Booklet: Retail Payment Systems
Section: Payment Instruments, Clearing, and Settlement
Subsection:
 

 

 

 

 

 

This section provides an overview of the various payment instruments and clearing and settlement processes used for different retail payment systems. Although the diagrams reflect the general flow of transactions and participants, in many cases, other third parties may facilitate one or more processing functions.

Figure 1: Four-Corner Payments Model
 additional information.

Figure 1 displays the clearing and settlement process for retail payments using a standard four-corner payments model. While the flow of information, data, and funds is different for each payment instrument, there is a common set of participants for retail payments. The initiator of the payment, typically a consumer in retail payments, is located in the upper left-hand corner of the diagram. The recipient of the payment, typically a merchant, is in the upper right-hand corner of the diagram. The bottom two corners of the model represent the relationship of the consumer and merchant to their financial institution. In some cases, third-party service providers will act on behalf of financial institutions. The payments networks or clearinghouse organizations that route the transactions between financial institutions are in the middle of the chart. In some instances, for example check clearing, a financial institution may exchange check items directly with another financial institution bypassing the clearinghouse. In figures 1 through 8 solid lines represent the flow of information and dashed lines represent the flow of funds.