Giro - Model

Model

In the banking model, cheques are written by the remitter and then handed or posted to the payee, who must then visit a bank or post the cheque to his or her bank. The cheque must then be cleared, a complex process by which cheques are sorted once, posted to a central clearing location, sorted again, and then posted back to the paying branch where the cheque is finally checked and then paid.

In the postal giro model, giro transfers are sent through the post by the remitter to the giro centre. On receipt, the transfer is checked and the account transfer takes place. If the transfer is successful, the transfer document is sent to the recipient, together with an updated statement of account being credited. The remitter is also sent an updated statement. In the case of large utilities receiving thousands of transactions per day, statements would be sent electronically and incorporate a reference number uniquely identifying the remittance for reconciliation purposes.

In the United States, the rise of electronic cheque clearing (and debit cards as preferred instruments of payment) has made this difference less important than it once was. In some stores in the United States checks are scanned at the cash register and handed back to the customer, while the funds are withdrawn from the customer's account and deposited in the store's account.

A major distinction between a postal giro model and a banking model which remains is that, in the postal giro model, an individual can directly transfer money into the bank account of another, provided he or she has the recipient's bank routing code and the account number. There is no need for the recipient to approve or acknowledge the transfer, and no need for the recipient to visit the bank to claim it. Consequently, cheques are almost never used in countries with extensive giro networks, such as Germany.

Direct deposit systems such as those in common use in North America, by contrast, require the recipient's explicit approval, typically provided by filling out form. It is also not generally possible to transfer funds directly to another, third party bank account without first paying a significant wire transfer fee nor without visiting the bank in person.