Giro

A giro (/ˈdʒaɪəroʊ/, /ˈdʒɪroʊ/, /ˈʒɪroʊ/, /ˈdʒɪəroʊ/, or /ˈʒɪəroʊ/),^[1] or giro transfer, is a payment transfer from one bank account to another bank account and instigated by the payer, not the payee.^[2] Giros are primarily a European phenomenon; although electronic payment systems such as the Automated Clearing House exist in the United States and Canada, it is not possible to perform third party transfers with them.

In the United Kingdom and in other countries the term giro may refer to a specific system once operated by the post office.^[3] In the UK, the giro service was originally known as National Giro. In due course "giro" was adopted by the public and the press as a shorthand term for the girocheque, which was a cheque and not a credit transfer.

The use of both cheques and paper giros is now in decline in many countries^[4] in favour of electronic payments, which are thought to be faster, cheaper and safer due to the reduced risk of fraud.

Etymology

The word "giro" is borrowed from Dutch "giro" and/or German "Giro", which are both from Italian "giro" meaning "circulation of money".^[5] The Italian term comes via Latin "gyrus" meaning "gyre"^[6] from the Greek "gyros" meaning "circle".^[7] It often stands for General Interbank Recurring Order.

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.^[8] Giro was a common method of money transfer in early banking.

The first occurrences of book money are not known exactly. The giro system itself can be traced back to the "bancherii" in Northern Italy, especially on the Rialto (a financial center, resembling the modern day Wall Street). Originally these were money changers sitting at their desk ("bancus" = bench) that customers could turn to. They offered an additional service to keep the money and to allow direct transfer from one money store to another by checking the accounts in their storage books. Literally they opened one book, withdrew an amount, opened another book where the amount was added. This handling was naturally a very regional system but it allowed the money to circulate in the books. This led finally to the foundation of the "Banco del Giro" in 1619^[9] (in Venetian language, Banco del Ziro) which gave the blueprint for similar banking systems. The usage in German language can be seen in the Banco del Giro founded in Vienna in 1703 (to extend the financing business that Samuel Oppenheimer had brought from Venice in 1670).

Postal giro or postgiro systems have a long 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 simply by the local bank opening its own postgiro account.

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, and very large and well used postgiro operations in most other countries in Europe. Banks also adopted the giro as a method of direct payment from remitter to receiver.

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 than that of a giro.

Model

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 or her 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.

In the United States, the rise of electronic cheque clearing (and debit cards as preferred instruments of payment) has made this difference less important than it once was. In some stores in the United States checks are scanned at the cash register and handed back to the customer, while the funds are withdrawn from the customer's account and deposited in the store's account.

A major distinction between a postal giro model and a banking model which remains is that, in the postal giro model, an individual can directly transfer money into the bank account of another, provided he or she has the recipient's bank routing code and the account number. There is no need for the recipient to approve or acknowledge the transfer, and no need for the recipient to visit the bank to claim it. Consequently, cheques are almost never used in countries with extensive giro networks, such as Germany and the Nordic countries.

Direct deposit systems such as those in common use in North America, by contrast, require the recipient's explicit approval, typically provided by filling out form. It is also not generally possible to transfer funds directly to another, third party bank account without first paying a significant wire transfer fee nor without visiting the bank in person.

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. Banks may not even charge for the service at all; for example banks in the European Union charge nothing for electronic payments inside the SEPA (Single Euro Payments Area), provided the proper BIC and IBAN account numbers are used.

In the United States, the Automated Clearing House (ACH), regulated by NACHA 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.

Cultural significance

Before the use of electronic transfers of payments became the norm in the United Kingdom the fortnightly "giro" payment was the normal way of distributing benefit payments. When unemployment peaked in the 1980s, large numbers of people would receive their benefit payment on the same day leading the concept of Giro Day, marked by the settlement of small debts and a noticeable increase in drinking, partying, and festive activities. It is the focus of the 1996 film Waiting for Giro.^[10][11]

See also

• Girobank
• Money order
• Pay stub
• Paycheck

References