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Showing posts with the label Payment Schemes

Payment Schemes - 1

The way people pay for things is rapidly changing. Fintech start-ups have been quick to identify pain points in traditional payment systems, which, so far, have been interbank clearing and settlement systems, or those run by the various card associations. Here’s a first of a series of quick primers on payment schemes.
What is a payment? A payment is a message. Unlike your typical WhatsApp message, however, a payment instruction comes with obligations - it obliges (at least) one financial institution to debit one account (a financial instrument) and credit another.
This is what happens if Alice pays Bob, both of whom hold accounts at the same bank. Alice instructs her bank to debit her account and credit Bob’s account. When the bank gets the message, it verifies that Alice and Bob both have accounts with it, that both accounts are active, that Alice has enough funds in her account to do the transaction, and that there are no regulations that may disallow the payment. The bank authentic…