Tenjin handles SWIFT message automation – MT & MX

Tenjin handles SWIFT message automation

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 – 

 

Tenjin Test Automation Solution Abilities

Summary 

 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. 

Is India’s digital lending market equipped to manage the QA risk for appropriate digital experience?

Digital lending

Technology has made Indian banking systems move from physical to digital platforms. Amidst the rising concern of the global pandemic, when the entire world moved within home confinement and physical touch and interaction was restricted, banking needed a massive transformation. Since banks and financial institutions started digital transformation journeys, banks have elevated to internet banking and digital means of payments, digital account opening, digital lending, wealth-tech, and invest-tech solutions. Banks have moved further and adapted neo-banking models and became ‘Banking-as-a-Service’ (BaaS) platform providers.

Like all other channels in banking, the lending market is highly influenced by digitalization. With deep penetration of internet facilities, growth of services available on the digital platform, advanced technologies, regulatory changes, and more have triggered the growth of digitalization. Customer expectations have increased as the demand for virtual banking has increased like never before. It becomes a priority for banks to meet customer needs without compromising on superior customer experience. With the rise of fintech, the growth of digital banking has become inevitable.

What is QA risk in lending?

With the digital expansion, lending companies are faced with challenges like unethical business practices, mis-selling, cybersecurity, and data privacy concerns. Maintaining Quality Assurance for financial applications is crucial because it ensures that customer details and money both are protected. By testing the financial applications, organizations can validate the regulatory and reliability of the applications. However, there are some potential QA risks in the lending market.

Some of the common risks in software testing and QA of financial applications are,

  • There is a lack of communication and interaction between the lender and the borrower. An inadequate regulatory framework for digital loans like consumer loans, instant loans, etc., makes the matter more grave. It may lead to delinquency and potential fraud, which require safeguarding mechanisms against fraud in the lending platforms. Possible interaction, adequate regulatory framework, and applicable verification are necessary to prevent undesirable outcomes. Organizations must formulate an apt quality framework to save valuable resources and meet deadlines.
  • There are frequent changes in applications that may arise due to customer requirements. The request for changes is so frequent that it leads to resource gaps or exhaustion. Organizations must ensure product quality while meeting the launch deadlines. It creates immense pressure on the team to manage the risk while handling the project deadlines.
  • Sometimes, a lack of prioritization may shift the focus to insignificant aspects. The situation can be more critical if there is a lack of monitoring mechanisms for lending service providers and digital lending applications. The team pays more attention to the insignificant features ignoring the primary ones. Hence, it is critical to prioritize the main functionality and product highlights and build a monitoring mechanism to define and monitor the core functionality.

From loan origination to collections, the lending lifecycle has become digital. To render lending services, banks are collaborating with several third parties like fintech, distributors, SaaS providers, thus exposing borrowers and lenders to new and heightened levels of risk.

Importance of QA in lending service for outstanding lending experience

The importance of QA increases to ensure that the customers have an outstanding digital lending experience. The innovative operating models and structures evolved around digital lending demand the need to evaluate the risks and protect the customers and lending organization data. QA in lending services is critical as it helps in monitoring the system performance and functionality to manage the risk.

The risk management frameworks of banks and NBFCs have started utilizing digital touchpoints for a proactive risk assessment of client profiles. Without an adequate QA service validating the connectivity and performance of the digital touchpoints will be an impossible task for an organization, thus increasing the probability of risks. It will also hinder the organization from insightful decision-making. QA prepares your systems to perform without errors in identifying potential anomalous transactions.

An adequate QA service helps organizations regulate and formulate better standards for cybersecurity, privacy, customer servicing, dispute management, system availability and performance, and fraud. RBI frequently changes its guidelines, which requires organizations to incorporate the changes in the systems. A good QA practice will help organizations validate the changes in the systems without an error and remain compliant with frequently changing RBI guidelines.

Also, with these RBI guidelines changes, the organizations must assess the systems’ worthiness of the apps. Validating the systems against cyber threats is a critical exercise that lenders must follow. An adequate QA practice in lending ensures that the system is perfectly sustainable, accessible, and reliable even with these changes. QA practices also see that the apps can adapt to the contractual terms and conditions, customer rights and awareness, dispute resolution, manage fraud, and more.

How to manage QA risk for appropriate Digital experience?

To address the QA risks associated with testing of financial applications, the QA testers intensely scrutinize the following key aspects of the financial applications.

