课程: Foundations of Business Banking
Accepting and managing payment: Merchant services
课程: Foundations of Business Banking
Accepting and managing payment: Merchant services
- [Instructor 2] Merchant services, processing collections and payments, are an important function of banks. - Now, this is not a course on the history of banking, although such a course would be quite interesting. - Briefly stated, the most primitive function of a bank is to act as a vault, a place to keep your gold, your silver, grain, and another valuables safe. - Next is the creation of tradable certificates of ownership and valuable items stored in one of these vaults. - The bank gives me a certified piece of paper that is evidence that I have, say, a certain amount of gold in the bank's vaults. - I can then use that certificate as payment of an obligation rather than traveling to the bank, retrieving the gold, and then physically delivering it as payment of my debt. - The next innovation is for the bank vault operator to realize that, with prudence, the resources sitting in the vault can be loaned to businesses needing financing - [Instructor 1] If everything is timed right, and if the loans are made to reliable borrowers, then the gold of depositor A can be loaned to borrower B, used to finance borrower B's business, and then repaid with interest before depositor A ever comes back for the gold. - Yes, this has to be done carefully so that depositor A's gold is there when she or he wants it. - We'll talk more about this when we talk about banking regulation in a subsequent video. - Okay, that's enough historical background on banks. These days, a key function of banks is to help businesses with two fundamental activities. First, receiving payments from customers. And second, making payments to suppliers and others. - This activity of processing collections and payments fits under the heading of merchant services. - Now, many of us have used automatic payment systems through our bank accounts to make regular car payments, electricity payments, and so forth. - [Instructor 1] These electronic funds transfers, EFT, are a benefit to both the payer because of the simplicity and convenience, and to the receiver because of quick and secure deposit of the money in the receiver's account. - [Instructor 2] Now, credit and debit card payments processed by banks offer similar benefits to the payer and to the receiver. - [Instructor 1] Included in merchant services is also the traditional processing of collections and payments through paper checks. - Now, for some of us, it may have been quite some time since we last wrote or received a paper check. - However, there are still a lot of physical checks written, cashed and deposited - [Instructor 2] A 2019 U.S. Federal Reserve study found that the value of checks written in the United States in the year 2018 was $25.8 trillion. - That is a lot of checks. - So, given that banks often offer their customers these merchant services for free, how does offering these merchant services, the processing of collections and payments, help a bank? - [Instructor 1] Well, in two primary ways. First, banks that provide merchant services to businesses develop a relationship with those businesses. - Those businesses are then more likely to use that bank as a source of business loans and business advisory services. - [Instructor 1] Second, banks that provide merchant services to people like you and me are able to develop a relationship with us. And as a result, we are more likely to deposit our money in that bank. - And deposits are the lifeblood of a traditional bank, providing the core financing to support the bank's business lending activities - Merchant services, processing collections and payments, are an important societal contribution by banks in terms of allowing for efficient conduct of business transactions. - And providing these merchant services allows banks to develop good business relationships with both business loan customers and depositors.
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