Frequently asked questions (FAQ)
Guarantees are, in global terms, the most frequently instrument used in foreign trade i.e. cross-border transactions. Depending on the regulations of a specific country, issuers of guarantees can be banks, development banks, banks for insurance activities and export financing, companies engaged in insurance activities, factoring, forfeiting and leasing operations, and some other legal persons. If a client intends to enter into agreement with a new partner, its bank should recommend to be informed in detail on the activities related to guarantees in the home country of the counterparty.
The most important elements of the bank guarantee are:bank - guarantor; obligor/importer; beneficiary/exporter; amount of guarantee; main data on the operation for which the guarantee is issued; currency on the guarantee; expiration date of the guarantee – events that result in the expiry of the guarantee; terms and conditions for delivering the request by the beneficiary for calling the guarantee, and the like.
The largest number of banks performs their cross-border transactions using SWIFT (Societe for Worldwide Interbank Financial Telecommunication). This is international association of banks, financial institutions and other legal persons. However, banks coming from certain countries like Tunis, Morocco, Algeria perform their correspondent guarantee and letter of credit activities primarily or exclusively through post office, without using the SWIFT. It should be born in mind that this model of correspondent activities requires that all elements regarding signing and control of signing of documentation by authorised persons of the participating banks are determined in advance. The fact is that a significant number of banks worldwide have left the practice of printing and sending lists of authorised signatories to other banks. Instead of the printed lists, the electronic encrypted data files are used by an increasing number of banks worldwide.
Therefore, instead of the model of comparing signatures from the received document with the printed list of authorised signatories that was used previously, the model of verification of signatures on documents received in hard copy is used nowadays. The verification is performed by sending a request with regard to each individual guarantee via SWIFT message to the address of the bank that delivered the signed documents via post office.
Such a manner of verification is monitored by two very important elements: the bank that has forwarded the documentation and the bank that has received documentation must exchange SWIFT keys; the verification process requires certain time for the bank submitting the documents to react, which can be very sensitive regarding the timeframes that follow the transaction subject to the correspondence via post office.
Due to the mentioned specificities, the practice often shows the need to address the third, intermediary bank, which is as a rule the bank with which both banks included in the guarantee activity cooperate. A third bank can be the central bank of a country in which one of the banks engaged in guarantee has its head office.
The verification of the received documents is to remove the risk of forgery. Guarantee activities performed via SWIFT do not require separate authentication, i.e. they are considered authenticated due to reliability of SWIFT systems.
The Single Euro Payments Area (SEPA) is an initiative of the European Union for integrating and unifying models in using financial instruments denominated in euro. SEPA is currently applied in 35 countries: 28 EU Member States, four EFTA member states, and Andorra, Monaco and San Marino.
In addition to these countries, SEPA is also very important for the countries that execute their international payment transactions in euro through their correspondents having their head offices in European countries. The fact is that all banks in SEPA have the right to decide on charging fees for the payment system participants, regardless these are national or international payment transactions. The Regulation (EC) No 924/2009 prescribed that the expenses for executing remittances up to 50,000 euros in the EU Member States must be the same as transfer expenses up to 50,000 euros realised within the national payment systems of the EU Member States for which this provision is binding.
It should be taken into consideration that the EU regulation do not prescribe the expenses based on euro conversion into other currencies and vice versa, which are used in the payment systems of the banks in EU Member States. In that regard, conversion expenses can be charged by delivering subsequent accounts for payment or direct debiting of the bank that is ordering the conversion.
SEPA works on intensifying its activities in order to improve payments in real time. The focus of European Payment Council (EPC) will be on instant payments in the coming years.
The main features of the ICT instant model are: money will be transferred for a maximum of 10 seconds to the beneficiary account; 15,000 euros can be initially transferred; the model will support only payments in euro; the use of this model is optional so it can be used only by recipients or both ordering parties and recipients.
In order to reach all objectives, Euro Retail Payments Board (ERPB) set up the definition of instant payment as electronic retail payments that are available 24/7.
The definition also highlights that such availability is the result of current or almost current clearing of interbank transactions and crediting of funds at the recipients’ account with the confirmation to the ordering party on the executed payment within several seconds since the inception of the transaction. Ideally, this would be executed regardless of what payment instrument is used: direct debiting, payment card or transfer of funds, i.e. which support has been established for clearing. Targeted maximum time for the transaction to be executed is 10 seconds.
With regard to the agenda, this initiative has been placed in SEPA Instant Credit Transfer (SCT Inst) scheme, version 1.0 for 2017 SCT Inst Rulebook, which is published on 30 November 2016. This Rulebook will enter into force on 21 November 2017 and it will remain in force until November 2019. The said date is selected in order to provide sufficient time for the implementation of changes to be in line with the SCT Inst Scheme. The next cycle of improvements is planned for 2018, whereby all projected changes will be applied from November 2019.
A franchise is a model of organising the system of production and/or sale of goods or providing services using the model being applied by the provider of the franchise. Franchise can be local when the provider and user are in the same country, or international.
A franchise agreement is a legal contract signed between the provider and user of the franchise, and it contains the following elements: names of the participants – counterparties; definition of ownership of the object of the agreement; definition of territory where the agreement is applied; date of entering into force, terms and conditions for its termination; minimum volume of turnover in the first and subsequent business years; marketing, training, insurance, exemptions, arbitrages in case of disputes, and the like.
Advantages of the franchise are as follows: use of third party funds under the exactly specified terms and conditions; higher possibility of sale based on recognisable name – brand; defined financial plans; support in contingencies, and the like.
