BANKING PAYMENT

SYSTEMS IN
PROVISION OF
FINANCIAL
SERVICES -1
 Contents
1. Payment systems
2. Different forms of payment
NATIONAL instruments/methods
PAYMENT 3. Features to choosing payment
SYSTEM methods/instruments
4. Different forms of payment methods used
in Tanzania
 ▪ Banking payment systems are the backbone of
financial services, enabling the secure and
efficient transfer of funds between
individuals, businesses, and governments.
Payment ▪ Payment systems consist of networks,
systems instruments, and processes that facilitate
transactions in the economy. They ensure that
the flow of money is smooth, reliable, and well-
regulated, providing confidence to users of
financial services
 ▪ According to Casu et al (2006) payment
system can be defined as any organized
arrangement for transferring value
between its participants.
Payment ▪ It is also considered as a by-product of
systems intermediation process as it assist
transfer of ownership of claims
(Heffernan, 2005).
 1. Transaction Payments; retail Payments, online
Shopping
2. Salary and Wage Payments; direct Deposit: Bonus
Payments
3. Bill and Utility Payments; electricity, water,
subscription Services etc.
Payment 4. Loan and Debt Repayments
purposes 5. 3. Government and Tax Payments
6. Investment and Savings Contributions; retirement
contributions, stock investments, etc
7. Cross border payments; remittances, international
trade settlements etc.
8. Charitable and donation payments
 ▪ Payment methods are the various ways
through which transactions can be
Payment settled. They can be categorized based on
methods/ whether they involve physical or digital
instruments instruments, and whether they are
immediate or deferred payments.
 Cash Payments:
▪ Physical transfer of banknotes and coins.
▪ Common for small-scale transactions.
▪ Example: Paying for groceries at local markets
in Tanzania.
Advantages
▪ Cheapest method for retail transactions
Cash Payment ▪ Important emergency instrument
▪ It is inclusive
▪ Monitoring spending
▪ Secure in terms of tackling fraud
 Cheque Payments:
▪ A negotiable instrument directing a bank to pay a
specific amount from the drawer’s account.
▪ Example: Companies paying suppliers via
cheques
▪ Also known as debit transfers, since they are a
request to debit the drawers account.
Cheque ▪ Feature of a cheque;
Payments ▪ In writing
▪ Signed
▪ On demand
▪ A sum certain in money
▪ Named person or bearer
  Bank and Branch
 Branch Sorting code
 Payee’s name
 Name of the account
 Account number
 Signature
Key items on a
standard cheque  Amount in words
 Amount in figure
 Date
 Cheque number
 Crossings
Sample of a
cheque
 ▪ TZS 12.5 trillion processed through cheque
payments in 2023
▪ Monthly Average: 104,000 cheque transactions per
month
▪ Approximately TZS 34 billion processed daily.
Statistical Highlights ▪ Year-on-Year Change: A decrease of 5% compared
of Cheques usage in to 2022
Tanzania
▪ Major Uses: Corporate payments, salary
disbursements, and supplier settlements.
▪ (Bank of Tanzania, National Payment systems, annual
report, 2023).
 ▪Why has the usage of cheques
decreased significantly in
Tanzania, and what is the future
Discussion question role of cheques in the evolution
of the country's payment
systems?
 ▪ A standing order is a banking arrangement that
allows a customer/account holder to instruct their
bank to make regular, fixed payments to a
specified recipient or account. It is commonly used
for recurring payments such as rent, subscriptions,
or loan repayments.
Standing orders ▪ Fixed Amount: The payment is for a
predetermined amount that does not change.
▪ Fixed Frequency: Payments are made at regular
intervals, such as weekly, monthly, or annually.
▪ Automated Process: Once set up, the payments
are processed automatically without manual
intervention.
 ▪ Credit transfer is a payment method in which a
payer instructs their bank to transfer a specific
amount of money directly to a recipient's bank
account. It is commonly used for one-time or
recurring payments, such as salary disbursements,
supplier payments, or personal remittances.
