Payment Systems
Payment Systems
The
Bank's Oversight of Payment Systems
Central
Banks and the Oversight of Payment Systems
Risks
in Payment Systems
Payment and settlement systems are vitally important to the smooth functioning of the economy. Financial institutions use payment systems to settle financial market transactions, for example their trades in foreign exchange, equities, bonds and money market instruments. Businesses rely on them to receive payment for goods and services, and consumers rely on them to make house purchases, receive salaries and benefits, and pay for goods and services.
What is a payment system?
A payment is a transfer of value between people or organisations.
A payment system can then be defined as any organised arrangement
for transferring value between its participants. So defined,
it is clear that payment systems are fundamental to the functioning
of all economies. If transactions are the lifeblood of market
economies, then payment systems are the circulation system for
these transactions.
Size of payment systems
This circulation system is as vast as it is important. An amount
equivalent to around half of UK annual gross domestic product
(GDP) is cleared and settled through the main UK payment systems
– CHAPS, CREST, CLS, LCH. Clearnet Ltd, BACS, Cheque and
Credit, Visa, MasterCard and LINK – on an average business
day. In 2003, the value passing through UK payment systems was
around £130 trillion, about 120 times UK annual gross
domestic product (GDP). More
on UK Payment Systems
Large and small payments
The size of these payment flows reflects the variety of transactions
which they support, for goods and services as well as financial
assets. Some of these transactions involve high-value transfers,
typically between financial institutions. These are vital for
wholesale financial market activity. For example, they may reflect
transfers of funds between banks in response to lending between
them, or their customers. Or they may reflect settlement of
transactions involving foreign exchange, equities, bonds, money
market instruments and other financial assets.
A separate set of transactions, greater in number but typically smaller in value, reflect transfers between individuals and/or companies. These too are vital for the functioning of the economy. For example, they include the payment and receipt of wages, salaries and government benefits, direct debits, cheques and debit and credit card payments. If any of these circulation systems failed, the functioning of large and important parts of the economy would be affected.
More information on the Bank’s oversight of payment systems >>
Key Resources
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Payment Systems Oversight Report Download PDF (1mb) |
