CPP CPP Treasury & Cash Management in Payments 1 — Questions and Answers
Question 1: What is 'float' in the context of payment treasury management?
- The time between when a payment is initiated and when funds are available to the recipient
- The interest earned on merchant reserve accounts
- The difference between a company's book balance and bank balance (Correct answer)
- Both B and C
Correct answer: The difference between a company's book balance and bank balance
Float in treasury refers to the difference between the company's internal book balance and the actual bank ledger balance, created by the delay between recording and clearing payments.
Question 2: What is a 'merchant reserve account'?
- Funds held by the acquirer as security against future chargebacks or losses (Correct answer)
- A savings account maintained by the merchant at their primary bank
- An escrow account used to hold customer prepayments
- A reserve line of credit extended by the acquiring bank
Correct answer: Funds held by the acquirer as security against future chargebacks or losses
A merchant reserve account is a portion of settlement funds withheld by the acquiring bank to cover potential chargebacks, refunds, or merchant default.
Question 3: What does 'next-day funding' mean for a payment service provider?
- Settlement of card transaction proceeds is deposited into the merchant's bank account the business day after the transaction (Correct answer)
- Payment network authorization responses are returned within one business day
- Chargebacks must be responded to within one business day
- Card statements are generated and sent to cardholders the next day
Correct answer: Settlement of card transaction proceeds is deposited into the merchant's bank account the business day after the transaction
Next-day funding means the acquirer or PSP deposits the merchant's net settlement proceeds into their bank account on the following business day after the processing day closes.
Question 4: In treasury management, what is 'concentration banking'?
- Consolidating funds from multiple accounts into a single master account to optimize cash visibility and investment (Correct answer)
- Limiting banking relationships to one primary institution
- Concentrating all payment processing through a single acquirer
- Pooling foreign currency balances to reduce FX exposure
Correct answer: Consolidating funds from multiple accounts into a single master account to optimize cash visibility and investment
Concentration banking (or cash concentration) sweeps balances from subsidiary or regional accounts into a central master account, improving liquidity management and reducing idle cash.
Question 5: What is a 'rolling reserve' in merchant acquiring?
- A percentage of each settlement held for a defined period before release to the merchant (Correct answer)
- A reserve that grows at a fixed rate based on the merchant's volume
- A minimum balance the merchant must maintain in their bank account
- A reserve fund used exclusively to cover network fees
Correct answer: A percentage of each settlement held for a defined period before release to the merchant
A rolling reserve withholds a percentage of daily settlements (e.g., 5–10%) and releases the oldest held amounts after a set period (e.g., 180 days), creating a continuously rolling collateral pool.
Question 6: What is the primary function of SWIFT in the international payment ecosystem?
- A secure messaging network that enables financial institutions to send standardized payment instructions across borders (Correct answer)
- A card payment network competing with Visa and Mastercard
- A regulatory body overseeing cross-border payment compliance
- A clearing house for ACH transactions
Correct answer: A secure messaging network that enables financial institutions to send standardized payment instructions across borders
SWIFT (Society for Worldwide Interbank Financial Telecommunication) provides the secure, standardized messaging infrastructure financial institutions use to instruct cross-border fund transfers.
CPP CPP Treasury & Cash Management in Payments 1
What is 'float' in the context of payment treasury management?