Concept: Payment System:

Payment is the transfer of money, goods, or services in exchange for goods and services in
acceptable proportions that have been previously agreed upon by all parties involved. A
payment can be made in the form of services exchanged, cash, check, wire transfer, credit card,
or debit card.

KEY TAKEAWAYS

 Payment is the transfer of money or goods and services in exchange for a product or
service.
 Payments are typically made after the terms have been agreed upon by all parties
involved.
 However, payment may be required before, during (installment payments) or after goods
or services have been provided.
 A payment can be made in the form of cash, check, wire transfer, credit card, or debit
card.
 More modern methods of payment types leverage the Internet and digital platforms.

The payment system is a key element of the financial infrastructure that facilitates efficient
functioning of the financial system. Under Article 26 of the Bangladesh Bank Order, 1972
Bangladesh Bank through its Department of Currency Management & Payment Systems
performs core functions relating to issuance of notes and coins and management of currencies in
circulation.

Different Payment Options:

Payments are made using various options. Throughout history, these types of payments have
changed and evolved, and new payment methods are likely to appear in the future. Here are the
most common types of payments used today.

Cash:

Cash is still used for many businesses, such as the retail industry. Coffee shops and convenience
stores, for example, still accept cash payments. Considering the fees associated with debit and
credit cards, many retail small businesses prefer cash payments from their customers. Cash has
its own disadvantages, as it can be lost, stolen, or destroyed. Businesses dealing in large
transactions must often incur additional expenses to pay for related security measures such as
secured transit or fraud detection.
Pros:
 Eliminate all hidden fees as there are no transaction costs for transacting with cash
 Manages spending as you can only spend up to whatever physical bills you have in
possession.
 Assists with budgeting as you can easily visualize how much money you have to spend
 Eliminates the need for access to the Internet or technology

Cons:
 Does not build your credit score as no credit is used
 Incurs ATM fees when withdrawing cash from an ATM
 Has higher risk of theft as cash is often owned by the bearer (whomever is in possession
of the paper)
 Doesn't keep a record of spending like other digital means do

Cheques:

Cheques have fallen out of favor over the years due to advancements in technology, allowing
payments to be electronically submitted. However, there are instances when cheques might be
helpful, such as when the seller wants a guaranteed payment. A bank cashier's check or
a certified check are two types of cheques that banks offer to help sellers receive the money
owed from the buyer.

Cheques are linked to a payer's bank account. Each check contains your bank's routing number
(a nine digit code to identify financial institution) as well as your account number. When a
check is written, the payee deposits the check, sending the transaction to a clearing unit. The
clearing unit makes the appropriate changes to each party's account.

Pros:
 Charge low to no fees (outside of the cost of the paper check and a stamp to potentially
mail payment)
 Provide protection as cheques must be signed by the recipient who must often also show
ID prior to cashing
 Generate proof of payment via paper trail

Cons:
 May be costly depending on how checkbooks are ordered and securely distributed to the
payer
 Results in longer processing time as funds aren't transferred until the recipient cashes the
check
 Are still susceptible to fraud; if depositing bank does not require ID, fraudulent cheques
only require a single forged signature.
Debit Cards:

Debit cards may look similar to credit cards, but their underlying mechanism is entirely
different. When a debit card is used, funds are immediately withdrawn from an individual's
account. Instead of having a line of credit that you can pull from in excess of what you have
saved, debit card transactions can be declined if you do not have enough money in your
account.

Debit cards share many advantages as credit cards, as the small piece of plastic is easy to carry,
widely accepted by many merchants, and has varying levels of fraud protection. However, debit
cards often have less promotional opportunities and may result in processing fees if you
accidently attempt to overdraw your account.

Pros:
 Help individuals transact easier through ATM withdrawals or purchases as many major
companies
 Typically don't have annual fees or transaction costs as long as you have money in your
account
 Discourage excess spending by only allowing spending up to account balance
 Doesn't charge interest since all payments are facilitated using the spender's money

Cons
 Often has limited fraud protection up to certain dollar amounts or time periods
 Limit your spending capabilities to your account balance, not allowing for higher
amounts of spending for emergency or high need situations
 Charge overdraft fees through some banks when you attempt to withdrawn more funds
than available in your account
 Don't build your credit score as no credit is used

Credit Cards:

Today, credit cards are widely used for purchases and payments. Credit cards work by offering
its user a line of where where an individual can draw credit up to a certain limit. When you
attempt to use your credit card, your account information is sent to the merchant bank. The
merchant bank then receives authorization from the credit card network to process the
transaction.

Many businesses accept credit cards, though many that accept cards charge a fee from the
merchant that provides the machine and payments infrastructure as well as their financial
institution. This fee is often a percentage of the transaction amount and/or a flat fee for each
payment.

Pros:
  Help an individual build a credit history that can used to make more major purchases in
the future
 Reduce risk as it is easier to carry a single plastic card as opposed to cash
 Produce revenue opportunities through rewards and airline miles
 Delay when an individual actually needs to use personal capital to pay for something

Cons:
 Create the potential to overextend credit and incur unpayable debt
 Charge processing fees by many merchants, making a purchase more expense than other
methods
 Charge high interest (~15% to ~25% APY) on unpaid balances
 Impact a credit report negatively when too many cards are opened

Mobile Payment:

The contactless payment technology that has emerged in recent years has made payments easier
than ever. The credit or debit card machine—called a point of sale terminal (POS)—can read
the customer's banking information through the software application that's installed on the
mobile device. Once the phone reads the information from the POS terminal, a signal is
generated to inform the customer that the payment has been made.

For mobile payments to work, the payer must have a higher-end mobile device with near-field
communication (NFC) capability. The user then needs to set up their mobile wallet to contain
their existing card information. The bank that issued your credit card often has to approve the
new payment platform, and the payee must have capabilities to accept mobile payment.

Pros:
 Allow for very fast transactions (a simple tap with your smartphone and authentication
is all that is needed)
 Promotes financial security through tokenized mobile payment apps
 Further promotes security through biometric authentication requirements on mobile
devices
 Doesn't require user to carry around additional goods (as long as they normally have
their phone on them)

Cons:
 Still an emerging type of payment, so it is not always accepted.
 Only supported by certain types of mobile phones.
 Ties together multiple assets; if you lose access to your phone via theft or dead battery,
you cannot make payments.
 May require payer to use specific app at specific places (i.e. Apple stores may only
accept Apple Pay)
Electronic Funds Transfers

Wire transfers and ACH payments (Automatic Clearing House) are typically used for larger or
more frequent payments in which a check or credit card wouldn't be appropriate. A payment
from a manufacturer to a supplier, for example, would typically be done via wire transfer,
particularly if it was an international payment. An ACH payment is often used for direct
deposits of payroll for a company's employees.

Though both are transfers of electronic funds, ACHs and wire transfers are different. ACHs
only work domestically, and often take one or more business days to fully process. Wires are
most often processed same day but have location limitations. In addition, ACHs can often be
reversed, while wire payments are permanent once the transaction is initiated.

Pros:
 May help payees receive funds faster than other methods
 Can be set up as an automatic payment for reoccurring transactions
 Allow for investigation and dispute for fraudulent transactions

Cons:
 Require the payer to immediately have the funds ready to be disbursed
 May not be recoverable for certain types of EFTs
 May result in higher transaction fees or costs