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The increased fragility of the banking industry has generated growing concern about the risks associated with payment systems. Although in most industrial countries different interbank payment systems coexist, little is really known about their properties in terms of risk and efficiency. How should payment systems be designed? We tackle this question by comparing the two main types of payment systems, gross and net, in a framework where uncertainty arises from several sources: the time of consumption, the location of consumption, and the return on investment. Payments across locations can be made either by directly transferring liquidity or by transferring claims against the bank in the other location. The two mechanisms are interpreted as the gross and net settlement systems in interbank payments. We characterize the equilibria in the two systems and identify the trade-off in terms of safety and efficiency.Journal …