1. PAYMENT MEDIA: MEANS OF PAYMENT USED IN NPS

2. Cash Payments: PAYMENT MEDIA the most common form of payment because:
it is readily accepted
No need for authorization
Provides instant value
Major disadvantages
Insecurity
Bulky
High cost of production

3. Non-Cash Payments: Cheques Plastic money (payment cards)
Credit cards
Charge cards
Prepaid cards
Debit cards
ATM cards
Paperless payment
EFT
Direct debits
SWIFT
Other electronic banking services

4. Non-Cash Payments: Cheques
Cheques are the major non-cash payment instruments in Kenya accounting for over 48% of all non-cash payment. The bulk of cheques issued in Kenya bear the MICR code line.
These cheques are cleared in 3 days in most parts of the country and 1 day for high value (i.e. Shs.10m and above). Cheques from remote centres are cleared on within 10 days.
The Kenya Bankers’ Association (KBA) owns, and administers the clearing house for cheques.
Magnetic Ink Character Recognition (MICR) was adopted in 1998 as the basis for automation for cheque clearing. Cheque amounts are however entered manually.
A Signature software is used to authenticate all files to and from the clearing house

5. Non-Cash Payments: Cards
Plastic money (payment cards) have taken a significant leap within Kenya’s non cash payment instruments segment.
Credit cards
Debit cards
ATM cards
Charge cards
Prepaid cards

6. Card Technologies
Smart Card
Magnetic Stripe Card

7. Card Technologies Magnetic Stripe Cards
The black/ brown stripe on the back of a card, e.g. a credit card is a magnetic stripe, often called a magstripe. The magstripe is made up of tiny iron-based magnetic particles in a plastic-like film. Each particle is really a very tiny bar magnet about 20 millionths of an inch long.
Data is written on the card by magnetising the iron particles.
Data is laid out on a standard magnetic card in three tracks. A magnetic stripe card may have any of these tracks, or a combination of these tracks. Track 2 and 3 are used for financial transactions. Data stored in these tacks include the following:
Account number, country code, discretionary data from the issuer, enciphered PIN, currency units, amount authorized, subsidiary account information, and other account restrictions.

8. Card Technologies Smart Cards
Pocket-sized cards with embedded integrated circuits (processor) which can process data.
A smart card can receive input which is processed and delivered as an output.
Two types:
Contact smart cards have a contact area, comprising several gold-plated contact pads, that is about 1 cm square. When inserted into a reader, the chip makes contact with electrical connectors that can read information from the chip and write information back.
Contactless cards: the chip communicates with the card reader through RFID (Radio Frequency Identification) technology. These cards require only close proximity to an antenna to complete transaction.

9. The Credit/ Debit Card Payment System
The four parties in the debit/ credit card payment system are
the consumer,
the depository institution that issued the payment card to the consumer (the issuer),
the retail merchant, and the merchant’s depository institution (the merchant acquirer).
The network coordinates monetary transfers and the transmission of information between the issuing and acquiring sides of the market. Major credit card networks include
Visa (PIN debit card network – Interlink)
MasterCard (PIN debit card network – Maestro)
American Express and Discover.

10. The Credit/ Debit Card Payment System contd
a typical transaction over a four-party system proceeds as follows.
The consumer initiates a purchase by presenting his or her card or card information to a merchant. (and PIN number for PIN debit transactions)
An electronic authorization request with a specific Kshs amount and the cardholder’s identity is sent from the merchant to the acquirer to the network, which forwards the request to the card-issuing institution.
The transaction is checked against a file of active card accounts that resides with either the card issuer or its processor. A message authorizing (or declining) the transaction is returned to the merchant via the reverse path.