Credit transfers ▪ Payer-Initiated: The payment is initiated by the
payer
▪ Secure and Reliable: Funds are transferred
directly between bank accounts, reducing the
risks associated with cash handling.
▪ Flexible: Can be used for both domestic and
international transactions.
 ▪ Single Credit Transfer: One-time transfer
initiated for specific payments, e.g., paying a bill.
▪ Recurring Credit Transfer: Used for regular
Credit transfers payments such as salaries or subscription
services.
▪ Credit transfer/ account to account transfer.
 ▪ A debit card is a payment card that allows
the cardholder to make purchases or
Debit cards withdraw cash from an ATM using the funds
available in their bank account. Debit cards
directly deduct the amount from the user's
own funds.
▪ ATM cards, visa cards, Mastercard etc.
 [Link] to Bank Account: Debit cards are directly
connected to a checking or savings account,
meaning funds are only available if they exist in
the account.
[Link] Payment: When used for transactions, the
money is immediately deducted from the
cardholder's bank account.
Key features of debit [Link] Interest or Debt: Since funds are drawn from
cards the user’s own account, there’s no interest charged
on purchases.
[Link] for Security: Debit cards typically require a
personal identification number (PIN) for ATM
withdrawals and some purchases to ensure
security.
 ▪ Making a Purchase: the cardholder uses the
debit card to buy goods or services in stores or
online.
▪ ATM Withdrawals: cardholders can use their
debit card at ATMs to withdraw cash, check
balances, or perform other banking functions.
How debit card
works ▪ Transaction Records: very transaction made with
the debit card is recorded in the cardholder's bank
account statement.
 ▪ Number of ATMs; increased to 1,981, up by 5.09%
from 1,885 in 2022
▪ Volume of ATM Transactions: 75.01 million
transactions, marking a 29.85% increase compared
to 57.77 million transactions in 2022.
ATM Transaction ▪ Value of ATM Transactions: TZS 13,896.00 billion, a
Highlights for 2023
41.64% increase from TZS 9,810.70 billion in 2022.
▪ (Bank of Tanzania, National Payment Systems, annual
report 2023)
 ▪ A credit card is a payment card that allows
the cardholder to borrow funds from a
financial institution up to a pre-approved
limit to make purchases or withdraw cash.
Debit cards
▪ The cardholder is required to repay the
borrowed amount, either in full or in
installments, with interest.
 1. Credit Limit: The maximum amount a
cardholder can borrow at any time.
2. Interest Rates: If the cardholder doesn’t repay
the full balance, interest is charged on the
outstanding amount.
Key features of credit 3. Revolving Credit: Credit cards allow ongoing
Cards borrowing, with a revolving balance that can be
paid down over time.
4. Grace Period: A period (usually 30 days) where
no interest is charged if the full balance is paid
off.
 [Link]: Easy to use for online and in-
person purchases.
[Link] Credit History: Responsible use of a
Benefits of credit credit card can help build a positive credit history.
Cards
[Link] Funds: Acts as a backup in
emergencies when funds are low.
 ▪ Instrument: Mobile Money Platforms (e.g., M-
Pesa, Tigo Pesa)
▪ Description: Digital wallets that allow users to
store and transfer money via mobile phones,
typically without the need for a bank account.
▪ Advantages:
▪ Facilitates peer-to-peer transfers.
Mobile Money ▪ Accessible even in remote areas where banks
are unavailable.
▪ Can be used for bill payments, remittances, and
purchases.
▪ Disadvantages:
▪ Limits on transaction amounts.
▪ Fees for sending or receiving money.
 ▪ Instrument: POS Terminals
• Description: Electronic systems that allow
retailers and businesses to process payments via
credit, debit, or prepaid cards.
• Advantages:
Point-of-Sale (POS) • Fast, secure, and widely accepted.
Payments • Reduces the need for cash handling in
businesses.
• Disadvantages:
• Can involve transaction fees for businesses.
• Requires maintenance of the POS system.
 ▪ Instrument: Digital Payment Platforms
(e.g., PayPal, Stripe, Payoneer)
• Description: Third-party platforms that
facilitate online payments for goods and
services, often linked to a bank account or
Online Payment credit card.
