Giro? |
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- For the Italian bicycle race see Giro d'Italia.
A giro or (in North America) a direct deposit is a method of payment. It has some similarities with a cheque, but whereas a cheque is given to the payee who deposits it in his or her bank, a giro is given by the payer to his or her bank, which transfers funds into the payee's bank. Giro is often used by post offices as well.
The difference is one of 'push' versus 'pull'. That is, a cheque is a 'pull'-initiated transaction: the presentment of the cheque by the payee causes the payee's bank to seek the funds from the payer's bank, who then takes the funds from the payer's account if the funds exist. If they do not exist, then the cheque "bounces" (is returned to the payee with a message of insufficient funds). By contrast, a giro is a 'push'-initiated transaction: the payer directs his or her bank to take existing funds from his or her account and transfer them to the payee's bank, where the payee can then draw the funds out. 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".
The rise of electronic check clearing (and debit cards as preferred instruments of payment) has made this difference less important than it once was.
Giro systems have been used at least since Egypt in the 1st century AD and were the main method of money transfer in early banking. Modern electronic bill payment is similar to the use of giro.
Advantages include:
- Instant access to the funds via an ATM or check card.
- A cheque can be lost or stolen anywhere between the sender and the intended payee.
- Payments made electronically can be less expensive to the payer; typically electronic payments may cost around 25¢ (US) vs. up to $2 to generate, print and mail a paper check.
In the United States, the Automated Clearing House (ACH), operated by the Federal Reserve Bank, handles all interbank transfers, including direct deposit and direct withdrawal.
