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1CLEARING AND TRANSFER 2 General Banking Foreign Trade AdvancesGeneral Banking Branch Operations Deposits Remittances Cash

Started in Florence by A.D. 800

Perfected in Lyons by 1463

Use was widespread in 18th-century Europe The first modern clearinghouse was formed at:Edinburgh (1760) or

London (1773)History & Types of Clearing Such an institution involves frequent meetings of local bank representatives to settle the balances among member banks. In the United States, the balance (debit or credit) for each bank at the close of a meeting is forwarded to the Federal Reserve bank, which adjusts the individual accounts accordingly.

Intercity balances are settled on the books of the Federal Reserve banks daily by electronic transfers. Clearing is also practiced by stock and commodity exchanges. The Stock Clearing Corp. started in 1920.Types of Clearing:a) Outward Clearing: Collection of funds of local cheques deposited by the customer drawn on other Banks.b) Inward Clearing: Payment of cheques of ABC Banks customers drawn on ABC Bank.ClearingAny instruments which are drawn on our branches and other banks in same city thats instruments are called clearing.

We affix clearing and date stamp on these instruments.

Clearings are two types:Inward clearing Outward clearing

Section 58 providesThat no person is entitled to receive the amount of the instrument for following cases:

A person is finder of instrument lost by another

Has obtained it from the maker, drawer, acceptor, or holder thereof by means of an offence or fraud or for an illegal consideration.

Any person who claims it through such person who is not entitled to receive its amount.Collection and Payment of cheques are known as Outward and Inward Clearing respectively.Overview:Clearing of Bank Instruments includes collection and payment of:Cheques,Demand Draft,Payment Order,Dividend Warrants etc. Instruments for Clearing: Cheques Demand Draft Payment Order Dividend Warrants etc. Drawer, the person or entity who makes the cheque

Payee, the recipient of the money

Drawee, the bank or other financial institution where the cheque can be presented for payment

Amount, the currency amountParts of a cheque?A draft is a three-party instrument similar to a check.

A draft is an order signed by one party (the drawer, or drafter) that is addressed to another party (the drawee) directing the drawee to pay to someone (the payee) the amount indicated on the draft.

The payment may be at sight or at some defined time.

Most drafts are used for the purchase of goods and services.It is a written order, drawn by one branch of a bank upon another branch of the same bank, or upon other bank under special arrangements to pay a certain sum of money to or to the order of a specified person.A Pay Order is a written authorization for payment, made in a receipt form issued & payable by the bank, to the person named & addressed therein on giving proper discharge thereon. Collection and Payment of cheques are known as Outward and Inward ClearingA bank can clear checks issued by any bank in Pakistandebiting payer's account & crediting payee's account.Clearing means?NORMAL CLEARINGINTER CITY CLEARING THROUGH NIFT SPECIAL CLEARING Receives deposit slip and instrument(s) from customer.

Checks deposit slip.

Scrutinizes Instruments.Affix banks Clearing Stamp, sign-off deposit slip and return customer copy to depositor.

Endorse and sign off on the reverse of instrument as per requirement.NIFT Representative delivers Inward Clearing instruments Branches

Branches receives Inward Clearing instruments from NIFT Representative.

Segregate cheques and Payment Orders/ Demand Draft/ CDRs etc branch wise.

Check Clearing and Endorsement stamp on cheques/instruments.

Scrutiny of cheques/instruments.

Signature Verification on cheques.Branch receive details of discrepant inward clearing instruments from HO

Branch checks the status of account and provide their feedback accordingly.

Note down detail of returns & prepares the Returns Memos as per instructions from branches.

Delivers the same to NIFT representative.

Hand-over the Paid instruments /Advices along with relevant Reports to the designated courier for onward delivery to the respective branches.

Enter detail on Register or Excel Sheet.

Make list of 50 instruments and attach with the stack.

Make a summary along with bundle cover.

Deliver the instruments to NIFT rider in the evening. NIFT receives instruments from the branch.

Process them for onward delivery to the concerned banks for clearance of funds next day.