Systems • Advantages:
• Convenient for online shopping and
international payments.
• High security with encryption and fraud
protection.
 ▪ Instrument: Bitcoin, Ethereum, Central
Bank Digital Currencies (CBDCs)
• Description: Digital currencies that allow
for peer-to-peer transactions over
blockchain networks, or a central bank-
issued digital currency that mimics the
Digital Currencies & functionality of cash.
Cryptocurrencies
• Advantages:
• Provides global access to payments with
fewer intermediaries.
• Offers privacy and decentralization
(cryptocurrencies).
 ▪ Instrument: Bitcoin, Ethereum, Central
Bank Digital Currencies (CBDCs)
• Description: Digital currencies that allow
for peer-to-peer transactions over
blockchain networks, or a central bank-
issued digital currency that mimics the
Digital Currencies & functionality of cash.
Cryptocurrencies
• Advantages:
• Provides global access to payments with
fewer intermediaries.
• Offers privacy and decentralization
(cryptocurrencies).
 ▪ 1. Security; Payment systems must protect
sensitive financial data from theft, fraud, or
unauthorized access.
• Key Features;
Factors influencing • Encryption: Ensures that data is securely
transmitted.
choice of payment
methods/ • Authentication: Two-factor authentication
instruments (2FA) or biometrics for additional security.
• Fraud Protection: Built-in features to monitor
for suspicious activities and protect against
fraud.
 ▪ 2. Speed of Transaction
• Key Features:
• Real-Time Processing: Immediate
Factors influencing payment confirmation (e.g., instant mobile
choice of payment money transfers, real-time bank transfers).
methods/ • Batch vs. Instant: Whether payments are
instruments processed in batches (delayed) or
instantly.
 ▪ 4. Ease of use
• Key Features:
• User Interface: Simple and intuitive
design for easy navigation.
Factors influencing • Accessibility: Available on various
choice of payment platforms (mobile, desktop, and ATMs).
methods/ • Customer Support: Availability of help
instruments through chat, phone, or email for
troubleshooting.
 ▪ 3. Cost/Fees
• Key Features:
• Transaction Fees: Understand if there’s a fee
per transaction or a flat monthly fee.
Factors influencing • Currency Conversion Fees: Relevant for
choice of payment international payments.
methods/ • Hidden Costs: Check for activation fees,
instruments maintenance fees, or penalties for late
payments.
 ▪ 5. Reliability and Uptime
A payment system should be available 24/7
without frequent disruptions.
▪ Key Features:
Factors influencing • Service Availability: High uptime and
minimal downtime, particularly during peak
choice of payment
business hours.
methods/
• Backup Systems: Features like backup
instruments
servers in case of system failure.
 ▪ 6. Acceptance and Reach
A payment method should be widely accepted by
merchants and available to a large pool of customers.
• Key Features:
▪ Merchant Acceptance: Whether the payment
method is widely accepted in stores, online, and
Factors influencing globally.
choice of payment ▪ Geographical Reach: Availability for both
methods/ domestic and international transactions.
instruments ▪ Cross-Platform Compatibility: Ability to use the
payment system across various channels (online,
mobile, physical POS).
 ▪ 7. Integration with Existing Systems
For businesses, integrating payment systems into their
existing infrastructure (e.g., ERP systems, online stores)
saves time and reduces operational costs.
• Key Features:
Factors influencing ▪ Compatibility with Accounting Software:
choice of payment Ensures smooth financial reporting and tracking of
payments.
methods/
▪ POS Compatibility: For brick-and-mortar
instruments businesses, the payment system should integrate
seamlessly with the point-of-sale system.
 ▪ 8. Compliance with Legal and Regulatory
Standards
• Why It Matters:
Payment systems must comply with local and
international regulations.
• Key Features:
Factors influencing • Regulatory Compliance: Ensure the payment
choice of payment system adheres to the laws of the region or country.
methods/ • Anti-Fraud Measures: Compliance with AML laws
instruments and identity verification protocols.
• Data Protection: Secure handling and storage of
personal and financial data.
THE END
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