ACH transactions

[Tommy Trussell]

I copied your queries and my responses back to the list even though
you sent yours to me directly -- I am curious about other differences
among banking in various countries, and I suppose others on the list
may be, too.

On Sun, Jul 26, 2009 at 8:21 AM, Graham Todd<grahamtodd2 at googlemail.com> wrote:
> On Sat, 25 Jul 2009 15:38:02 -0500
> Tommy Trussell <tommy.trussell at gmail.com> wrote:
>
>> In the last decade, it has become rare for ANY bank to return a check
>> to the person who wrote it -- I believe all banks have gone to a
>> system where the monthly statement (whether online or on paper)
>> includes an image of the canceled check. Up until about 15 years ago I
>> believe almost all US banks would return the actual original paper
>> check to the customer, although they were also required to keep an
>> image archived for some set number of years.
> [snipped]
>
> Interesting.  I'm 63 years of age, and I cannot recall any time when
> the banks in the UK have returned cheques.  I looked up my
> grandfather's financial records to see if this was true in living
> memory, and my grandfather's effects show his bank statements but not
> any cheques (copies or originals).
>
> Part of the reason for this is the Agreement you enter into with the
> banks when you open a Current or Business Account, in which it is
> stated quite specifically that if cheques are honoured, they become the
> property of the bank and the bank can make a charge both for any copy
> or original document (ie. cheques) but another one for
> processing/sending cheques.  The monthly Statement of your account is
> sufficient in the Courts as proof of transaction(s); the onus is on
> you, the customer, to make sure its correct.
>
> Many banks in the UK do not issue cheques as standard: mine is one
> example, nor do they issue credit cards as standard.  All you get is
> your debit card.  To make sure there's no misunderstanding about what
> we mean by a "debit card", I'd better explain the difference between a
> credit card and a debit card in the UK. If you apply for a credit card,
> the bank/institution to which the application is made will assess your
> credit-worthiness, and if they agree to the issue of the credit card,
> there will be a limit to the extent of credit allowed.  Every month,
> the card issuer will make a charge for interest and make a demand for a
> minimum payment.
>
> However, a debit card allows you to withdraw UP TO the amount in your
> account, and proves a convenient way for withdrawals to be made from
> ATM machines, or do online shopping, or make payments over the
> telephone.  The payments are deducted from the total you have
> available.  A few years ago the UK government ensured all Benefit
> payments (similar to Social security) were paid into bank accounts
> ONLY, and if a recipient didn't have a bank account one was created
> for him or her; those dependent on these payments are not eligible for a
> credit card so needed a way to access their funds.  Debit Cards, which
> have been available in France and Germany freely for some years, and in
> the UK to a limited extent, so were seen as the obvious method to get
> payments to people.

I suppose the part about how US and UK banks handle paper checks is
just an historical difference between them. Shuffling paper checks
back to the account holder is certainly inefficient but you know how
it is when it has "always been done that way."

Debit and Credit cards are pretty much the same as you described,
including the way government food program payments are distributed.
(People still call them "food stamps" but instead of the scrip that
used to be sent out, plastic Debit cards provide access to each
family's allotment.)

Most US banks now seem to issue a combination ATM / Debit card for
access to their accounts but I suspect most bank customers here still
expect to get paper checks even though we (collectively) are using
them less and less.

One difference from what you described -- customers in the US with
bank-issued Debit cards must be VERY careful to check the rules with
their bank because many banks continue to honor payments after the
debit card account reaches zero, so then the customer is liable for
the amount of the negative balance plus an overdraft fee and/or
interest. In our competitive banking environment, institutions depend
upon the misery of overdraft and minimum-balance fees because they are
quite lucrative for the banks, whereas check processing and the other
customary (and highly regulated) banking services are major expenses
for them. ALSO, debit cards are not covered by the same
government-regulated liability limits as credit cards when they're
stolen. SO a thief can inflict much more financial damage with a
stolen debit card, which usually but not always require a secret PIN
(personal ID number) to complete a transaction.

>> But for whatever reason folks in the US have not been keen on using
>> stored value or "smart" cards.
>
> Could you explain this statement, please?  I want to be clear on what
> you mean.  I don't think I've come across these before.

Some banks and vending companies issue "smart" stored value cards that
contain a memory chip containing information about the actual account
balance on the card, so a transaction does not have to communicate
with a bank to effect a payment. The underlying technology is very
similar to a cellular phone SIM card. The idea was that smart cards
would be more efficient for micropayments. I suppose they haven't been
used much in the US because telephone and data lines are widely
available throughout most of the country, and properly reported
lost/stolen credit cards have no intrinsic value. I'm sure smart cards
are used in some limited vending situations.

A vending machine that accepts bank credit cards may "batch process"
transactions when there's no phone or data connection. Last year I
purchased a dog tag from one such machine, and when I had a problem
with the item that was dispensed, the service center told me my
purchase would not be processed to my credit card until a person
arrived at the machine in a few days to refill it with blank dog tags.
I suspect snack food and drink vending machines that accept credit
cards probably work similarly.

I want to modify one earlier statement. We DO have one kind of "stored
value" card that has become EXTREMELY common -- we call them "gift
cards." I'm not sure exactly who processes them. But they are not
"smart," relying upon a central processor of some sort, possibly the
same companies that process debit and credit cards. A customer
purchases a card for use in a particular store (including, for
example, Apple's iTunes online store, or a restaurant such as Outback
Steakhouse). Often the cards are sold in a fixed denomination. Most
people use the cards once and discard them. Many of them, however,
have a provision for reloading them, so they function similarly to
Debit cards. I use one at a chain grocery store called Kroger -- the
incentive to me is that my son's school gets a percentage "kickback"
of the total amount whenever I fill the card.

I hope that description of banking practices was illuminating...  I
suspect much of this is covered in detail in various articles in the
Wikipedia...