In second half of next day, NIFT rider delivers Cheques Returns and also deliver HO (difference amount voucher) along with Scroll Summary.Same Day Clearing is categorized as under:

Amount 500k and above.

Both Receiving and Paying Banks/Branches are members of "Same day clearing - NIFT.

Cheque is received before 9:30AM.Outward Clearing?Collection of funds of local cheques deposited by the customer drawn on other Banks.Inward Clearing? Payment of cheques of our customers drawn on usClearings The banking function in which negotiable instruments of the other member banks are collected in customer accounts.

Collections Collection of funds among cities. Transfers Collection of funds with in same bank/same branches33Cheque Deposit & Withdrawal through ClearingClearing of Bank Instruments includes collection and payment of Cheques, Demand Draft, Payment Order, Mail Transfer, Telegraphic Transfer and Dividend Warrants etc. Collection and Payment of cheques are known as Outward and Inward Clearing respectively:

A commercial bank that is part of a network of banks that can clear checks for its clients regardless of whether or not the check originates from the same commercial bank. Clearing a check means processing it so that funds are deducted from the payer's account and put into the payee's account.

Clearing, in banking, the periodic settling of bankers' claims against each other, for which local banks establish clearing house associations. Clearing houses are said to have existed in Florence by A.D. 800. They were certainly perfected in Lyons by 1463, and their use was widespread in 18th-century Europe. The first modern clearinghouse was either at Edinburgh (1760) or at London (1773).

ROLE Of SBP/NBP SBP/NBP (where SBP is not available) act as the clearing agent. All banks have their accounts with SBP/NBPThe clearing process is carried out by NIFT on approval organization by Govt./SBP.

NIFT National Institutional facilitation Technology.CLEARING REPRENSATIVE OFFICE

35Clearing House In the big town of Pakistan many commercial banks operate.

As there are various banks so are there customers find the use of cheques are drawn very convenient for making payments. These cheques are drawn on the different banks by the different customers of the banks. Clearing House Mr. Zaid has an account in the ABC Bank Ltd. He gives a crossed cheque to Mr. Hamid who pays it into the HBL where, he has an account, and the amount is credited after the cheque is cleared.

The question of how, the HBL gets the funds from the ABC is the essence of Clearing System.Clearing House The bankers clearing house therefore, is an institution set up for the purpose of settling quickly claims by one bank against the others.

Representatives from each bank which operates in the same town will meet once daily. They will exchange instruments drawn on them by their various customers. Clearing House Here, banks compare debts which are in the first place settled by means of set off. If after clearing their cheques one bank is still owing another, the debtor bank will have to issue a cheque one bank is still owing another, the debtor bank will have to issue a cheque to that amount in full settlement of the indebtedness. Collecting Banker:Collecting Banker:A collecting banker is the one who has assumed duty of collecting the proceeds of an instrument for the customer or for himself. When Bank collects the proceeds for the customer, he acts as his/her agent, whereas in case of collecting for himself, he is holder for value by virtue of the fact that:He either has already made the payment before collection of proceeds or,The Cheques are received for adjustment of any liabilities.A collecting banker has no legal obligation to collect cheques drawn on other bank for the customers. Negotiable Act Section 181 relating to crossed cheques (Account Payee) says that where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself, and the customer has no title or defective title thereto, the bankers shall not incur any liability to true owner of the cheque by reason only of having received such payment.COLLECTION OF INSTRUMENTSWHEN INSTRUMENTS PERTAIN TO THE DIFFERENT CITIES, THESE ARE COLLECTED/PROCESSED IN THE COLLECTION.Which Instruments are collectedChequesPay OrderDemand DraftsTelegraphic transfers.Mail TransfersDividend WarrantsTransferAny instruments which are drawn on same branch.

We affix transfer and date stamp on that instruments.Transfer DeliveryAny instruments which are drawn on other branches of same bank is called transfer delivery.

We affix transfer delivery and date stamp on these instruments.

In which cities where NIFT works there is no concept of transfer delivery.

