Learning Objectives:

  • Understand the role of payment systems in the economy.

  • Identify the key participants and components of payment systems.

  • Distinguish between wholesale and retail payment systems.

1.1 The Role of Payment Systems

Payment systems are the infrastructure that enables the circulation of money within an economy. The BTRM course covers “domestic and international payment systems” as part of its commercial banking curriculum . The University of Edinburgh course requires students to “explain the structures of banking industries” and includes coverage of “technological developments” . Payment systems are a critical component of a country’s financial system and a major channel by which financial shocks can be transmitted across markets.

1.2 Key Participants

The payments ecosystem consists of:

  • Payers and Payees: The originators and recipients of payments.

  • Payment Service Providers (PSPs): Banks and other financial institutions that maintain accounts for customers.

  • Payment System Operators: Entities that manage the infrastructure.

  • Central Banks: Oversee and often operate systemically important payment systems.

  • Clearing Houses: Interpose themselves between counterparties to manage risk.

1.3 Wholesale vs. Retail Payment Systems

Payment systems are broadly categorised into:

  • Wholesale/Large-Value Systems: Process high-value, time-critical transactions. Typically RTGS systems.

  • Retail/Low-Value Systems: Process a large volume of smaller-value transactions. Often ACH-based.

 

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