants in these systems. ARPs perform essentially the same functions as ordinary clearing houses, but paper carriers of payment information (checks, deposit receipts, etc.) are replaced here by electronic devices for storing and transmitting information, where all the necessary information about monetary transactions is recorded and which are suitable for high-speed processing on computers. ACHs are in demand when making massive, regularly recurring payments.
Unlike large money transfer systems, where only credit transfers are used, ASNs carry out both credit and debit transfers of funds, and at the stage of final settlement of settlements they use a clearing mechanism. Debit transfers are associated with repetitive or one-time write-offs from the client's bank account, predetermined in the contract, for example, when paying for utilities, insurance, repayment of a previously taken loan, etc. In the 1990s, the volume of debit transactions carried out by the ACH for commercial firms to pay for recurring deliveries of goods, the concentration of receipts from various bank accounts of the firm on a single account, etc. increased. The electronic presentation of checks presented by trade organizations for payment in the form of electronic files through the ACH is gaining increasing scale.
Credit transactions through the ACH are associated with repeated transfers of money to the bank accounts of clients - for wages, pensions and other social payments, crediting of interest and dividends, etc. Credit transactions are also made in favor of insurance companies and public utilities. This allows them to save significant costs associated with processing and receiving money from checks received from consumers in payment for services.
The first institution of its kind was created by a group of California banks in the 1960s to speed up check processing and reduce the cost of these transactions. Later, the central bank, the FRS, played an important role in the creation of the ARP network in the United States, which took over the overall organization of research and financed a significant part of the project costs. The Federal Reserve Banks are the owners and principal operators of the EbASN. In addition to this network, in the USA there is also a private ARP - ERB, which previously accounted for about 15% of all ARP payments | Usoskin, 1995]. However, already in 2007 both automated clearing houses (RebASN and ERB) had equal market shares. On average, in 2007, the average daily turnover of each of them amounted to approximately 56 million transactions, and the amount was close to 115 billion US dollars [Latige, SatiP, 2008].
The main stages of the money transfer operation in the American network ACH are shown in Fig. 4.2:
The scheme of settlements in the American ACH is an order if the payer's account does not have the required amount or authorization to process the payment has not been received.
In other countries, settlements through the ACH are built according to a similar scheme (see Appendix 3). In the UK, the electronic retail transfer system is called BACS (Bankers Automated Clearing Services). It was put into operation in 1968. Among its main shareholders are the Bank of England, 13 largest commercial banks and one financial and construction company. BACS electronically sets off credit and debit transactions as directed by system participants, with direct crediting or debiting of amounts to or from accounts without the use of checks. The most common operation of this system is the direct transfer of wages to the bank accounts of recipients, as well as the fulfillment of customers' instructions on the regular transfer of funds from their accounts in order to pay various kinds of contributions, insurance premiums, regular payments on loans, mortgages, etc.
Another form of service performed through BACS is direct debit of accounts. It is similar to the “standing order” operation, but here the amount and time of transfers are not fixed in advance, but may change. The account holder authorizes the bank to accept payment requests from certain persons or firms and deduct from the account any amounts specified in these requests coming from associations, clubs, insurance companies, etc.
The billing cycle in BACS takes 3 days. On the first day, payment instructions are electronically transmitted to the BACSTEL telecommunications network. Large banks use their own terminals connected to the network to transfer orders; small ones can enter applications through special "authorization bureaus" BACS. BACS transfer requests can be submitted in advance - 2-71 days before the payment date.
In the operational center of the system, payment orders are sorted, combined into registers and transmitted in the form of electronic files to the recipient banks. This work ends during the second day. On the third day, the amounts are posted to the accounts of the final payers and beneficiaries in the respective banks. At the same time, the net positions of the participating banks are calculated based on the results of multilateral offset (netting). For final interbank settlement, financial institutions' checking accounts with the Bank of England are used, with payments being transferred through real-time gross settlement systems.
In 2008, BACS processed over 5.6 billion payments worth £ 3.8 trillion with a peak load of 88.3 million payments per day (BACS).
In Japan, a large volume of small payments is processed through the nationwide electronic gross settlement system "Zengin" (Zengin Data Telecommunication System), which was introduced in 1973. The owner and operator of the system is the Tokyo Banking Association (hereinafter - TBA). The terminals of large banks and branches of foreign banks are directly connected to it. Small financial intermediaries such as agricultural and credit cooperatives have access to Zengin through dedicated clearing houses. The automated payment system includes the advance payment of utilities, pensions and benefits, and “paperless” payments using the communications network. In Japan, wire transfer of wages is used by almost all large and many medium and small firms, government agencies. Note, that the system does not provide a direct debit option. This form of settlement is practiced by banks on a bilateral basis using correspondent accounts.
During the transaction day, transfers in the Zengin system are conditional until the final settlement of the positions of the participating banks, which, as it was said, is carried out through the payment system of the Bank of Japan - BOJ-NET. Net positions are calculated by Zengin for originating banks (initiators) and destination banks (recipients) based on their obligations to TBA. The settlement process takes place at the end of the day as follows: first, the debtor banks transfer the amounts to cover the debt to the TBA account with the Bank of Japan, and then the net loan balances are transferred from the TBA account to the accounts of the creditor banks with the Bank of Japan. In 2009, the Zengin automated clearinghouse peaked at 21.1 million payments totaling 53.9 trillion yen per day | Bank of Japan, 2010 |.