TransferabilityIn simple transferability, even an innocent transferee, who has no knowledge of any defect in the transferors title and despite having paid the consideration, gets a defective title if the transferor has any defect in his title.Coverage3NIFT & ITS FUNCTIONS

National Institute Of Financial TransactionsNational Institute Funds Transfernational National Institutional Facilitation TechnologiesNetwork Interbank Funds Transfer

National Institute Of Financial TransactionsNational Institute Funds Transfernational National Institutional Facilitation TechnologiesNetwork Interbank Funds Transfer

NATIONAL INSTITUTIONAL FACILITATIONAL TECHNOLOGIES

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Established in 1996 at Karachi

The automated cheque processing service is provided by NIFT, a private company authorized by SBP

NIFT uses modern technology for clearing of financial instruments The automated cheque processing service is operated by National Institutional Facilitation Technology (Private) Limited (NIFT), a private company.In this system different banks and their branches will directly approach the NIFT and send their outward clearing instruments. At NIFT these instruments will be processed automatically. NIFT will prepare sets of inward clearing instruments to be sent directly to payee branches and report of net clearing positions of all banks to be sent directly to SBP for settlement. So the NIFT will replace both clearing departments of commercial banks and clearing houses of the SBP. Thus the NIFT system is more efficient and quick in terms of time and accuracy as compared to the manual system of cheque clearing. NIFT is introducing modern techniques for clearing of financial instruments by duly realizing the future problems and prospects of the payments system in Pakistan. The automated system, installed by NIFT, is not only quick and efficient but also flexible to accommodate various types of instruments and expected increase in their volumes.NIFT has installed automatic cheque-sorters that can sort 32,000 cheques per hour.

The automated system is flexible to accommodate various types of instruments and able to handle large volumes.

NIFT uses cheque sorting machines that sorts 32,000 cheques per hour.Banks and their branches send their outward clearing instruments to NIFT

NIFT processes instruments automatically

NIFT prepares sets of inward clearing instruments and send them to payee branchesNIFT Reports the net clearing positions of banks to SBP for settlement.

NIFT has replaced both clearing departments of banks and clearing houses of SBP.

NIFT system is efficient & accurate in terms of time as compared to the manual system of cheque clearing.

NIFT providing services to 32 Commercial Banks. NIFT providing services to 34 Commercial Banks. NIFT providing services to 36 Commercial Banks. NIFT providing services to 38 Commercial Banks. NIFT providing services to 5300 banks branches of all over in Pakistan NIFT providing services to 6565 banks branches of all over in Pakistan NIFT providing services to 7365 banks branches of all over in Pakistan NIFT providing services to 8365 banks branches of all over in Pakistan

NIFT covering 239 cities of PakistanNIFT covering 249 cities of PakistanNIFT covering 259 cities of PakistanNIFT covering 269 cities of Pakistan--Overnight clearing Including Return Cheque Processing (24 hour Clearing Cycle)

--Same Day / High Value Clearing including return cheque Processing (3 hour Clearing Cycle)

--Inter City clearing including Return Cheque Processing (48 hour Clearing Cycle)

--Countrywide Local US Dollar Clearing (5 day Clearing Cycle)NBP (where SBP is not available) acts as clearing agent. All banks have accounts with SBP/NBP67PAYMENT SYSTEM, & KINDS OF CLEARINGa set of instruments, banking procedures and, typically, inter-bank funds transfer systems that ensure the circulation of money.Check is presented forpayment to customersbankClearing agent:on-us, or correspondent,or clearinghouseSupplierdepositscheckSupplier (payee) receives checkCustomersbank account isdebitedCustomer Sends ChequeSuppliersaccount is credited.CheckforwardedSuppliers bank is credited 123456789NORMAL CLEARINGINTER CITY CLEARING THROUGH NIFT SPECIAL CLEARING Receives deposit slip and instrument(s) from customer.

Checks deposit slip.

Scrutinizes Instruments.Affix banks Clearing Stamp, sign-off deposit slip and return customer copy to depositor.

Endorse and sign off on the reverse of instrument as per requirement.NIFT Representative delivers Inward Clearing instruments to the Central Processing Unit (CPU).

CPU receives Inward Clearing instruments from NIFT Representative.

Segregate cheques and Payment Orders/ Demand Draft/ CDRs etc branch wise.

