Banking SystemBanking SystemBanking SystemBanking System

DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION

byStephen Ong

Visiting Fellow, Birmingham City University Business School

Visiting Professor, Shenzhen University

Today’s Overview Today’s Overview

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Learning objectivesLearning objectives Describe the various ways payments can be Describe the various ways payments can be

mademade Describe the many alternatives to cheques Describe the many alternatives to cheques

and cash that currently existand cash that currently exist Describe the credit card payment systemDescribe the credit card payment system Describe the cheque clearing systemDescribe the cheque clearing system Understand how to write a cheque, crossings Understand how to write a cheque, crossings

on cheques, and how to endorse a cheque on cheques, and how to endorse a cheque over to someone elseover to someone else

Complete bank pay-in slipsComplete bank pay-in slips Explain the timing differences between Explain the timing differences between

entries in a cash book and those on a bank entries in a cash book and those on a bank statementstatement

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11Cash BusinessCash Business

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Cash and the CashierCash and the CashierVideo : The Supermarket CashierVideo : The Supermarket Cashier

http://www.youtube.com/watch?v=UVRQK58jrbw

The Trading ActivityThe Trading Activity

Remittance AdviceRemittance Advice

Transferring MoneyTransferring Money1.1. CashCash2.2. ChequesCheques3.3. ATM / Debit cardsATM / Debit cards4.4. Credit CardsCredit Cards5.5. Bank giro credit transferBank giro credit transfer6.6. Bankers’ Automated Clearing ServicesBankers’ Automated Clearing Services7.7. Standing orderStanding order8.8. Direct debitsDirect debits9.9. Paying-in slipsPaying-in slips10.10. Online bankingOnline banking11.11. Mobile payment systemsMobile payment systems

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Receipt for Cash SaleReceipt for Cash Sale

GOODS & SERVICES TAX GOODS & SERVICES TAX (GST)(GST)

Receiving CashReceiving Cash1.1. Count and check Count and check to ensure it to ensure it

corresponds with any documentation corresponds with any documentation showing the amount to be receivedshowing the amount to be received

2.2. Store safely Store safely and deposit to bank ASAPand deposit to bank ASAP3.3. Use detection equipment to check Use detection equipment to check

counterfeitcounterfeit money which can be in money which can be in circulation as fraud prevention circulation as fraud prevention measuremeasure

4.4. Regular internal checks Regular internal checks on persons on persons handling cash to ensure honesty and handling cash to ensure honesty and prevent missing fundsprevent missing funds

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The Millionaire CashiersThe Millionaire CashiersVideo : Catching the Restaurant CashierVideo : Catching the Restaurant Cashier

http://www.youtube.com/watch?v=EyBRsBr09cI

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22Business Banking Business Banking

DocumentationDocumentation

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The BankerThe BankerVideo : The Merchant Banker (Monty Python)Video : The Merchant Banker (Monty Python)

http://www.youtube.com/watch?v=UVRQK58jrbw

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How has banking changed?How has banking changed?

Withdrawing money Withdrawing money – previously this was – previously this was done in a branch using a cheque. Now a done in a branch using a cheque. Now a debit card can be used at virtually any debit card can be used at virtually any cash machine.cash machine.

Cash machines (ATMs) Cash machines (ATMs) – supplies cash in – supplies cash in exchange using the PIN system to offer exchange using the PIN system to offer up to RM3,000 at a time, but now offers up to RM3,000 at a time, but now offers the option to complete tasks via the the option to complete tasks via the screen.screen.

Direct debits Direct debits – offer a non-cash payment – offer a non-cash payment option.option.

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Forms of paymentForms of payment

1.1. ChequeCheque

2.2. Debit carDebit cardd

3.3. Credit cardCredit card

4.4. Online bankingOnline banking

5.5. Automated paymentAutomated payment

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ChequesCheques The use of cheques has dropped significantly The use of cheques has dropped significantly

in recent years, mainly because other methods in recent years, mainly because other methods are more popular.are more popular.

There is no Cheque Guarantee Scheme There is no Cheque Guarantee Scheme meaning that anyone in receipt of a cheque meaning that anyone in receipt of a cheque bears their own risk. bears their own risk. Cheque issuers cannot Cheque issuers cannot issue post-dated cheques or dishonoured issue post-dated cheques or dishonoured cheques exceeding 3 times a year in Malaysia. cheques exceeding 3 times a year in Malaysia.

Cheques are not expected to be a payment Cheques are not expected to be a payment option by 2019.option by 2019.

Requires the clearing service which takes three Requires the clearing service which takes three days.days.

Overseas cheque payments : Overseas cheque payments : Business transactions : Foreign currency bank Business transactions : Foreign currency bank

draft (USD, GBP, Euro, Yen)draft (USD, GBP, Euro, Yen) Retail/Tourist transactions : Traveller’s cheques Retail/Tourist transactions : Traveller’s cheques

(USD)(USD)

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The features of a chequeThe features of a cheque

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The features of a chequeThe features of a cheque

Cheque number Cheque number – that identifies the – that identifies the cheque, in this case 914234.cheque, in this case 914234.