11. The Credit/ Debit Card Payment System contd
Subsequently, the issuer posts a charge for the transaction to the cardholder’s account, and the acquirer posts a credit for the transaction to the merchant’s account. (The timing of these charges and credits varies depending on the arrangements that cardholders and merchants have with their respective banks.
For PIN debit transactions, the cardholder charges are posted immediately.
For credit and signature debit transactions, the issuer usually posts the transaction to the consumer’s account within one day of the transaction.
The acquirer usually credits the merchant’s account within four days of the transaction

12. The Credit/ Debit Card Payment System contd
At the end of a business day, the merchant submits records of all card transactions for that day to its acquirer. The acquirer reconciles these data against the earlier authorization information and transfers the reconciled data to the network.
The network then clears the transactions; that is, it determines the net financial positions, including interchange fees and other network fees of all issuers and acquirers. Usually within two days for credit and signature debit card transactions and one day for PIN debit card transactions, banks settle their accounts; that is, they receive and send payments based on their net financial positions through their accounts at settlement banks associated with the network.
Other fees charged: finance charges on revolving credit card balances, late payment fees for credit cards, and overdraft fees for debit cards.

13. Automatic Teller Machine (ATM) Networks
An automated teller machine (ATM) is a banking terminal that accepts deposits and dispenses cash. 
It provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller.
ATMs are placed not only near or inside the premises of banks, but also in locations such as shopping centers/malls, airports, grocery stores, fuel stations, restaurants, or any place large numbers of people may gather. 

14. An ATM is simply a data terminal with two input and four output devices. The ATM terminal has few processing capabilities.
ATMs typically connect directly to their ATM Controller (a host computer in the network) via either
a dial-up modem over a telephone line or
directly via a leased line
Leased lines are preferable to telephone lines because they require less time to establish a connection. Leased lines may be comparatively expensive to operate versus a telephone line, meaning less-trafficked machines will usually rely on a dial-up modem. That dilemma may be solved as high-speed Internet Virtual Private Networks (VPN) connections become more ubiquitous.

15. (ATM Controller)

16. An ATM Controller (ATMC) is a computer that routes financial transactions between ATMs, core banking systems and other banks. It is sometimes referred to as an "EFTPOS Switch.“
This routing may be to a core banking system to check the available balances and to authorise the transaction, or to another bank's ATMC.
For example, if a customer of Bank A used their card at an ATM belonging to Bank B, the message would be forwarded to Bank B's ATMC. The ATMC would examine the message, and based upon the account number determine that the appropriate ATMC to contact would be Bank A. It would then forward the message to Bank A's ATMC for authorisation.

17. The ATMC may be owned by a bank or financial institution, or it may be owned by an independent service provider, e.g. Pesapoint. Bank-owned ATMCs normally support only bank-owned machines, whereas the independent ATMCs support merchant-owned machines.
In many instances, several banks form a consortium to set up a shared ATM network for switching ATM transactions among member banks.

18. ATMs are activated by inserting a cash or credit card that contains the user's account number and PIN on a magnetic stripe
The ATM calls up the bank's computers to verify the balance, dispenses the cash and then transmits a completed transaction notice.

19. Paperless Payment/ Electronic Funds Transfer (EFT) System
Transactions traditionally processed through paper-based systems are evolving into electronic forms. These include:
Direct Deposit
Direct Debits/ Credits
SWIFT
EFTs are used for transferring value between banks on behalf of customers.
In Kenya, the Automated Nairobi Clearing House uses EFT to process interbank payments.

20. Direct Debits Introduced by the KBA in 2003
They provide a simple, safe and convenient banking service that enables one to settle his bills as and when they fall due.
The ‘creditor’ initiates the transfer of funds from the debtor’s account in settlement of goods sold or services rendered to him.
The transfer is based on a direct debit authority signed by the ‘debtor’ and the ‘creditor’, and is normally automatically effected provided the ‘debtor’ has sufficient funds in his account.
Common direct debit payments: Insurance premium payments, public utility payments (e.g. water, power, telephone), mortgage payments.

21. SWIFT Society for Worldwide Interbank Financial Telecommunications
A cooperative owned by member banks in 199 countries