Payment is a monopoly operation of banks

PAYMENT IS A MONOPOLY OPERATION OF BANKS MS NGUYEN THI THUY DUNG FACULTY OF BANKING- INSURANCE ACADEMY OF FINANCE Outline of the chapter Cash Non-cash payment methods International payment methods 1 CASH  A cash bundle is packed into 10 sheaves  Each sheaves has 100 banknotes of the  - - denomination The counting and checking service at banks help to: avoid counterfeit banknote; Unqualified- for- circulation banknote Different denomination banknote Forms of non-cash payment method  Checks/ cheque  Payment order  Collection  Payment Cards  Other non-cash payment methods: online payment platform, digital wallet and mobile payment => the competition between Fintech and commercial banks Checks (Cheque)  Check is a document that orders a payment of money   - from a bank account Check book should be issued by the authorized person and in continuous serial number Involved parties Drawer: person issues the check Drawee: bank Beneficiary Payment cards  POS: point of sales (at the delivery points of services and goods, customers can pay with their credit or debit card)  ATM: automated teller machine  Debit and Credit Card  The issue of security of online-payment Mobile payment INTERNATIONAL PAYMENT VIA TRADE FINANCE Cash in advance (Prepaymen t) Letter of Credit (L/C) Document against payment (D/P) METHODS OF INTERNATI ONAL PAYMENT Open account (Post payment) Document against acceptance (D/A) A LETTER OF CREDIT  A letter of credit is a document issued by a financial  -   institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank Involved parties: Applicant (importer/ buyer) Beneficiary (exporter/ supplier/ seller) The issuing bank (the buyer is a client) The advising bank (the seller is a client) UCP: Uniform Customs and Practice for Documentary Credits Incoterms Letter of Credits  Required documents - Commercial Invoice - Bill of lading/ Airway Bill - Insurance Document - Inspection certificate - Certificate of insurance - Others Letter of Credits LETTER OF CREDIT (L/C) Letter of credits are seen as a safe method of payment because: For the sellers, they are ensured to be paid by banks if they fulfill certain obligations under the LC For the buyers, they are ensured that the sellers will ship the goods according to the requirements of the LC A letter of credit is used when buyers and sellers not know each other Banks require that every word, name, date and detail to be as specific and clear as possible Banks base strictly on the soundness of the LC to make payment decision The advantages of an LC for the seller include: - Reducing production risk in case the order is changed or cancelled - Being a protection for the seller in case the buyer doesn't pay The advantages of an LC for the buyers include: - Being certain to receive the goods stipulated in the letter of credit; - And a letter of credit shows solvency for the buyer and allows them to reduce or eliminate an initial payment LETTER OF CREDIT (L/C) LETTER OF CREDIT (L/C) Revocable vs Irrevocable LC ▪ Revocable LC: is the type of LC that can be changed at any time by either the buyer or the issuing bank with no notification to the beneficiary ▪ Irrevocable LC: only allows change or cancellation of the LC by issuing bank after application by the applicant and approval by the beneficiary LETTER OF CREDIT (L/C) Confirmed versus un-confirmed LC ▪ Confirmed LC: is where another established bank also guarantees the payment to the beneficiary in case the issuing bank fail to so  Un-confirmed LC: is assured by the issuing bank only and doesn’t need a guarantee by the second bank LETTER OF CREDIT (L/C) Revolving LC A letter of credit used for several payments instead of issuing letters for each leg of the transaction Red-clause LC The seller can request an advance for an agreed amount of the LC before shipment of goods and submittal of required documents This LC is closer to the bank guarantee and often used in combination with other method of payment The Bank will pay if the Buyers fail to fulfill their payment obligations Transferable This LC enables the Seller to assign part of the letter of credit to other party(ies) LC Standby LC Back to back LC This LC type considers issuing the second LC on the basis of the first letter of credit DOCUMENTARY COLLECTION (DC) Document against payment (d/p) is the process in which the seller instructs his bank to present documents in relation to a trade deal to the buyer’s bank to present or release documents to the buyer upon his payment of the transaction Document against acceptance (d/a) is the process in which the seller instructs his bank to present documents in relation to a trade deal to the buyer’s bank to present or release documents to the buyer upon his acceptance to pay at a determinable future date Topic for writing Topic 5: “What are the advantages and disadvantages of using non-cash payment method such as mobile payment or digital wallet? • Type of essay: Advantages and disadvantages • Structure of essay: 1.Introduction 2.Body paragraph – advantages 3.Body paragraph – disadvantages 4.Conclusion Topic for writing • Useful Words Advantages: Benefits, , plus point, positive point, strength Advantageous, beneficial Disadvantages: drawbacks, negative point, weakness Disadvantageous, Topic for writing • Useful sentences “The first (dis)advantage of “this” is …” “There are many (dis)advantages to … and one of them is…” “The positive (negative) aspects of … are …” “The positive (negative) points include …” “Another positive (negtavie) aspect is …” “Another benefit (drawback) is …” “Another advantage (drawback) is …” “The benefits/ advantages are far more than the disadvantages”