Giro: Detailed Definition
Definition
A Giro is a banking arrangement used primarily for the clearing and settling of small payments. Originating in Europe, this system has various implementations including national and international services. There are two primary versions of giro systems:
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Banking Arrangements:
- The UK National Girobank: Founded in 1968 by the Post Office, it facilitated the settlement of debts between individuals who lacked traditional bank accounts. Later, it provided a comprehensive range of services to individuals and businesses, similar to commercial banks. Girobank was acquired by Alliance and Leicester in 1990, which is now part of Santander.
- Bank Giro: Operated by clearing banks in the UK, this system allows customers to make payments from their accounts via credit transfers to recipients with a bank account—a process referred to as a bank giro credit.
- Bancogiro: Common in Europe, this system permits immediate book-entry payments between the same bank’s customers.
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Social Security Payments:
- In the UK, ‘giro’ colloquially refers to a social security payment made by the Department for Work and Pensions to individuals requiring financial assistance.
Examples
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Example 1: UK National Girobank
- Scenario: John, who does not maintain a traditional bank account, owes Sarah £50. Using the National Girobank, he can easily transfer the funds without the need for conventional banking services.
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Example 2: Bank Giro
- Scenario: Emma has a business account at a clearing bank and needs to pay a supplier. She uses a bank giro credit to transfer payment directly to the supplier’s bank account.
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Example 3: Bancogiro
- Scenario: In Germany, Hans requires to pay his rent to his landlord, who uses the same bank. With bancogiro, Hans can ensure the landlord receives the money instantly through a book-entry payment.
Frequently Asked Questions
Q1: What are the advantages of using a giro system?
A1: Giro systems provide swift and secure methods for transferring funds with low transaction fees, especially useful for those lacking traditional banking facilities.
Q2: Can anyone use a giro system for payments?
A2: Yes, giro systems are generally accessible to individuals and businesses, although some versions are designed for customers of specific banks.
Q3: What significance did the National Girobank have in the UK?
A3: The National Girobank paved the way for accessible banking services for unbanked individuals, eventually expanding to offer a wide array of financial services similar to traditional commercial banks.
Q4: How does a bank giro credit work?
A4: A bank giro credit allows a payer to instruct their bank to transfer money from their account to the recipient’s bank account.
Q5: Is the term ‘giro’ still used colloquially for social payments in the UK?
A5: Yes, in the UK, ‘giro’ is commonly used to refer to social security payments provided by the Department for Work and Pensions.
Related Terms
- Credit Transfer: A method where money is transferred from one bank account to another as a cashless form of payment.
- Commercial Banks: Financial institutions offering services such as accepting deposits, providing business loans, and personal accounts.
- Bank Giro Credit: An instruction for a bank to transfer money from one account to another within the same or different banks.
Online Resources
Suggested Books for Further Studies
- “Principles of Banking” by Moorad Choudhry
- “Commercial Banking: The Management of Risk” by Benton E. Gup, James W. Kolari
- “Money, Banking, and Financial Markets” by Stephen G. Cecchetti and Kermit L. Schoenholtz
Accounting Basics: “Giro” Fundamentals Quiz
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