Unlike large money transfer systems, where only credit transfers are used, ASNs carry out both credit and debit transfers of funds, and at the stage of final settlement of settlements they use a clearing mechanism. Debit transfers are associated with repetitive or one-time write-offs from the client's bank account, predetermined in the contract, for example, when paying for utilities, insurance, repayment of a previously taken loan, etc. In the 1990s, the volume of debit transactions carried out by the ACH for commercial firms to pay for recurring deliveries of goods, the concentration of receipts from various bank accounts of the firm on a single account, etc. increased. The electronic presentation of checks presented by trade organizations for payment in the form of electronic files through the ACH is gaining increasing scale.
Credit transactions through the ACH are associated with repeated transfers of money to the bank accounts of clients - for wages, pensions and other social payments, crediting of interest and dividends, etc. Credit transactions are also made in favor of insurance companies and public utilities. This allows them to save significant costs associated with processing and receiving money from checks received from consumers in payment for services.
The first institution of its kind was created by a group of California banks in the 1960s to speed up check processing and reduce the cost of these transactions. Later, the central bank, the FRS, played an important role in the creation of the ARP network in the United States, which took over the overall organization of research and financed a significant part of the project costs. The Federal Reserve Banks are the owners and principal operators of the EbASN. In addition to this network, in the USA there is also a private ARP - ERB, which previously accounted for about 15% of all ARP payments | Usoskin, 1995]. However, already in 2007 both automated clearing houses (RebASN and ERB) had equal market shares. On average, in 2007, the average daily turnover of each of them amounted to approximately 56 million transactions, and the amount was close to 115 billion US dollars [Latige, SatiP, 2008].
The main stages of the money transfer operation in the American network ACH are shown in Fig. 4.2:
- 1. The recipient gives authorization to make the payment.
- 2. The originator (sender) of the payment sends the payment order to Bank-1.
- 3. Bank-1 sorts the orders and sends the file to the ASN operator.
- 4. The ASN operator distributes files and sends them to Bank-2.
- 5. Bank-2 credits the money to the beneficiary's account.
The scheme of settlements in the American ACH is an order if the payer's account does not have the required amount or authorization to process the payment has not been received.
In other countries, settlements through the ACH are built according to a similar scheme (see Appendix 3). In the UK, the electronic retail transfer system is called BACS (Bankers Automated Clearing Services). It was put into operation in 1968. Among its main shareholders are the Bank of England, 13 largest commercial banks and one financial and construction company. BACS electronically sets off credit and debit transactions as directed by system participants, with direct crediting or debiting of amounts to or from accounts without the use of checks. The most common operation of this system is the direct transfer of wages to the bank accounts of recipients, as well as the fulfillment of customers' instructions on the regular transfer of funds from their accounts in order to pay various kinds of contributions, insurance premiums, regular payments on loans, mortgages, etc.
Another form of service performed through BACS is direct debit of accounts. It is similar to the “standing order” operation, but here the amount and time of transfers are not fixed in advance, but may change. The account holder authorizes the bank to accept payment requests from certain persons or firms and deduct from the account any amounts specified in these requests coming from associations, clubs, insurance companies, etc.
The billing cycle in BACS takes 3 days. On the first day, payment instructions are electronically transmitted to the BACSTEL telecommunications network. Large banks use their own terminals connected to the network to transfer orders; small ones can enter applications through special "authorization bureaus" BACS. BACS transfer requests can be submitted in advance - 2-71 days before the payment date.
In the operational center of the system, payment orders are sorted, combined into registers and transmitted in the form of electronic files to the recipient banks. This work ends during the second day. On the third day, the amounts are posted to the accounts of the final payers and beneficiaries in the respective banks. At the same time, the net positions of the participating banks are calculated based on the results of multilateral offset (netting). For final interbank settlement, financial institutions' checking accounts with the Bank of England are used, with payments being transferred through real-time gross settlement systems.
In 2008, BACS processed over 5.6 billion payments worth £ 3.8 trillion with a peak load of 88.3 million payments per day (BACS).
In Japan, a large volume of small payments is processed through the nationwide electronic gross settlement system "Zengin" (Zengin Data Telecommunication System), which was introduced in 1973. The owner and operator of the system is the Tokyo Banking Association (hereinafter - TBA). The terminals of large banks and branches of foreign banks are directly connected to it. Small financial intermediaries such as agricultural and credit cooperatives have access to Zengin through dedicated clearing houses. The automated payment system includes the advance payment of utilities, pensions and benefits, and “paperless” payments using the communications network. In Japan, wire transfer of wages is used by almost all large and many medium and small firms, government agencies. Note, that the system does not provide a direct debit option. This form of settlement is practiced by banks on a bilateral basis using correspondent accounts.
During the transaction day, transfers in the Zengin system are conditional until the final settlement of the positions of the participating banks, which, as it was said, is carried out through the payment system of the Bank of Japan - BOJ-NET. Net positions are calculated by Zengin for originating banks (initiators) and destination banks (recipients) based on their obligations to TBA. The settlement process takes place at the end of the day as follows: first, the debtor banks transfer the amounts to cover the debt to the TBA account with the Bank of Japan, and then the net loan balances are transferred from the TBA account to the accounts of the creditor banks with the Bank of Japan. In 2009, the Zengin automated clearinghouse peaked at 21.1 million payments totaling 53.9 trillion yen per day | Bank of Japan, 2010 |.