From the aspect of new company, franchise activities provide safe start-up, and substantially increase the survival in the market, which is particularly important in the countries in transition. Start-ups using franchise do not bear certain risks. The researches have shown that new companies in the franchise system rarely fail, and if that occurs, the most frequent reasons is that the user of franchise did not adhere to the instructions obtained from the provider of the franchise.
Banks are very important for the activities of the franchise users since they are expected to grant start-up loans. Depending on regulatory requirements for new companies, the practice often shows that the banks are very supportive when it comes to the issue of guarantees. If the franchise provider is non-resident, it may issue counter-guarantee as an instrument of security in favour of local bank which will issue direct guarantee in favour of franchise user.
The requirement for such an arrangement may appear both at the start of the business of the franchise user and later when the franchise user wants to expand the volume of its activities.
In short, yes, it is. However, the security of payment depends on many factors. The technological development of a bank offering this type of service and the availability of educational information to the end user is two key factors affecting the security of transactions. The documentation of payment card brands contains detailed standards, as well as rules and business practices for the application of security mechanisms that banks have to adhere to. On the other hand, banks should use this information also to educate their clients.
It is most important for a bank to clearly define the way of authorization, thereby ensuring secure payment transaction.
The Payment System Law in the chapter on Authorisation on Payment Transactions, Article 30 clearly stipulates that each bank should define the authorised payment transaction and a mechanism used by the payment card user to give consent for the payment transaction execution.
The consent to execute the payment transaction, i.e. its authorisation, is contracted between the payer (payment card user) and his payment service provider (the bank). Any transaction executed in contravention of the agreed manner is not considered duly authorised, although it can be initiated and successfully executed by the actual payment card user.
Therefore, banks should inform clients through general terms and conditions of as much detail as to how the payment transaction authorisation is valid for each individual payment instrument, each individual receipt channel, and which procedures for executing payment card transactions that are intentionally used in practice, are not always the safest for the payment card user.
MOTO (Mail Order Telephone Order) transactions and internet payments are the ones that pose the highest concern to clients as they bear the highest security risk. These transactions are executed by delivering personalised security elements of the payment card to a merchant via email or phone, i.e. entering these data on the merchant's web page.
With regard to security, clients usually do not differentiate between MOTO and internet transactions, because personalised security elements of the payment cards are used in both cases.
It should be emphasized that banks do not bear any responsibility for the consequences of using the payment cards when purchasing without the presence of the payment card.
In the event of misuse, banks are obliged to determine whether the disputed transaction is authenticated, authorised, properly recorded and booked, and whether the execution has had any technical or other defective effect, and to comply with the law, contract but also internal rules and decisions, with the aim of protecting both clients and their business.
In respect of internal rules and decisions, they include special budgets designed to cover the damage caused by payment card misuse and special bodies within the bank dealing with investigations, defining the causes of misuses and analysing the measures taken to prevent them. Based on the results of such investigations and analysis, the decision is passed on the use of the budget to cover the damage caused by payment card misuse. The process of resolving the complaint is complex: it requires knowledge of the rules of the payment card brands and a certain amount of time for its finalization.
Internet transactions should not be prohibited. Together with the development of telecommunications, electronic payment systems quickly replace traditional payment methods which imply direct contact between the buyers and sellers. Internet trading is trending up worldwide and in Montenegro, and it is becoming one of the key trading channels. Payment card brands regulated this channel by setting rules and standards applicable to all banks. Rules and standards have been constantly improving with the aim of increasing the security of payment instruments. Consequently, banks are obliged to monitor and implement new standards and rules. The professional units and experts within payment card brands and banks are involved in defining and implementing the most efficient security measures for this trading channel, investing simultaneously enormous amount of money in their development.
There are various possibilities to prevent misuses, from defining limits of spending (number of transactions, amount of transactions) for some trading channels, to issuing limited prepaid cards that funds only in the moment of purchase and implementing special services. Every bank should introduce additional security measures such as 3D secure services VbV (Verified by VISA), MasterCard secure code and American express Safekey. Banks should also monitor continuously payment card networks through different on-line reporting services.
The 3D service is an additional level of security in executing internet transactions and enables the authorisation of transaction through dynamic code or OTP (One Time Password) provided to a client most frequently via SMS (not obligatory), in the moment of initiating internet transaction. It may be supported by the payment card issuer and by accepting network or recipient of the payment card.
There are several different situations regarding the complaint process for internet transactions that depend on the level of implementation of the security standards on the side of the recipient and the issuer payment cards.
When the website does not support the 3D secure service but the payment card of the client supports it, the client has the right to request recovery of funds through complaint procedure for each misused transaction.
If the misuse of the payment card occurred, and both the recipient and the issuer of the payment card support this service, while the transaction is authorised by this service, the client has surely allowed unauthorised access to personalised security features and access to the OTP delivery channel. In this case, the payment card user will bear all the damage caused by the payment card misuse.
Complaints will also not be resolved in favour of the payment card users if they are commercial websites, which support standards that are at a higher level of security.
Ultimately, if the payment card user and the merchant apply the security standards at the same level recognised by payment card brands, the payment card user is in the complaint procedures that banks handle for their clients are in advantage, while the merchant has to prove that the client has properly identified and authorised the transaction, which is in practice very difficult if it does not use 3D secure services.
However, the result of such complaints is uncertain. In these procedures, it is important that the bank's officer is an expert and has experience in this area. When filing a complaint with the payment card brands, the bank's offices should state correct grounds for the complaint; otherwise the client complaint will not be solved.
This area is very complex and demanding. It requires permanent training and technological advancement, but also the application of the laws and their understanding.
Although banks in Montenegro are lagging behind the developed European markets in this business segment, they must constantly adjust to market demands and invest in developing services that provide customers with security in the use of payment instruments.