Some Features of the Australian Payments System

Payments can be classified as high-value or low-value. High-value transactions are typically related to purchases and sales of financial assets, mainly foreign exchange and securities. These transactions usually involve only financial institutions, large companies or high net-worth individuals. Payment instruments are either cash or non-cash. Cash is probably the most important instrument for low-value transactions and has many features which are difficult to emulate. It is typically used for retail transactions and for transfers of value between individuals. Non-cash payment instruments can be classified as either paper or electronic, a critical distinction for discussion of efficiency and cost of the payments system. Payments systems can also be classified according to where payment processing begins. In credit systems, such as direct credit, the processing of the payment starts at the payer’s financial institution. In debit systems, such as direct debit and cheques, the processing of the payment begins with the payee’s financial institution. For example, when a cheque is deposited in an account, the processing for this payment begins with the recipient’s financial institution, which contacts the payer’s financial institution for payment. One final concept worth mentioning is that of own items, sometimes called on-us items. Own items are payments made across the books of a single financial institution, for example, when the payer and the payee have accounts at the same institution. For a national and highly concentrated financial system like Australia, own items are very significant. If data on payments flows capture only payments exchanged or cleared between financial institutions, the total volume and value of payments will be understated.