Money Transfer
Lecture Objectives :

To define money transfer

To explain different methods of domestic
money transfer

To explain different methods of cross-border
money transfer

To discuss the advantages and
disadvantages of banker’s draft and
telegraphic transfer / SWIFT
Money Transfer
Money transfer refers to the mechanism of
moving a certain amount of money from
one party to another through the
financial system.
Methods of domestic money transfer in Hong
Kong
Cheque
A cheque is a bill of exchange drawn on a banker
payable on demand. The drawer is the person
who has signed the cheque, the drawee is the
bank on which the cheque is drawn and the payee
is the person to whom the cheque is payable and
who is to receive the money. Cheques are the
predominant type of domestic non-cash payment.
Cheques are cleared at the end of the day through
the Hong Kong Interbank Clearing Limited which is
the clearing house jointly owned by the Hong Kong
Monetary Authority and the Hong Kong Association
of Banks.
Methods of domestic money transfer in Hong
Kong
Debit cards and Electronic Fund Transfer at Point of
Sale
Electronic Payment Services Company (HK) Limited
launched the Easy Pay System (EPS), a secure
cashless payment system, in 1985. It is a
convenient retail electronic payment system. A
merchant can swipe a consumer’s Automated Teller
Machine (ATM) card (a debit card) or credit card
with ATM function and key in the amount, then the
consumer keys in the Personal Identity Number
(PIN), the customer’s bank account will be debited
and the merchant’s bank account will be credited
with the amount, and a receipt is issued for the
payment.
Methods of domestic money transfer in Hong
Kong
Phone Payment System (PPS)
Electronic Payment Services Company (HK) Limited
teamed up with PCCW to introduce the Phone
Payment System (PPS) in 1993 which was also
extended to the internet in 1999. PPS is a simple
phone and online bill payment system that offers
customers the convenience of being able to settle
bills at any time and at anywhere. A customer has
to bring his / her ATM card or credit card with ATM
function along to a terminal located at selected
PCCW outlet to open an account. The customer can
choose a PPS access code and receives an
account number. After that, the customer can pay
his / her bills or outstanding credit card amounts
through the phone or online through the internet.
Methods of domestic money transfer in Hong
Kong
Standing orders and direct debits
The autopay services offered by commercial
banks in Hong Kong include the standing
orders and direct debits. A standing order is
an authorization to the bank to make a
periodic payment from an account whereas a
direct debit is an authorization to the bank to
debit a bank account for an utility payment.
The autopay services are conducted by the
Hong Kong Interbank Clearing Limited as a
function of an automated clearing house.
Methods of cross-border money transfer
Banker’s draft
A banker’s draft is a cheque with the drawer and
the drawee are usually the same bank. If the
drawer and the drawee are not the same
bank, they should maintain accounts with
each other to settle the draft amount. Usually
the drawer bank will credit the draft amount
to the drawee bank’s account first. The draft
is authenticated by verifying the drawer
bank’s authorized signature.
Methods of cross-border money transfer
Telegraphic Transfer
A telegraphic transfer is an authenticated order
sent through telex addressed by the remitting
bank to another bank to pay a sum certain in
money to a named beneficiary. A telegraphic
transfer is authenticated by a test key. The
test key is a coded system of numbers which
the message receiving bank can use to verify
the genuineness of the telex.
Methods of cross-border money transfer
SWIFT
SWIFT stands for Society for Worldwide
Interbank Financial Telecommunication,
which is an international communication
network connecting over 7,000 financial
institutions in 198 countries to speed up the
international money transfer and message
exchange among members.
Methods of cross-border money transfer
SWIFT
At first, SWIFT used the computer systems of
the participating financial institutions which
were connected through cable network.
SWIFT included some forms of coding which
was checked by the recipient member to
prove the authenticity of the instruction or
message. The SWIFTNet was developed in
2001 as an online real-time message transfer
system between members.
Advantages and disadvantages between
banker’s draft and telegraphic transfer /
SWIFT
Accuracy and reliability
A banker’s draft mailed by the customer himself
could be lost, stolen or destroyed in transit.
Additional costs are incurred in stopping
payment of the banker’s draft. The
telegraphic transfer / SWIFT is more reliable
than the banker’s draft.
Advantages and disadvantages between
banker’s draft and telegraphic transfer /
SWIFT
Cost
Telegraphic transfer / SWIFT is more expensive
than banker’s draft. But for a large amount of
money to be remitted, the interest saving
definitely overrules the fee saving.
Advantages and disadvantages between
banker’s draft and telegraphic transfer /
SWIFT
Speed
Telegraphic transfer / SWIFT is the speediest
method of money transfer.
Value Date of Fund
A money transfer can be executed in two types
of fund :
Same-day funds are the equivalent of cash and
are available for use by the beneficiary on the
day the transaction is processed.
Next-day funds are available for use by the
beneficiary as cash on the next business day
after the transaction is processed.
Procedures of executing incoming
remittance




