Giro
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A giro, is a banking term for a method of payment. It is almost the opposite of a cheque. A cheque is given to a payee who deposits it in a bank, but a giro is given by the payer to their bank, which transfers funds into the payee's bank account. Giro is often used by post offices as well. An electronic version is the direct deposit.
The difference is one of 'push' versus 'pull'. That is, a cheque is a 'pull'-initiated transaction: the presentation of the cheque by the payee causes the payee's bank to seek the funds from the payer's bank, which then takes the funds from the payer's account if the funds exist. If insufficient funds are available, then the cheque "bounces" (i.e. it is returned to the payee with a message of insufficient funds). By contrast, a giro is a 'push'-initiated transaction: the payer directs a bank to transfer funds from the payer's account to the payee's bank, where the payee can then withdraw the funds. As a result, a giro cannot "bounce", because the bank will only process the order if the payer has sufficient funds to cover the payment. However, this also means that the payer receives no benefit of "float".
Giros are often used in large or periodic (e.g. monthly) money transfers, such as utility bills or taxes. In contrast, daily purchases with small and variable payments are typically paid by other means.
The use of both cheques and giros is now in decline in developed countries in favour of electronic payments, which are thought to be faster, cheaper and safer due to the reduced risk of fraud.[citation needed] In the UK many large retailers, including leading supermarkets such as Tesco, Asda and J Sainsbury's, stopped accepting cheques from customers in late 2007 citing reasons of limited cheque usage, shorter checkout queues and increased security.[citation needed] Other smaller retailers have since followed suit.[citation needed]
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[edit] History and concept
Giro systems date back at least to Ptolemaic Egypt in the 4th century BC. State granary deposits functioned as an early banking system, in which giro payments were accepted, with a central bank in Alexandria.[1] Giro was a common method of money transfer in early banking.
Postal Giro or Postgiro systems have a long and honourable history in European financial services. The basic concept is that of a banking system not based on cheques, but rather by direct transfer between accounts. If the accounting office is centralised, then transfers between accounts can happen simultaneously. Money could be paid in or withdrawn from the system at any post office, and later connections to the commercial banking systems were established, often by the convenience of the local bank opening its own account at the Postgiro.
By the middle of the 20th century, most countries in continental Europe had a postal giro service. The first postgiro system was established in Austria on the early 19th Century. By the time the British Postgiro was conceived, the Dutch Postgiro was very well established with virtually every adult having a postgiro account with very large and well used postgiro operations in most other countries in Europe and Scandinavia.
The term "bank" was not used initially to describe the service. The banks' main payment instrument was based on the cheque which has a totally different remittance model from the "Giro".
In the banking model, cheques are written by the remitter and then handed or posted to the payee, who must then visit a bank or post the cheque to his bank. The cheque must then be cleared, a complex process by which cheques are sorted once, posted to a central clearing location, sorted again, and then posted back to the paying branch where the cheque is finally checked and then paid.
In the Postal Giro model, Giro Transfers are sent through the post by the remitter to the Giro Centre. On receipt, the transfer is checked and the account transfer takes place. If the transfer is successful, the transfer document is sent to the recipient, together with an updated statement of account being credited. The remitter is also sent an updated statement. In the case of large utilities receiving thousands of transactions per day, statements would be sent electronically and incorporate a reference number uniquely identifying the remittance for reconciliation purposes.
The rise of electronic cheque clearing (and debit cards as preferred instruments of payment) has made this difference less important than it once was. For example in some stores in the United States checks are scanned at the cash register and handed back to the customer while the funds are removed from the customer's account.
[edit] Electronic bill payment
Modern electronic bill payment is similar to the use of giro.
Advantages include:
- Instant access to the funds via an ATM, debit card or cheque card.
- There is no paper cheque that can be lost, stolen, or forgotten.
- Payments made electronically can be less expensive to the payer; typically electronic payments may cost around 25¢ (US) whereas it could cost up to $2 (US) to generate, print and mail a paper cheque[citation needed]. Banks may not even charge for the service at all.
In the United States, the Automated Clearing House (ACH), regulated by NACHA-The Electronic Payments Association and the Federal Reserve Bank, handles all interbank transfers, including direct deposit and direct debit.
In entirely electronic bill payment, the payer receives a bill — either physically by mail or electronically from a website (electronic billing). Then, the payer reads in the information from the bill, either manually or by using the barcode on the bill, enters it to the form on the bank website, and submits the form. The payment is immediately deducted from the account balance.
[edit] References
- ^ A Comparative Chronology of Money, Roy Davies & Glyn Davies, 1996 & 1999.