Check Clearing and Endorsement stamp on cheques/instruments.

Scrutiny of cheques/instruments.

Signature Verification on cheques.Branch receive details of discrepant inward clearing instruments from CPU.

Branch checks the status of account and provide their feedback accordingly.

Note down detail of returns & prepares the Returns Memos as per instructions from branches.

Delivers the same to NIFT representative.

Hand-over the Paid instruments /Advices along with relevant Reports to the designated courier for onward delivery to the respective branches.

Enter detail on Register or Excel Sheet.

Make list of 50 instruments and attach with the stack.

Make a summary along with bundle cover.

Deliver the instruments to NIFT rider in the evening. NIFT receives instruments from the branch.

Process them for onward delivery to the concerned banks for clearance of funds next day.

In second half of next day, NIFT rider delivers Cheques Returns and also deliver (difference amount voucher) along with Scroll Summary.Title and Account number are mentioned.Amount tallies with that of cheque(s).The amount in words and figures are same.Deposit slips and the cheques/instruments should be properly scrutinized before accepting them.There are no unauthorized alterations.

The amount, account number and the title of account in the customer copy are same as in the original /pay-in-slip.

The pay-in-slip bears the depositors signature and contact no. (Mandatory) at the specified place.The cheque is not post dated or undated or stale dated or invalid dated or incomplete dated.

There is no unauthorized alteration on the cheque.

Payee name and Drawee Signatures is Present.

Particulars of a cheque should be written with Permanent Ink.The amount in both words and figures is required and both should match.

Any endorsement and special crossing are in order.

Nothing on the cheque indicates that the depositor is not entitled to receive the amount

The cheque payable to a firm, company or institution should not be accepted for credit to the account of partner, director, agent, attorney, manager or any employee.

If the payee is a Government Department / Official or a Trust, a cheque should not be collected for a person other than the payee.

Cheque Crossed / Marked Payee Account Only must be deposited in customers account ONLY and should not be deposited in another the Payee account

Order cheque being deposited in other account is properly endorsed by the Payee in favor of depositor and also signed by the depositor.

Cheque drawn against Dormant, Inactive or Deceased accounts.Insufficient balance in the accountCheque series not found/updated in the systemAccount not foundAccount Related Discrepancies:Debit or Credit turnover limit exceedsStop Payment marked against the cheque.Amount exceeding RF limitRestraint marked: officer not authorized for the transaction CNIC not updated, new CNIC copy required.Account Related Discrepancies:Signature DifferOperating instructions requiredSignature not tagged with the accountCheques drawn on Photo AccountCall back confirmation required: Transaction amount of PKR 1 Million and aboveInstrument Related Discrepancies:All Call Deposit Receipts - CDRs issued by branchesSpeed Cash, Remit Express DraftsForeign DDs drawn on Global Transaction Banking BranchUn-signed/singly signed bank draftsRevalidation required: stale dated bank draftsOther cases:.Used for informing the beneficiary of the cheque, if it is returned unpaid.

Mention Account and cheque Number.

Mention the amount of cheque.

Mention the Name of the collecting Bank to whom branches will return the cheque.

Mention the return reason (should be as per approved return reason list by SBP )

As per the SBP directives banks are not allowed to give ambiguous reasons like Refer to Drawer when a cheque is returned unpaid by them for insufficient funds or for any other reason. As a result, the beneficiary of the cheque is not in a position to take action against the issuer of the cheque under the provisions of relevant laws. Hence, branches must give definite and clear reasons while returning the cheques to the beneficiary (Whether on Cash Counter or Clearing/Collection).Cheques returned in clearing not delivered to the customers.

Returned cheque register not properly maintained.

Returned Cheques entered into the register at the time of delivery of cheque to the customer.

Cheques accepted for clearing having special crossing A/c Payees only for credit of funds into another account instead of in payees A/c.

Returned cheques handed over to the customers without obtaining signature on the register.

Inward cheque return charges not deducted as per SOC.The letter not sent to customer on SB-20 with the copy of cheque in case the customer not collect the cheque within 5-working days of cheque returned.

