The payment system is an operational network – governed by laws, rules and standards – that links bank accounts and provides the functionality for monetary exchange using bank deposits. The payment system is the infrastructure (consisting of institutions, instruments, rules, procedures, standards, and technical means) established to effect the transfer of monetary value between parties discharging mutual obligations. Its technical efficiency determines the efficiency with which transaction money is used in the economy, and risk associated with its use. What makes it a “system” is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts (e.g., checks) and documentary credits such as letters of credit. With the advent of computers and electronic communications a large number of alternative electronic payment systems have emerged. These include debit cards, credit cards, electronic funds transfers, direct credits, direct debits, internet banking and e-commerce payment systems. Some payment systems include credit mechanisms, but that is essentially a different aspect of payment. Payment systems are used in lieu of tendering cash in domestic and international transactions and consist of a major service provided by banks and other financial institutions. Payment systems may be physical or electronic and each has its own procedures and protocols. Standardization have allowed some of these systems and networks to grow to a global scale, but there are still many country- and product-specific systems. Examples of payment systems that have become globally available are credit card and automated teller machine networks. Specific forms of payment systems are also used to settle financial transactions for products in the equity markets, bond markets, currency markets, futures markets, derivatives markets, options markets and to transfer funds between financial institutions both domestically using clearing and Real Time Gross Settlement (RTGS) systems and internationally using the SWIFT network. The term electronic payment can refer narrowly to e-commerce – a payment for buying and selling goods or services offered through the Internet, or broadly to any type of electronic funds transfer.