Sort code Sort code – that identifies the branch, in – that identifies the branch, in this case 09-07-99.this case 09-07-99.

Account number Account number – that identifies the – that identifies the account with the bank, in this case account with the bank, in this case 058899.058899.

The counterfoil The counterfoil – on the left, filled in and – on the left, filled in and retained in the cheque book for reference.retained in the cheque book for reference.

The signature of the drawer The signature of the drawer – the person – the person who is paying the money out.who is paying the money out.

The name of the payee The name of the payee – to whom the – to whom the cheque is paid.cheque is paid.

CHEQUE No. Sort Code ACCOUNT NoCHEQUE No. Sort Code ACCOUNT No

NAME OF DRAWERNAME OF DRAWER SIGNATURE SIGNATURE OFOF

DRAWERDRAWER

NAME OF PAYEENAME OF PAYEE

COUNTERCOUNTERFOILFOIL

AMOUNT IN AMOUNT IN WORDSWORDS

AMOUNT AMOUNT IN IN

FIGURESFIGURES

DRAWEEDRAWEE

DATEDATECROSSEDCROSSED

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Cheque crossingsCheque crossings

A cheque can be further safeguarded using A cheque can be further safeguarded using a specific a specific crossingcrossing as shown. This ensures as shown. This ensures that the cheque can only be paid into the that the cheque can only be paid into the name of the payee givenname of the payee given..

Example of Crossed ChequeExample of Crossed Cheque

Example of Bank Paying-In SlipExample of Bank Paying-In Slip

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Cheque endorsementsCheque endorsements

If a cheque has no crossing, it can If a cheque has no crossing, it can be be endorsedendorsed – transferred over to – transferred over to someone else and paid into their someone else and paid into their bank. (or bank. (or payee is “CASH”)payee is “CASH”)

To endorse a cheque, the current To endorse a cheque, the current owner would write the words ‘Pay owner would write the words ‘Pay (name of the recipient) or order’ on (name of the recipient) or order’ on the reverse of the cheque and sign the reverse of the cheque and sign beneath this.beneath this.

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Clearing a chequeClearing a cheque

The transmission and settlement of a The transmission and settlement of a cheque requires the clearing service, which cheque requires the clearing service, which can take three days:can take three days:

Day 1 Day 1 – Cheques are processed by the bank – Cheques are processed by the bank into which they were paid and information is into which they were paid and information is sent electronically to the clearing centre.sent electronically to the clearing centre.

Day 2 Day 2 – The cheque is delivered to an – The cheque is delivered to an Exchange Centre.Exchange Centre.

Day 3 Day 3 – Bank staff review the cheque and – Bank staff review the cheque and decide whether to authorise payment.decide whether to authorise payment.

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Debit cardsDebit cards Introduced in 1987.Introduced in 1987. Generally have an ATM function, Generally have an ATM function,

cheque guarantee facility and act cheque guarantee facility and act as a debit card.as a debit card.

Can allow the holder to get cash Can allow the holder to get cash back at a checkout (eg.Tesco).back at a checkout (eg.Tesco).

Accounts for 70% of all inter-bank Accounts for 70% of all inter-bank remote banking payments in the remote banking payments in the UK.UK.

Debit CardsDebit Cards

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Credit cardsCredit cards Introduced in 1966.Introduced in 1966. Can allow up to 30 days of interest-Can allow up to 30 days of interest-

free credit.free credit. Use of debit cards now vastly Use of debit cards now vastly

exceeds the use of credit cards.exceeds the use of credit cards. Like cheques, credit card use is Like cheques, credit card use is

likely to decline but will remain an likely to decline but will remain an option for payment.option for payment.

Credit CardsCredit Cards

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Online bankingOnline bankingA twenty-first-century A twenty-first-century

phenomenon.phenomenon.Offers a 24/7 facility for:Offers a 24/7 facility for:

Balances to be checked.Balances to be checked. Standing orders or direct debits Standing orders or direct debits

to be created.to be created. Funds to be transferred.Funds to be transferred.

Online BankingOnline Banking

Internet PaymentsInternet Payments

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Automated paymentsAutomated payments Introduced in 1967 in UK.Introduced in 1967 in UK. Originally called BACS (UK). For Malaysia-Originally called BACS (UK). For Malaysia-

National Electronic Cheque Information National Electronic Cheque Information Clearing System (eSPICK )Clearing System (eSPICK )

Interbank GIRO (MyClear)Interbank GIRO (MyClear) Malaysian Electronic Payment System (MEPS)Malaysian Electronic Payment System (MEPS)

Overseas paymentsOverseas payments Telegraphic Transfer (TT)Telegraphic Transfer (TT) SWIFTSWIFT

Now the most common type of automated Now the most common type of automated payments are either:payments are either: Direct debits Direct debits – where the amount is – where the amount is

specified by the payee and can change. specified by the payee and can change. Standing orders Standing orders – where the amount is – where the amount is

specified by the payer and is fixed.specified by the payer and is fixed.

