Methods of payment workshop, Financial literacy, Erasmus+ project New Literacy Set, 2015-2017

1. Methods of payment
Dott. Stefano Blanco
Dott. Massimiliano Fontana
New Literacy Set project
2015-2017
1

2. What’s money?
2
• We call “legal tender” any official medium of
payment recognized by law that can be used to
extinguish a public or private debt, or meet a
financial obligation.
• The national currency is legal tender in practically
every country.

3. What are money functions?
 It provides a method to compare the
value of dissimilar objects:
1. A medium of exchange – avoids the
inefficiences of a barter system
(coincidence of desires)
2. A unit of account – measurement of
market value of goods and services. It
is divisible into smaller units,
fungible and has a specific weight
3. A store of value (but mind inflation!)
3

4. Payment instruments
 Bank cheques
 Bank drafts
 Bank and wire transfers
 Direct debit
 Credit cards
4

5. Bank cheques
5
The check, as the promissory note, is a credit instrument as it has the
following characteristics
Credit instruments
Characteristics
Certify the existence of a right
ensure the possibility of relying
the right that incorporate
allow you to transfer the right
from a person to another

6. How bank cheques work
6
recipient
drawee
(Drawee bank)
Tractor - issuer
(Account holder)
Pays the check on
sight
Delivers the check
Orders the
payment
1
23

7. Some technical aspects of the check
7
But mind that a cheque can be endorsed only if there are funds in the debtor’s
current account. Sources of income for funds to endorse a cheque can be:
• from money deposited prior to the issuance of it
• from a credit line or overdraft granted by the bank to the debtor.
If the bank cheque is issued without the presence of funds on the current
account, then it is defined as a "blank cheque" or “overdrawn.". This is an illegal
practice in some countries.

8. Main features of a cheque
1. Cheque is an instrument in writing
2. Cheque contains an unconditional order
3. Cheque is drawn by a customer on his bank
4. Cheque must be signed by customer
5. Cheque must be payable on demand
6. Cheque must mention exact amount to be paid
7. Payee must be certain to whom payment is made
8. Cheque must be duly dated by customer of bank
9. Cheque has 3 parties: Drawer, Drawee & Payee
8

9. How bank drafts work
9
Applicant issuing bank
Beneficiary
pours money
delivers the check
Promises to pay
presents the check for paymentSends the check
1
2
3
4
5

10. The bank check and the draft check
The bank check
 three subjects appear: driving
(issuer), the paying bank, the
beneficiary .
 It contains a payment order
 To issue it you must have a c/
c at the paying bank
 If the policyholder does not
have on deposit at the bank
the money is issued as "empty“
 It may only be issued with the
clause "not transferable"
The draft check
 It‘s similar to the promissory
note and two subjects appear
 It ‘s not necessary to be
account holder to obtain the
issuing.
 It contains a promise of
payment by a bank
 If it has a lawful origin (not
stolen or falsified) then it is
certainly successful
10

11. The Bank Transfer
11
Debtor
The one who orders the
payment
Debtor Bank Beneficiary Bank
Beneficiary
The one who has to collect
The bank debits the bank account of the debtor and it
transfers the funds to the beneficiary's bank
the beneficiary's bank receives funds
and accredits his bank account
The Wire Transfer
Debtor
The one who orders the
payment
Beneficiary
The one who has to collect
Same Bank
The bank collects the amount from the bank account of the debtor
and pay the amount to bank account of payee
Both have an account
In the same Bank

12. Direct debit
 A direct debit is when you allow a merchant to debit
(take money from) your account on a regular basis to
pay for goods and services
 Steps are:
 You agree to pay by direct debit for goods or services, for
example, your electricity bills or gym membership.
 You sign an agreement called a Direct Debit Request
(DDR).
 Money will be taken from your account until you cancel
the Direct Debit.
12

13.  The credit card is a tool that configures the
opportunity granted by the issuer to the cardholder
to make purchases of goods and services at member
stores.
 Debit cards draw money directly from your checking
account when you make the purchase. They do this
by placing a hold on the amount of the purchase.
Then the merchant sends in the transaction to their
bank and it is transferred to the merchants
account.
13
Credit and debit cards

14. Difference between credit
and debit cards
 The fundamental difference between a
debit card and a credit card account is
where the cards pull the money.
 A debit card takes it from your banking
account and a credit card charges it to
your line of credit.
14

15. Credit cards
15
The two examples above relate to credit cards issued by specific companies
They are at the same time payment instruments (as they replace the money in the
payments) and credit instruments (as to the holder the amount is charged after a certain
period of time). They are intended to also payments of some significance in shops,
restaurants, affiliated hotels.
At the end of the month it is sent to the client a statement of account with withdrawals
made and the payments that the user is in balance.
In case of loss it must be immediately notified to the issuer in order to block the use.

16. Debit cards/ATM cards
16
The debit or ATM card has become with time
a multifunction card. Besides the possibility of
withdrawing cash money from any ATM outside the bank,
it has been enabled
to many other functions:
- Request for account statement and balance
- Payment of spending at POS (point of sails);
- Pay tolls;
- Up to all of assisted payment functions guaranteed by
the classic credit cards.
Magnetic Band containing
the card holder data
Front Back

17. 17
Credit Card versus Debit Card comparison table
Credit Card Debit Card
About Credit cards are lines of credit. When you use a credit card, the
issuer puts money toward the transaction. This is a loan you are
expected to pay back in full (usually within 30 days), unless you
want to be charged interest.
Any time you use a debit card to buy something, money is
deducted from your account. With a debit card, you can
really only spend the money you have available to you.
Connected To Not required to be connected to a checking account. Checking or Savings Account
Monthly Bills Yes No
Application
Process
Somewhat difficult, depending on one's credit score and other
details.
Easy, with basically no barrier to receiving a debit card.
Spending Limit The credit limit set by the credit issuer. Limits increase or stay
the same over time as a borrower's creditworthiness changes.
However much is in the bank account connected to the
card.
Interest Charged If a credit card bill is not paid in full, interest is charged on
outstanding balance. The interest rate is usually very high.
No interest is charged because no money is borrowed.
Credit History Responsible credit card usage and payment can improve one's
credit rating. Credit cards typically report account activity to at
least one of the three major credit bureaus on a monthly basis.
Does not affect credit history.
Overdraw Fees Low. Some credit card companies allow to overdraw amount
over the maximum credit line with a fee.
High "overdraft" fees. Possible to overdraw amount over
the account limit.
PIN This is uncommon, but PINs are being phased in.
Usually yes

18. Online payments
 Paypal is a worldwide online payments system that supports
online money transfers and serves as an electronic
alternative to traditional paper methods like checks and
money orders
 Bitcoin is a form of digital currency, created and held
electronically.
 It’s decentralized. No single institution controls the bitcoin
network, it’s independent of any central authority, transferable
electronically, more or less instantly, with very low transaction
fees.
 It isn’t physically printed.
 It’s the first example of a growing category of money known as
cryptocurrency.
 https://www.youtube.com/watch?v=Um63OQz3bjo
18