Commercial fund transfers inherently differ from consumer
fund transfers in that commercial fund transfers come from commercial parties.
A commercial fund transfer might also be referred to as a wire transfer, though
not all wire transfers are commercial fund transfers.
Commercial fund transfers are not covered under the Electronic
Fund Transfer Act. The Act covers only consumer fund transfers. Commercial fund transfers are instead covered under Article 4A of the
Uniform Commercial Code. Under this Article, a
commercial fund transfer would essentially be defined as all the transactions
which are made in order to satisfy payment towards the payee of a given payment
order.
Commercial fund transfers account for a tremendous amount
of the funds transferred regularly throughout America and across the world, as
they account for most business transactions. Such transfers are designed to
edit the need for physical checks out of these transactions, both in order to
speed up the transactions and to protect them somewhat.
A commercial fund transfer, therefore, would be
truncated, meaning it would not involve a check. Instead, most commercial fund
transfers involve banks directly debiting and crediting the given parties as
necessary. When a party is debited under a commercial fund transfer, it means
that the party’s account is decreased in credit by the given amount. When a
party is credited, on the other hand, the commercial fund transfer would be
increasing that party’s account by the given amount. Thus, a commercial fund
transfer would most often take the form of one company ordering a commercial
fund transfer to another, thereby debiting the ordering company’s account and
crediting the receiving company’s account without ever needing to send a
negotiable instrument.
There are two main methods for conducting commercial fund
transfers. The first, involving Fedwire, which is the wire transfer system of
the Federal Reserve, is a system specifically designed to allow for high value
transfers to be made between participants in the system. It is the primary such
system in the United States and one of the major functions of the system is to
protect all commercial fund transfers that pass through it. Fedwire is unlikely
to fall apart, and as such, any commercial fund transfers made through it are
likely safe.
The second means for commercial fund transfers is the New
York Clearing House Interbank Payment Systems, or CHIPS. Unlike Fedwire, CHIPS
is a privately held system. CHIPS is owned by a number of
different financial institutions, including banks, corporations, and investment
companies.
The primary advantage of CHIPS in terms of commercial
fund transfers is that CHIPS allows for cheaper transfers than Fedwire, thereby
making it more appealing to most businesses. Fedwire, however, will generally
take less time to process any given commercial fund transfer, and therefore, is better for time-sensitive transactions.
CHIPS differs from Fedwire in a number of other important
ways, including that CHIPS consolidates commercial fund transfers into a single
commercial fund transfer where possible so as to simplify its transactions. For
instance, if three different commercial fund transfers were going to the same
company, CHIPS might consolidate them into a single commercial fund
transfer. Fedwire, on the other hand, performs every commercial fund
transfer separately and individually.