Not informed the customer over phone regarding his / her cheque return in clearing.

Cheques not properly scrutinized before lodgment. Cheques returned with reason which can be identified before lodgment (such as Post Dated, Amount in words & figure differ, Not drawn on us, etc.) Intercity cheque return charges / intercity cheque realization charges not deducted as per SOC.

Cheques received in inward clearing returned without giving specific reason for dishonoring the cheque.

Inward clearing cheque returned after clearing return hour due to that branch debited Banking Adjustment Account (Debit). Credit received from NIFT with delay.

Demand DraftPay OrderInternal Funds TransferRupee Travelers Cheques ATMsVirtual Banking

Fund Transfer Application (FTA) used to transfer funds from:one account to another account or to another branch of any Bnak/ABC.

Complete Information on FTA

Signed by the account holder(s)/ authorized signatory,

Verify signatures Ensure funds are available before processing FTA

Always obtain Valid Cross Cheques of equivalent amount with FTACROSSING OF CHEQUESCrossing: When a cheque bears across its face two parallel lines with or without the words And Company or any abbreviation thereof, the cheque is said to be crossed.

Section 126,127 and 129 of the Negotiable Instruments Act, 1881, prohibit the payment of crossed cheques in Cash. These cheques can be paid only to a collectingbanker.

The crossings are of two types of crossing: Cheque Crossed Generally Cheque Crossed SpecificallyGeneral Crossing: Under Section 123 of the Negotiable InstrumentAct,1881, General Crossing has been defined as under:

Where a cheque bears across its face and addition of the words and company or any abbreviation thereof between two parallel ransverse lines or of two parallel lines simply either with or without the words not negotiable that addition shall be deemed a crossing and the cheque Shall be deemed to be crossed generally.

Two parallel transverse lines, drawn across the face of the cheque either with or without the words and company or any abbreviation of it written between these two parallel transverse lines;

Two parallel transverse lines drawn across the face of the cheque either with or without the words Not Negotiable written in between them.Section 123-A of the Negotiable Instruments Act, 1881, defines that, Where a cheque crossed generally bears across its face an addition of the words Account Payee between the two parallel transverse lines constituting the general crossing, the cheque, besides being crossed generally, is said to be crossed Account Payee.When a cheque is crossed Account Payee:It shall cease to be negotiable; andIt shall be the duty of the banker collecting payment of the cheque to credit the proceeds thereof only to the account of the payee named in the cheque.This crossing gives a very clear indication to the collecting banker that the proceeds of the cheque should go only to the account specified in the cheque, and that they should not be collected for any other person. It is also implied that:

It renders the instrument not negotiable;

If the collecting banker contravenes the provisions of this clause and credits the amount to some other account, he will do so at his own risk;

If he does not keep the payees account he should refuse to handle the cheque. Section 124 of the Negotiable Instruments Act, 1881, in the following terms:Where a cheque bears across its face an addition of the name of a banker, either with or without the words Not Negotiable, that addition shall be deemed a special crossing, and the cheque shall be deemed crossed special; and to be crossed to that banker. It is evident from this definition that:In case of a special crossing the two parallel transverse lines are not essential;The name of the banker written across the face of the cheque is sufficient to constitute a special crossing;After the cheque has been crossed specially, the holder cannot receive payment except through the banker named on the cheque;If a crossed cheque is lost or stolen, there is no risk of wrong payment.Conversion of a Crossed Cheque into Open Cheque:A crossed Cheque can be converted into an open cheque by writing, Please pay Cash near the crossing with full signature of the drawer. The drawer can cancel the crossing. However, the banker can cancel the special crossing.Who can cross the cheque?1. The drawer.2. Holder, where the cheque is uncrossed.3. Holder may cross a cheque especially where the cheque is crossed generally.4. A cheque crossed specially to one banker may be crossed specially to another banker.5. Where an uncrossed cheque or cheque crossed generally is sent to a banker for collection may cross it especially to himself.Section 130 of the Negotiable Instruments Act, 1881, reads: A person taking a cheque crossed generally or specially, bearing in either case the words Not negotiable shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.It is, therefore clear that not negotiable crossing does not restrict in any way the transferability of a cheque. However, the holder in good faith, and for value, takes the instrument free from any defect in the title of his transferor, authorized to sue on the instrument in his own name.

