Introduction
Payment instruments are fundamental to the economy’s functioning since they are used to settle most transactions. A set of instructions is used to settle retail transactions whereas wholesale financial market transactions are settled by RTGS instruction.
Essay
The most important retail payment instruments are direct entries: direct credits are pre-authorised deposits that settle obligations, such as salary payments whereas direct debits are pre-authorised deductions from deposit accounts to settle periodic transactions, such as the payment of utility accounts. Their main advantage is that pre-authorisation means they are made electronically.
While declining in importance, cheques are paper-based instructions to a depositor’s ADI to pay funds to settle a transaction (or to effect a withdrawal). They can be used only where the depositor has a cheque account. Their main advantage is that the depositor can make a record of the instruction.
Debit cards allow their holder to settle transactions via EFTPOS machines that draw on funds in the depositor’s ADI account and to withdraw funds from ATMs. Their advantages are that they are processed electronically and their holder cannot overdraw their account. Credit cards also allow their holder to settle transactions electronically but the funds are initially provided by the credit card issuing ADI. Cardholders may pay the amount due to their issuing ADI on the monthly billing date or pay part of this amount provided the unpaid amount does not exceed the cardholder’s credit limit. Their main advantage to the cardholder is the access they provide to credit.
Table 1 Australia’s retail payments, 2005/06
Payment order Total value $m Number ‘m ...