Payments are considered the backbone of banking transactions. It is the lifeline of Corporates / Retail customers for their day-to-day dealings with the Bank.
Across assets, Liabilities, and internal fund transfers, transactions are confined within a bank. For payment transactions outside the Bank, there would be an additional leg of the transaction. It can be bilateral with another bank or multilateral where the concept of clearing settlement bank or correspondent bank will come into the picture.
For payments, there are two aspects,
- one is message format where details of the transaction amount, date of settlement, transaction amount, date of settlement, initiating / beneficiary customer details, initiating bank/beneficiary bank details, remittance information etc., are conveyed.
- Another aspect is funds settlement between Initiating bank and the Beneficiary bank. Communication between the bank and the correspondent bank happens through a secured network. Both banks follow a pre-defined format for communication exchange that is decided either by the clearing settlement bank or the secure network.
A payment transaction will involve multiple parts of the bank, such as,
- Treasury for exchange rates, when the currency of transfer is not the same as a customer account currency.
- Liquidity ensures that the bank has sufficient funds in the clearing & settlement bank or correspondent bank – it is like a customer needs to have sufficient funds in his account before initiating a transaction.
Apart from the debit customer’s account, a payment transaction will typically capture
- transfer currency,
- transfer amount,
- the name of the party & account details are referred to as beneficiary;
The beneficiary should receive the transfer amount and information from the customer to the beneficiary, and then the regulator can capture the purpose of the payment. The payment processor will enrich the data, such as deciding the correspondent bank, name, and address of the ordering customer.
Further steps –
- Validate the transfer currency; if needed, fetch the exchange rate to decide the amount the customer needs for executing the transaction.
- Validate the transfer currency and decide on the correspondent bank.
- Cross-check for funds availability in the ordering customer account, collect the charges and do the accounting.
- Create the payment chain or routing to reach the beneficiary bank and the network through which the message(s) are sent.
- Format the payment message(s) in the appropriate formats and send the needed information to the screening system.
- After successful screening completion/compliance approvals, the message(s) will be pushed into the appropriate network.
This completes one major part of the payment transaction.
The payment message thus transmitted will be responded to by the beneficiary bank/correspondent bank after a period. The response received will be processed as an incoming message by the ordering bank. This is referred to as asynchronous processing indicating that the sending bank will not wait for an immediate response.
The Payment message generated through the payment chain/network will reach the beneficiary’s bank; which will credit the beneficiary’s account and confirm the credit through a message or notification. Correspondent banks will pass the necessary accounting entries in their book and send a statement and/or notification through the payment network.
The bank on receiving the credit notification from the beneficiary or based on the notification received from the correspondent bank will confirm to the ordering customer that the payment has been affected.
This completes the full payment transaction.
This payment transaction is reflected in the ordering bank’s books as an entry in the account of the correspondent bank/clearing & settlement bank. The ordering bank will receive the statement from the correspondent bank. The entries in both books will be matched for this bank’s use of a Reconciliation System.
The payment transactions in the customer account are monitored as part of Anti-Money Laundering Monitoring with the customer’s overall transactional activities based on the compliance rules set by the bank as part of the AML System.
Messages carrying payment transactions are to be validated both at receiving systems like CSM* or SWIFT or at beneficiary banks. Due to the financial risks involved, participating Institutions validate
- the authenticity of the payment origin
- encryption/decryption (if stipulated)
- syntax control as pre-validation of an XML file (in case of MX messages), duplicate checks
- logical controls at Group Header and Payment Information Level
- receiving/sending acknowledgements for the payment messages sent/received
- handling functional/technical failures across the end-to-end flows within cut-off time and others
While banks work with OEM IT vendors to ensure the above critical checkpoints, testing teams must ensure that all the scenarios in the end-to-end flow across all involved applications are tested thoroughly with seamless message flow and acknowledgements.
There will be instances where rules/procedures of payment types are changed due to regulatory/operational perspectives in time. During this time, change requests would be implemented by OEM companies. Complete regression testing of existing functionalities, together with all interfacing applications, must be undertaken so that there is no break in any transactions when deployed in production. To efficiently handle this, automation of existing flows must be ready as manual execution of regression test cases would be time-consuming, delaying the deployment of upgradation.
Tenjin Enterprise is the Testing Automation Solution of Yethi with exciting features –
Payment Systems are going through a sea change in technologies and transformations globally. Yethi and its flagship test automation solution, Tenjin product, is geared to navigate this sea of changes with customers, fintech and financial institutions with deep functional expertise and automation abilities across layers. Tenjin utilizes reusable test assets from our vast experience across payment systems.
Write to us for a joint discussion in your Payments business areas.
We will be happy to combine Tenjin with your business processes.
Tenjin helps with Payment Systems Testing and Automation specifically!
Write to us at info@Yethi.in for a demo and further automation into your Payments Solution Landscape.