If a bearer cheque crossed not negotiable is stolen or lost and thereafter presented for encashment, the person cashing it will have no title to the cheque, and is liable to refund the money to the true owner. Since he had no title to the cheque, he shall not be able to sue the drawer in case of its dishonour.Crossing has the following advantages:Minimize the risk of loss or forgery.

Direction to the paying banker to pay the money generally to a bank or to a particular bank, as the case may be.

Only a banker can secure payment of a crossed cheque, as such it is easy to compel the holder to present it through a quarter of known respectability, and credit.

Since only a banker secures payment of a crossed cheque, it can easily be traced for whose use the money was received.

Mere crossing of a cheque does not effect its negotiability.

Section 126 of the Negotiable Instruments Act lays down that cheques crossed generally be paid only to a banker.

A cheque crossed specially should be paid only to the banker to whom it is crossed or is an agent for collection.

Section 127 of the Negotiable Instruments Act, 1881, allows a Second Special crossing in favor of the banker who would be acting as the agent of the first banker for collection. Therefore, it is necessary to specify in the Second Special crossing that the banker in whose favour it is made is the agent for collection on behalf of the first banker.A banker must not pay a cheque y ignoring the crossing, as he is not legally justified in making cash payment over the counter to the payee.Section 125-A of the Negotiable Instruments Act, 1881, runs:A crossing authorized by this act is a material part of the cheque; it shall not be lawful for any person to obliterate, or except as authorized by this Act, to add or alter the crossing.

This definition makes crossing a material part of the Cheque. Therefore, any alteration in it amounts to material alteration, which should be authorized only by the drawer, as every unauthorized material alteration is unlawful.ENDORSEMENTWhen the maker or holder of a negotiable instrument signs the same otherwise than as such maker for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same and is called the Endorser.Endorsement means the writing of a persons name on the back of a negotiable instrument.

Can be given also on the face of an instrument.

Has no particular form of words.

Can also be given on a piece of paper annexed to a negotiable

instrument. The annexed piece of paper is called Alonge.

Should be given for the purpose of negotiation, which has been defined

in the Section 14 of the Negotiable Instrument Act 1881 as under:When a promissory note, a bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated.There are mainly five kinds of endorsement:a) Endorsement in Blank: If the endorser signs his name only, the endorsement is said to be In Blank. It is also called as General Endorsement. It consist of the bare signature of the endorser and the instruments endorsed becomes payable to bearer. As long as the endorsement continues in blank, the instrument may be negotiated by mere delivery, in the same manner as any instrument payable per bearer.b) Endorsement in Full: If endorser adds a direction to pay the amount mentioned in the instrument to or to the order of a specified person, the endorsement is said to be in full and the person so specified is called the Endorsee of the instrument. It is also known as General Endorsement. It specifies in addition to the signature of the endorser, the person to whom or to whose order the instrument is payable.c) Restrictive Endorsement: This is the endorsement, which prohibits the further negotiation of the instruments for instance; if a cheque is endorsed pay A only or pay B for the account of X etc. In this type of endorsement the endorsee has no power to transfer his rights to any one further.d) Partial Endorsement: It is an endorsement, with purpose to transfer to the endorsee a part of the amount payable on a Bill of Exchange or promissory Note. It is not valid endorsement.

e) Conditional Endorsement: It is an endorsement which makes the transfer of the instrument from the endorser to the endorsee after the fulfillment of stated condition, for instance, if the holder of the bill endorsee Pay account or order with resources to me Or pay or order at his own risk.The name of the endorser must appear exactly in the same spellings as written in the instrument as payee.

Endorsement in pencil is legally valid but it should be discouraged. Banker must insist on endorsement in ink.

Endorsement made by an imprest stamp or in any other form is not treated as valid unless, the payee gives satisfactory evidence about its genuineness.Endorsement made in type writing or printed form is not treated as valid unless, the payee gives satisfactory evidence about its genuineness

An endorsement made in language not spoken in the area and which the paying banker also does not understand should not be accepted without a certified translation. However, in the presence of a collection bankers confirmation, certified translation is not necessary.

