Sunday, August 9, 2009

Electronic payments by and to consumers

Electronic means payments make up extremely small fraction of the total quantity of payments in the United States. Yet electronic payments accounts for more than 80 percents of the total dollar value of all financial transactions. Although electronic means payment have not supplemented currency or checks in the typical day-to-day pattern of transaction for a typical individual, some individual and institution clearly make use of electronic payments mechanisms.
One important type of electronic payments mechanism is the automated clearing house (ACH). ACHs are consumer-oriented payments systems that process payments within one or two days after they are initiated by a payor to a payee. A good example of an ACH system is automatic payroll deposit systems used by many businesses to make salary payments to their employees ‘ banks accounts directly rather than issuing them paper checks. Another example is the social security System‘s ACH system that directly deposits payments into the deposit accounts of social security beneficiaries.
Automated teller machine (ATM) networks are another type of consumer-oriented electronic payment system. Bank depositors largely use these systems for cash withdrawals from their accounts. Another consumer-oriented set of system is point-of-sale (POS)networks , which permit consumers to pay for purchases through direct deductions from their deposit accounts at financial institution.
Recently, the federal government initiated a new system, called electronic benefits transfer (EBT),which disperses cash payments to individual who qualify for government benefits such as Aid to families with Dependent Children (AFDC) OR food stamps. this system performs the function of an ACH system but works much like an ATM system because it disburses currency rather than making direct deposit into bank accounts. the reason the government has opted for EBT over an ACH is that , by definition, those who qualify for governmental benefits are low-income individuals. these people often do not have bank accounts- three-fourths of all AFDC and food stamp recipient do not have checking accounts- making a more standard ACH system for distributing the funds infeasible. therefore, the government has adopt an ATM-type system,complete with special machines for disbursing cash or food stamp.

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