This category includes establishments primarily engaged in performing functions related to depository banking, not elsewhere classified.
522320 (Financial Transactions Processing, Reserve, and Clearing House Activities)
523130 (Commodity Contracts Dealing)
523991 (Trust, Fiduciary, and Custody Activities)
523999 (Miscellaneous Financial Investment Activities)
522390 (Other Activities Related to Credit Intermediation)
This industry comprises several types of functions related to depository banking including the transmittal of financial information between institutions and electronic payment services. Some of the primary functions that constitute this category are automated clearinghouses, check cashing agencies, check clearinghouse associations, deposit brokers, electronic funds transfer networks, escrow institutions other than real estate, fiduciary agencies other than real estate or trust, foreign currency exchanges, money order issuers, smart card issuers, representative offices of foreign banks, safe deposit companies, tax certificate sale and redemption agencies, and traveler's check issuers. Each of these functions is organized and operates differently.
Automated Clearinghouses. An automated clearing-house processes and delivers electronic debit and credit payments among participating institutions, usually commercial and savings banks, savings and loan associations, and credit unions. The electronic debits include preauthorized mortgage payments and insurance premiums that are deducted from a customer's account. The electronic credits include pre-authorized direct payment of paychecks and dividends that are added to a customer's account. Automated clearinghouses are similar to check clearinghouses, in that all of the obligations are sorted and payment instructions are recorded electronically.
There are typically five steps in an automated clearing-house transaction. First, the customer authorizes an electronic entry to their account. Second, the company introduces the electronic payment data through its bank. Third, the originating institution receives electronic payment data from the company. Fourth, the automated clearinghouse receives the electronic entry from the originating institution, processes it, and delivers the electronic payment to the appropriate institution. Fifth, the receiving institution posts the electronic entry to the customer's account.
In 2000, there were four automated clearinghouses that serviced some 13,000 financial institutions grouped into 24 regional associations. This system facilitated efficient clearing of accounts and reduced costs for participating institutions. There is no question that electronic payment systems continue to grow in popularity. To highlight one indicator, by 2000, 60 percent of all paychecks in the non-governmental sector were directly deposited via automated systems, up from a mere 8 percent 15 years ago.
Check Cashing Agencies. Check cashing agencies are small organizations that cash checks for a fixed fee. They do not require that a customer have an account to cash a check.
Clearinghouse Associations. A clearinghouse association is a voluntary group of banks located in the same city and having a mutual agreement to facilitate the daily exchange of checks, drafts and notes among themselves. The New York Clearinghouse Association is a good example of just such a group. Its computerized communications network, called CHIPS, allows for large sums of money to be electronically transferred among members, thereby eliminating the need for official bank checks.
Electronic Funds Transfer Networks. Electronic funds transfers (EFT) describe any transfer of funds not initiated by a written instrument that originates through an electronic terminal, telephone, computer, or magnetic storage device and authorizes a financial institution to debit an account. Examples include point-of-sale transfers, automated teller transactions, direct-deposit of funds, and transfers initiated by telephone pursuant to a pre-arranged plan.
EFT transactions can be divided into two broad categories: commercial transactions and consumer transactions. The former arise when an originating institution uses an automated clearinghouse to collect payments from or make payments to consumers and corporate entities. The latter encompass all retail banking services, such as deposits, withdrawals, and queries. These retail transactions are facilitated by point-of-sale systems and automated teller machines, or ATMs.
Escrow Institutions, Other Than Real Estate. Escrow institutions hold written agreements entered into among three parties and deposited for safekeeping with the third party as custodian. It can be delivered to the receiving party only upon the performance or fulfillment of some pre-arranged condition. The escrow institution is legally obligated to adhere to the terms of the agreement with respect to the involved parties.
Fiduciary Agencies, Other Than Real Estate. A fiduciary agency is an organization entrusted with certain property of a principal for a specified purpose. The fiduciary agency is required to act in the best interests of the principal in achieving the goals outlined in the trust instrument.
Foreign Currency Exchanges. Foreign currency exchanges convert one type of currency into another at a given exchange rate. That rate is determined by the supply and demand of the desired currency plus processing fees and/or commissions charged by the retail institution. Commissions are either fixed or a percentage of the total amount of currency purchased. Many of these agencies are affiliated with banks or travel agencies and are usually located in areas frequented by tourists.
Money Order Issuance. Money orders are a type of credit instrument that allow the payment of money to the named payee through a safe means without the use of a checking account. Money orders can typically be issued by commercial and savings banks, as well as other institution such as the U.S. Postal Service and American Express Company.
Regional Clearinghouse Associations. Automated clearinghouses are assembled in regional networks to facilitate the clearing of accounts within and between regions. All of the automated clearinghouses participate in an interregional network that enable them to exchange electronic payments with others throughout the United States. The Automated Clearing House (ACH) Network is a nationwide batch-oriented electronic funds transfer system governed by the NACHA operating rules. The rules provide for the interbank clearing of electronic payments for participating depository financial institutions. The American Clearing House Association, the Federal Reserve system, Electronic Payments Network, and Visa are central clearing facilities through which financial institutions transmit or receive ACH entries. In 1998, 5.3 billion ACH transactions were processed with a total value exceeding $16 trillion.
Representative Offices of Foreign Banks. A representative office is a facility set up with an agent or officer of the foreign bank who is empowered to act on behalf of the bank. A representative office typically handles only a limited amount of business, serves to maintain contacts and look for new business opportunities. They generally do not process financial transactions or perform similar activities handled by branches or at the main office.
Safe Deposit Companies. Safe deposit companies are institutions organized to provide facilities for the systematic safekeeping of securities, contracts, wills, insurance policies, jewelry, and any other valuable documents and property. These organizations exist alone or as a part of a larger institution such as a bank or trust company. A customer leases a box for a fixed period, usually on an annual basis. The customer is then assigned a box that can only be unlocked when two keys are used. One of these keys is given to the individual, and the other is retained by the company. The institution becomes responsible for the safety of the stored goods. The box is kept in a large vault, entry is strictly controlled, and positive identification is required. Safe deposit companies are state-chartered, similar to state banks.
Travelers' Check Issuance. Travelers' checks are international checks that are not drawn on any specific bank, but are payable at virtually all banks worldwide. These checks are guaranteed by well-known institutions, such as international credit card companies like American Express or Visa. These instruments offer a convenient and safe form of currency and can be purchased from most banks for a 1 percent fee. If travelers' checks are lost or stolen, no loss is likely to be incurred since only the payee could cash them and the counter signature has to be written in the presence of the person cashing them. The owners of travelers' checks are typically reimbursed for their loss, as long as the second signature was not written.
Downes, John and Jordan Elliot Goodman. Dictionary of Finance and Investment Terms. Happauge, NY: Barron's Educational Services, 1987.
Munn, Glenn G., F.L. Garcia and Charles J. Woefel. Encyclopedia of Banking and Finance. Detroit: St. James Press, 1991.
National Clearing House Association. "The Electronic Payments Association," 20 March 2000. Available from http://www.nacha.org/ .
U.S. Census Bureau. 1997 Economic Census — Finance and Insurance, 20 March 2000. Available from http://www.census.gov .