Part II

These days check clearing is still an important payment system, although today the banking system processes more and more electronic transactions to make payments and transfer funds. Electronic transactions allow for instantaneous transfers of funds to almost anywhere in the world. Customers now have access to such a variety of electronic banking services that they can execute most banking transactions remotely. Electronic banking services include remote terminal transactions, telephone transactions, and other electronic transactions such as those conducted via the Internet. Remote terminals are simply machines that allow customers to access accounts without the personal assistance of a bank employee. A popular type of remote terminal is an automated teller machine. ATMs allow customers to conduct a variety of transactions on their accounts, such as withdrawals, deposits, loan and credit card payments, and balance and account history inquiries. Currently the most frequent method of providing authorized access to a person’s account is through the use of a plastic card and an access code called a personal identification number (PIN). Some machines use biometrics to check identity. Another type of remote terminal is a point-of-sale (POS) terminal. A POS terminal is located at a merchant, and the customer uses the terminal to authorize a transfer of funds from his or her deposit account directly to the merchant’s bank account. To authorize the transaction, the customer presents a debit card.

Another banking service that may be available to customers is a safe deposit box. Customers rent metal boxes (various sizes are available) that are stored in a vault in the bank. In these boxes, customers typically store valuable papers and small objects, such as family heirlooms. The boxes have two locks so that unauthorized access is prevented; the customer has one key and the bank has the other.

The umbrella term of cash management includes services provided primarily to businesses that help keep funds working, speed up the payment receipt process and improve profitability. For example, thanks to cash management services balances in transaction accounts are kept low and other idle funds are maintained in interest-earning accounts.

Bank trust divisions act as agents for corporations and other businesses in a host of different ways. This may involve issuing securities on the business customer’s behalf, paying dividends or interest owed on any securities issues, reinvesting the dividends for security holders who request that service, and retiring the securities at maturity. Trust departments also handle transfers of ownership of corporate stock, conversion of stocks into debt and they issue proxies and count votes in connection with annual stockholder meetings. Banks frequently serve as trustees under indenture and must make sure all bond covenants agreed to by the issuing corporation are adhered to and that all required liens against the company’s property are duly filled and recorded. Besides the bank will establish and manage a sinking fund. The fiduciary activities of banks make a critical contribution to the functioning of the commercial paper market. Bank trust departments keep records on which investors purchase commercial paper, see that any notes purchased are actually delivered to the investors involved, and pay off the holders of those notes on the maturity date. Even more important, banks issue letters of credit backstopping issuers of commercial paper in order to reassure investors that the bank will pay off a note issue if the borrowing corporation cannot do so.

Making foreign exchange transactions, providing traveller’s cheques, issuing credit and debit cards, private banking for high net worth individuals, providing retirement plans and many other products and services of banks are tailored to customer’s needs and make banks akin to financial supermarkets.