  • Security – Ensuring application security is a pivotal exercise for lending institutions. The Cyber-criminal makes financial applications and data (customer and organization) centre a soft target. Cybercriminals can gain control over customer accounts and misuse the data. The QA team tests the platform security to ensure that the applications and the data are protected and secured from all possible data manipulation.
  • Reliability – Financial applications have the extreme responsibility of assessing, processing, and storing sensitive customer data. This exercise ensures the application reliability of how accurate the applications can process and store data. A good QA practice ensures that the financial applications have a high level of data availability. It also confirms that even if the application performance fails, the applications can still protect the data.
  • Performance – It is critical to evaluate the performance of financial applications concerning the transaction time and transaction frequency. The banking, trading, and lending applications process many transactions in a short time. The apps cannot delay the response as each transaction request is critical. Any delay in application response can impact business operations. QA services validate the application performance during high traffic and heavy transaction volume. It identifies the performance bottleneck and prepares the systems to perform without disruption.
  • Regulatory Compliance – Every organization must comply with all regulations and government guidelines. The financial institution must prepare the operation to adapt to the frequent changes in system regulations so that the organizations meet the requirements of regional or national governments or various international regulatory bodies. A good QA practice prevents system failure by meeting the system’s compliance against civil, financial, or even criminal consequences.

Is India equipped to manage the QA risk for appropriate digital experience in lending market?

India has witnessed extreme growth in innovation and technologies in the past couple of decades. The country has been so proactive in embracing the digital transformation that even in a grave situation like the global pandemic, Indian financial institutions could pull it through. Today technologies drive Indian banks and fintech NBFCs. India’s digital lending consists of services like unsecured loans to secured loans, personal loans to business loans to vehicle loans, and loans for individuals and MSMEs in various age groups and segments.

Since the Indian banks are steadily adapting to innovative digital approaches across all channels, the fintech NBFCs could have been far behind. They are adopting digital lending like all other channels. Banks and NBFCs have collaborated with the e-commerce firms to finance the products to the buyers and encourage the suppliers and businesses to do business without any disruptions. Financial institutions also partner with marketplaces, aggregators, wallet companies, payment facilitators, etc., to cater to digital sourcing models. Financial institutions are now leveraging advanced technology and partnering with various fintech to offer products like Buy Now Pay Later, a point-of-sale credit, and others.

There are several technologies like data analytics, alternate data models, and data-based underwriting models that financial institutions use to create a digital database and reduce turnaround time and operational costs. Financial institutions have partnered with account aggregators to decide on the credit eligibility of the customers. Technology allows companies to undertake income assessment, loan monitoring, KYC data assessment, and create a single view of the customer across their liabilities and assets by leveraging data from other financial sources. The process will allow the lenders to onboard new customers with ease.

Financial institutions also utilize emerging technologies like open banking or video KYC, which requires them to coordinate with fintech for an array of financial services like lead acquisition, KYC verification, income verification, e-signing and e-stamping, and processing fee payments and collections. The Reserve Bank of India has formed a Working Group on digital lending, which addresses the risk posed by digital evolution in financial services. This group also ensures that organizations reap the benefits of digital innovation.

If organizations encourage the covert digital or neo banks, digital-only NBFCs or banks, they must ensure that their QA is top-notch. Organizations are testing their systems and platform. Organizations have adopted an agile testing methodology to include QA practice early at the development stage to highlight the errors so that the team can identify and resolve those issues. Testing has become an integral part of the development stage. QA practice gives the banks and financial institutions that level of confidence and liberty to innovate and introduce new technologies without any restrictions. 

Conclusion

The growth of digital lending had a tremendous impact on organizational setup, technology, compliance, and operational costs for digital lenders. The entire structure of the financial organization is changed. Organizations use AI/ML-based underwriting algorithms to offer better monitoring and governance in the segment. Digital lending is building customer trust by providing more transparency providing a comprehensive framework and a progressive regulatory environment for the fast-growing digital lending segment.

Banks and NBFCs successfully offer robust and seamless digital lending infrastructure to existing and potential borrowers. They effectively address and mitigate issues concerning cybersecurity, data privacy, operational risk, third-party risk, and fraud risk. The financial institutions and their partners are reaping the benefits of digital innovation while mitigating potential QA risks to offer an outstanding digital experience to the borrowers.