It is not essential that the endorsement, if more than one, should appear in the same serial order in which they were made. A collecting banker is the one who has assumed duty of collecting theproceeds of an instrument for the customer or for himself. When Bankcollects the proceeds for the customer, he acts as his/her agent, whereas in case of collecting for himself, he is holder for value by virtue of the fact that:He either has already made the payment before collection of proceeds or,The Cheques are received for adjustment of any liabilities.A collecting banker has no legal obligation to collect cheques drawn onother bank for the customers. Negotiable Act Section 181 relating to crossed cheques (Account Payee) says that where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself, and the customer has no title or defective title thereto, the bankers shall not incur any liability to true owner of the cheque by reason only of having received such payment.OverviewAdvantages of EPSefficientfast cost savingeffectiveless human errorsCurrent E-payment methodsFedwiresmall volume,banks Clearing House Interbank Payments System (CHIPS)small volume, large amount for corporationsAutomated Clearing House(ACH)automate payment between corporation and suppliershigh volume, low valueReasons why checks are used by large corporations (200 million checks a day)Generate interest while checks are being cleared (3.6 days)Delay of check-clearing is called floatGM asks its supplier to accept a 3-day delay for E-payment.Conventional payment processSeller transfer goods or services to buyer and buyer transfer to seller using cash transaction non-cash transaction (credit card or check)Cash transaction (cash flow)buyer withdraw from his accounttransfer of cash to the sellerseller deposit cashSeller bankBuyer bankSellerBuyerDeposit cash or payment informationWithdraw cash or payment informationgoodsPaymentInfo flows for notational changesNon-cash transaction (use payment information)intermediaries required(credit card company or check clearing company)Payment information neededinformation identities of seller and buyerFinancial information such as credit card or bank account numbersActual values represented by digital currency

Problems with traditional payment methodsLack of convenienceLack of securityprovide credit card info by phone or mailLack of coveragedoes not support individual-individual or bus to bus transactionsLack of eligibility: not all potential buyers can get credit cardLack of support for micro transactions(micropayment)Characteristics of E-paymentLack of face to face interactionlack of trustrequire intermediaries to provide security, identification, authentication and payment support

Types of E-paymentNon-sensitive Transfer systemno sensitive info is passed over the networkonly seller /buyer id, amount, itemintermediary is the centralized commerce enabler, verify seller/buyer id and do the restmaintain membership and payment info

Seller bankBuyer banksellerbuyerID numberGoodsIntermediaryPayment requests and confirmationSettlementsNon-sensitive Transfer systemNotational funds transfer system (NFT)sensitive info is passed over the networkno intermediary is needed

Seller bankBuyer bankPayment clearing services(PCS)sellerbuyergoodsPayment infoPayment informationSettlementsofflineonlineNotational Funds Transfer SystemDigital currency payment systemtransfer digital product representing valuesSeller bankBuyer banksellerbuyerID numberSettlementsGoodsIntermediaryInside money flowDigital currency payment systemProperties of digital currenciesMonetary valueexchangeable for paymentstorable and retrievablenot be easy to copyprovide convenienceprovide Securityadequate protection standards are neededAuthenticationcan not be physically exameduse digital signatureNon-refutabilitycash: receipt is good for non-refutabilityE-cash: append all transaction record

Accessibility and Reliabilitycan be accessed from anywhere in the worldtransported Anonymitycash: anonymousprotection to provide anonymityTwo types of Digital CurrenciesE-cashonline transactionsopen two accounts/ one regular one Ecash mintuser can transfer outside money from regular account to Ecash account (not insured by FDIC)user can download Ecash from Ecash account to his hard driveuser can spend e-cash on any stores which accept Ecash Receiver of Ecash will present the Ecash to the bank or Ecash server for verificationMondexsmart cardpeer to peeroffline -such as prepaid phone card, copy cardonline like Ecashlike a portable hard drive with a build in Ecash Mintunlike debit card: just in time pay card

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