We are so used to the fact that we make payments that we often forget the importance of banks to make them for an economy, efficient payments contribute to economic development and growth. To explain the importance of money in an economy, you can compare the function of money in an economy with the function of oil in a car engine. It acts as a lubricant.
Payments are needed to transfer the money so that the economy can run smoothly. Consumers use simple payment instruments such as cash checks and credit cards, more modern instruments are Internet payments and crypto.
However, corporations often want more complicated payment services, such as cash pooling, automatic collection and bill payments, or international payments, also known as cross-border payments. A blocked payment system can harm an economy by preventing blockages the central banks once control and therefore the final link in the payment process.
This makes it possible to monitor the payment flows and intervene if there is a problem. To save costs, small payments will be made at cut-off times set by the central bank. In the end, all payments are done, which is called clearing by high volume networks, interbank payments via accounts that banks have with their central bank for international payments.
You need a bank that has access to the central bank clearing system, and all the involved currency. A way for banks to generate income is it’s a debit to pay their account today and transfer the money to the beneficiary account one or a few days later, the bank can invest the money for the short term and earn interest.
This is called interest on the float. However, the main source of income that banks make from payments are fees and service charges. The rapid change in it results in more efficient systems and faster execution of payments.