Authenticate the payment order received and
check the availability of fund
Advise the beneficiary about the receipt of
remittance
Verify the identity of the customer as the
beneficiary
Credit the customer’s account with the
amount after deducting any banking charges
Procedures of executing outgoing
remittance




Authenticate the customer’s remittance
instruction and check the availability of fund
Debit the customer’s account with the
amount and any banking charges
Choose the overseas branch or the
correspondence bank to place the payment
order
Prepare and send out the payment order
SWIFT’s roles in international money
transfer
The market infrastructure segment consists of
communication between central financial institutions
and their members. Players include payment
clearing systems, central banks and other central
clearing infrastructures.
The bank-to-bank segment consists of communication
between financial institutions and their
correspondents, counterparties and branches,
including the traditional and ubiquitous use of
payment initiation messages (MT 1xx and MT 2xx)
as well as statement reporting messages (MT 9xx).
SWIFT’s roles in international money
transfer
The bank-to-client segment consists of
communication between financial institutions
and their corporate customers. This means
wholesale and retail payment initiation as
well as cash and statement reporting.
Hong Kong Interbank Payment Systems
The Hong Kong Interbank Clearing Limited (HKICL)
manages the operation of the interbank payment
and settlement systems. The HKICL took up the
Clearing House Automated Transfer System
(CHATS) and the electronic clearing (ECG) of bulk
volume low value items 1996, and the paper cheque
clearing (CLG) in 1997. All licensed banks are
direct participants in the interbank payment system.
Other Authorized Institutions, like restricted licence
banks and deposit-taking companies, do not have
direct access to the interbank payment system.
Hong Kong Interbank Payment Systems
Paper cheques are settled on the next day on a
batch run basis. They are settled after the
returned items have been identified and
adjusted in order to eliminate the settlement
risk related to the returned items. Cheques
presented to HKICL are sorted and sent to
the drawee banks overnight. The drawee
banks would check for balance in the
drawees' accounts and return all dishonoured
cheques to HKICL on the next day (Day D+1).
Only cheques presented on Day D and are
not returned would be settled on day D+1.
Hong Kong Interbank Payment Systems
The electronic clearing is designed to handle low
value bulk volume items generated by EPS,
PPS and Autopay.
Hong Kong Interbank Payment Systems
Since 1996, CHATS Payment Instructions have been
settled on a real time gross basis. CHATS is
designed for large value interbank payments. All
licensed banks must join CHATS and be connected
to the Clearing House computer operated by HKICL.
There are two types of CHATS Payment Instructions
- Value Today or Value Tomorrow. The
implementation of the Real Time Gross Settlement
(RTGS) system has significantly reduced the
settlement risk in CHATS payments. All licensed
banks are requested to open a Settlement Account
with the HKMA for the account of the Exchange
Fund. Once fund transfers are effected by the
paying bank across the books of the HKMA,
settlement is final and irrevocable.