Payments

Banking & Finance

Bellringer

• Online Chapter 9 Pretest• www.g-wlearning.com

Activity: 3 minutes

• You want to buy a new book or video game. Depending on where you buy the item from, what are your payment options?

Negotiable Instruments

• Define a negotiable instrument• Compare and contrast types of negotiable

instruments

Biz Kid$ Video

What Is a Negotiable Instrument?• Transferrable, signed document that

represents the promise to pay a specific amount of money in the future or on demand

• Easier to transport• More convenient than cash for large

purchases• Proof that payment was made

Elements of aNegotiable Instrument

• Authorized signature• Specific amount• Unconditional promise to pay• Payment date• Payee

What is the bank’s role?

• Negotiable instrument is created by a maker• Maker (drawer) signs to validate it• Maker authorizes withdrawal of cash• Drawee (party who pays) is the bank

Video: “Learn the Parts of a Check”

Path of Payment

The maker creates the negotiable instrument

The maker gives the

negotiable instrument

to the payee

The payee presents the negotiable instrument to the bank

The bank pays the payee the

value of the negotiable instrument

Checkpoint

1. What elements must be in a negotiable instrument?

2. If a date is not specified in a negotiable instrument, when is it paid?

Types of Negotiable Instruments

Drafts• Orders of directs a payment

to be made• Payees name• “pay to the order of”

Checks• Written order directing a

bank to pay a specific amount from deposited funds– Traveler’s checks– Money order– Cashier’s check

Drafts

Types of Negotiable Instruments

Bills of Exchange• Contains an unconditional

order to pay a specific amount of money to the payee

• Used in commerce, particularly international trade

Notes• Promissory Note:

commercial version of an I owe you (IOU)

• Certificate of Deposit: bank is the maker

Notes

Checkpoint

1. What are the two types of negotiable instruments?

2. How is a money order different from a traveler’s check?

3. Why is a CD considered a negotiable instrument from the bank’s perspective?

Bellringer

Small Group Activity: 3 minutes

• Who is responsible for making sure a negotiable instrument is valid?

• Prepare to share.

Using Checks

• List the characteristics of a checking account

• Describe the elements of a check• Distinguish between the common

endorsement types• Explain how checks are processed

Checking Accounts

• Main purpose: ability to withdraw funds from a bank account by writing checks

• Pay little or no interest• Liquidity is high• For consumers and

commercial businesses

Endorsements via Video

TAKE NOTES ON NEXT 3 SLIDES

Video Notes for Blank Endorsements

Video Notes for Restrictive Endorsements

Video Notes for Full Endorsement (Third-Party)

Life Cycle of a Check

Honoring a check

Processing a Check

Legal Influences

HONORING A CHECKDATE

SIGNATURE

AMOUNT

APPEARANCE

ADDRESSIDENTITY OF PAYEE

CHECK NUMBER

ABA ROUTING NUMBER

Processing a Check

• Clearing: process of approving a check and transferring funds from one account to another

• Used to take several days

Processing a CheckBack in the Day

1. Drawer wrote the check and gave it to payee

2. Payee endorsed check and presented to bank

3. Payee’s bank mailed check to drawer’s bank

4. Drawer’s bank sent payment to payee’s bank

5. Cancelled check, cleared check, returned to drawer

Processing a Check TODAY

• Automated clearinghouse (ACH): system that processes checks1. Drawer writes check and gives to payee2. Payee endorses check and presents to bank3. Bank sends image of check to the ACH4. ACH transfers funds from drawer’s account to

the payee’s account

Processing a Check

• Many banks no longer return cancelled checks– Substitute check: paper copy of front and back

of original check– Images of checks and deposits viewed online

Research Activity:Legal Influences

• Red Cups: Federal Reserve Act of 1913• Blue Cups: Uniform Commercial Code of 1952• Yellow Cups: Expedited Funds Availability Act

of 1987• Green Cups: Check Clearing Act for the 21st

Century of 2004 aka Check 21 (image replacement document—IRD)

Your group will provide 5 factson the assigned legal development.

Checkpoint1. How is the drawee identified on a check?2. Which type of endorsement is the least

safe? Explain.3. What is the purpose of a third-party

endorsement?4. What two steps did ACHs remove from the

check-processing procedure?5. How did IRDs remove bank and customer

concerns about the use of electronic records?

Bellringer

• List and describe the 3 types of endorsements.

Small Group Activity: 3 minutes

• Think of things for which you can prepay.• Prepare to share.

Other Payment Systems

• Define a payment system• Describe the common types of electronic

funds transfers• Explain how cards are used as payment

systems

Payment Systems

• Methods of transferring funds without using cash

• Global trade would grind to a halt with cash only

• Electronic funds transfer most common• Any transfer of funds started by electronic

means

Automated Teller Machines

• Computerized machine that allows a customer to perform basic banking activities

• Enter Cash card and PIN, follow prompts to conduct transaction

• Free unless at a different bank from account

Direct Deposits

• Funds are added directly into a bank account by electronic means instead of a negotiable instrument being used.

• 2 advantages– Funds are available immediately– Safe, eliminates need to transport a check

Wire Transfers

• Electronic transfer of funds from one location to another

• Fastest and safest way to transfer• Federal Reserve Wire Network (FedWire):

Verbal Explanation—write this down!• Clearing House Interbank Payment System

(CHIPS): privately held, enables major banks around world to transfer funds to each other

Automatic Payments

• Preauthorized electronic funds sent from a customer’s account to a vendor’s account at regular intervals.

• Generally for a set amount

Bill-Payment Services

• Electronic transfer of funds from a customer’s account to a vendor’s account must be requested by the customer or the vendor each time a payment is due.

• More practical than automatic payments for bills that might vary in amount

Cards• Credit Cards: used to buy products or

services on credit• Charge cards: like credit cards, but balance

must be paid off monthly• Debit cards (check card): enables customer

to electronically access funds in account

Checkpoint1. How are ATMs a source of income for the

bank?2. What are two advantages of direct deposit

from an employee’s standpoint?3. How does the Federal Reserve Wire

Network participate in wire transfers?4. What is the difference between automatic

payments and a bill-payment service?5. How is a debit card different from a credit

card?

Common Core Listening Activity

• View “Jordan Maxwell on the Law of the UCC: Uniform Commercial Code”

• Write a report in which you summarize the speaker’s point of view, reasoning, use of evidence and rhetoric, word choice, points of emphasis, and tone. How do these contribute to the speaker’s overall message?