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In banking terminology giro (pronounced /ˈʤaɪroʊ/, /ˈʤɪroʊ/, /ˈʒɪroʊ/, /ˈʤɪəroʊ/ or /ˈʒɪəroʊ/[1]) or giro transfer is a method of payment which can be described as a "credit transfer". It is the opposite of a cheque ("debit transfer"), which is an order given to a payee who deposits it in a bank; the bank sends the cheque for collection to the payer's bank. A giro order is given by the payer to his or her bank, which transfers funds into the payee's bank account; the receiving bank then notifies the payee. Giro is often used by post offices as well. The term is little used in the US, although an ACH Transfer or Direct deposit is the US electronic version of the giro transfer. The term entered UK English from German[2], and it is sometimes capitalized as 'Giro' in common usage. It ultimately traces back to the Italian word for "circulation", in this case referring to the circulation of money.

The difference between a giro and a cheque is one of "push" versus "pull". That is, a cheque is a "pull"-initiated transaction: the presentation of the cheque by the payee causes the payee's bank to seek the funds from the payer's bank, which then takes the funds from the payer's account if the funds exist. If funds are insufficient, then the cheque "bounces" (i.e. it is returned to the payee with a message of insufficient funds). To contrast, a giro is a "push"-initiated transaction: the payer directs a bank to transfer funds from the payer's account to the payee's bank, where the payee can then withdraw the funds. As a result, a giro cannot "bounce", because the bank will only process the order if the payer has sufficient funds to cover the payment. However, this also means that the payer receives no benefit of "float".

Giros are often used in large or periodic (e.g. monthly) money transfers, such as utility bills or taxes. In contrast, daily purchases with small and variable payments are typically paid by other means.

In the UK, the term Giro may refer to a specific system operated by the British post office[3], originally known as Post Office Giro and, confusingly, 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 commercial banks in the UK operate a system known as Bank Giro.

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

Contents

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

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 by the convenience of the local bank opening its own account at the Postgiro.

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 from the "Giro".

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.

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

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.

In the United States, the Automated Clearing House (ACH), regulated by NACHA-The Electronic Payments Association 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 bi-weekly '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.[6] Giro day would be marked by the settlement of small debts and noticeable increase in drinking, partying and related activities. It was celebrated in Ian Curtis' 1996 film Waiting for Giro.[7]

References

  1. ^ Webster online: [1]
  2. ^ Webster online: [2]
  3. ^ Oxford English Dictionary (online)
  4. ^ Federal Reserve: Recent payment trends in the United States, 2008. "In 2003 the number of electronic payments in the US exceeded the number of cheque payments fro the firs time [3]
  5. ^ A Comparative Chronology of Money, Roy Davies & Glyn Davies, 1996 & 1999.
  6. ^ http://www.urbandictionary.com/define.php?term=giro+day
  7. ^ http://www.imdb.com/title/tt0496587/

See also








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