Creation and Management of Payment Means

Banks have the monopoly of the means of payment necessary to the among flow of capital between economic agents. It can be cheque-books or credit-cards or even more sophisticated systems; their production and management are very complex and costly and need an adequate technological structure.

The number of written payment orders, the speed and the automatization of fund transfers and the many different systems offered to customers are clear indicators of the state of development of a banking system.

In each country, an interbank payment system is organised, to compensate payments in and out of every bank; for a payment made by cheque by a customer in a shop, the diagram shows the circuit of the cheque from Bank B to Bank A through the clearing house.

This concerns collecting deposits on current account and savings accounts. Banks have no monopoly on this activity, as for example post-offices other merchant services and Insurance companies and pension funds are also entitled to collect public savings.

A current account can be opened by companies or private customers. It is interesting for banks since the interest to be paid is usually very low; but these accounts register many operations; moreover, these resources are not stable for Banks.

A savings account is an amount of money that is deposited in a Bank for a fixed amount of time; the initial amount will be paid back at maturity, plus interest, the rate of which has been agreed between the customer and the bank.

The interest rate depends on the initial amount deposited and the duration; these resources are more stable, have a low management cost but the interest rate to be paid can be high.

Why does a Bank try to attract deposits from customers?

• The more resources the bank gets from deposits, the more credits it can grant (customers, interbank credits).

• The cost of these resources is lower than others to be collected on interbank markets, or by issuing securities.

• It decreases the dependence of the Bank on the interbank and financial markets.

To attract deposits from customers, a Bank must have a good network of branches to be close to its customers; a Bank should have staff with a good marketing skills; a Bank should offer a large range of services and products adapted to customers’ requirements; a Bank should pay interest rates high enough to compete with other banks, but no higher than the interest to be paid on the other markets.

The word «credit» has different meanings; first, it is money lending, or a promise of money lending; when a Bank gives a credit limit to a customer in any form, its risk equals the amount of this limit even if the customer has not (or only) partially used this credit.

It can also be the guarantee given by Banks either to get their money in advance or to delay payment: the risk of the bank is included in the guarantee. In case of bankruptcy, the bank will have to pay up to the level of the guarantee if necessary.

There are two different types of credits to companies:

• credit to finance operations of the firm i.e. operating credits.

• credits to finance the development of the firm, i.e. investment credits.

The most common credits to private individuals are the following: overdraft, consumer credit, mortgages.

The interest rate of a credit depends on the cost of the resources, the risk premium, the overhead expenses plus margin.