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Types of accountTypes of account Current account:Current account:

Used for regular payments in and outUsed for regular payments in and out Comes with a cheque book, pay-in book, and Comes with a cheque book, pay-in book, and

ATM / debit cardATM / debit card Earns ZERO or little interest / Earns ZERO or little interest / profit shareprofit share

Savings Deposit account:Savings Deposit account: Generally earn some interest / Generally earn some interest / profit shareprofit share Not intended for accessing money on a regular Not intended for accessing money on a regular

basis.basis. Fixed Deposit account:Fixed Deposit account:

Generally earn a guaranteed interest / Generally earn a guaranteed interest / profit profit shareshare at fixed time periods, ie. 1, 3, 6, 12, or 60 months at fixed time periods, ie. 1, 3, 6, 12, or 60 months

Money is not accessible during the time period.Money is not accessible during the time period.

**Profit share for Islamic Bank accounts**Profit share for Islamic Bank accounts

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Pay-in slipsPay-in slips To pay money into an account, a To pay money into an account, a pay-pay-

in slipin slip is used. is used. When the payment is into an account When the payment is into an account

held in a different bank, the form is held in a different bank, the form is called a called a bank giro creditbank giro credit..

Full details of the cash and/or Full details of the cash and/or cheques being paid in are given and cheques being paid in are given and the slip is handed in at the bank the slip is handed in at the bank counter.counter.

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Pay-in slips (Continued)Pay-in slips (Continued)

Bank StatementBank Statement

NameNameAddressAddress Account No.Account No.

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33The Cashless Future of The Cashless Future of

BusinessBusiness

Mobile PaymentsMobile Payments

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Mobile Payment by SquareMobile Payment by Square

Video : Pay with Square Video : Pay with Square https://www.youtube.com/watch?v=8pJOVOtJpoc

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Learning outcomesLearning outcomes

You should now have learnt:You should now have learnt:1.1. That the banking sector has been That the banking sector has been

revolutionised by the developments in revolutionised by the developments in computers and information technology computers and information technology over the last 40 yearsover the last 40 years

2.2. That where previously payments could That where previously payments could usually only be made by cash or usually only be made by cash or cheque, there is now a wide range of cheque, there is now a wide range of alternatives, ranging from plastic cards alternatives, ranging from plastic cards to direct debits and direct transfers into to direct debits and direct transfers into bank accountsbank accounts

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Learning outcomes Learning outcomes (Continued)(Continued)

3.3.That the use of cheques is falling but That the use of cheques is falling but that they are still a very common form that they are still a very common form of payment in businessof payment in business

4.4.How the credit card payment system How the credit card payment system operatesoperates

5.5.That cheque clearing is the way in That cheque clearing is the way in which a cheque goes through the which a cheque goes through the banking system and is credited to its banking system and is credited to its rightful owner and charged against the rightful owner and charged against the drawer’s bank accountdrawer’s bank account

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Learning outcomes Learning outcomes (Continued)(Continued)

6.6. That it usually takes three days for a That it usually takes three days for a cheque payment to reach the account of cheque payment to reach the account of the payeethe payee

7.7. That a debit card payment will reach the That a debit card payment will reach the account of the payee immediatelyaccount of the payee immediately

8.8. That cash is still the most common form That cash is still the most common form of medium for paymentsof medium for payments

9.9. That holders of a current account will That holders of a current account will normally be issued with a cheque book normally be issued with a cheque book and a multiple use plastic card and a multiple use plastic card incorporating a cheque guarantee card, incorporating a cheque guarantee card, debit card and ATM carddebit card and ATM card

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Learning outcomes (Continued)Learning outcomes (Continued)

10.10. How to write a chequeHow to write a cheque11.11. That crossings on cheques That crossings on cheques

indicate that they must be banked indicate that they must be banked before cash can be collected for before cash can be collected for themthem

12.12. That special crossings on That special crossings on cheques act as instructions to the cheques act as instructions to the banker, and are usually used to banker, and are usually used to ensure that the cheque cannot be ensure that the cheque cannot be used by anyone other than its used by anyone other than its rightful ownerrightful owner

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Learning outcomes Learning outcomes (Continued)(Continued)

13.13. That cheque endorsements enable That cheque endorsements enable the rightful owner of the cheque to the rightful owner of the cheque to give it to someone elsegive it to someone else

14.14. How to complete a bank pay-in How to complete a bank pay-in slip and a bank giro creditslip and a bank giro credit

15.15. Understand the future of cashless Understand the future of cashless transactionstransactions

Resources : Core ReadingResources : Core Reading

Wood, Frank and Robinson, Sheila Wood, Frank and Robinson, Sheila (2009) (2009) Bookkeeping and Accounts Bookkeeping and Accounts ,7,7thth Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall

Wood, Frank and Sangster, Alan (2012) Business Accounting ,12th Edition, Pearson/ FT Prentice Hall

Fortes, Hilary (2011) Accounting Simplified , Pearson/ FT Prentice Hall

QUESTIONS?QUESTIONS?