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Payment 101

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Table of Contents

Basic #

Overview #

  • a payment is the transfer of an item of value from one party to another in exchange for the provision of goods, services or both.

    • Payment(noun): the act of paying
    • Pay(verb): to settle a debt or obligation
  • in law, the Payer(Debtor) is the party making a payment while the Payee(Creditor) is the party receiving the payment.

  • in the modern world, common means of payment by an individual include money, check, debit, credit, or bank transfer and in trade such payment are preceded by an invoice or result in receipt.

  • a payment system is any system used to settled finacial transactions through the transfer of money value and includes the institutions, intruments, people, rules, procedures, standards, and technologies that make such exchange possible.

  • a common type of payment system is the operational network that link bank accounts and provides for money exchange using bank deposits.

  • any activity of sending/receiving of funds from one individual/entity to another individual/entity can be termed as a payment transaction.

  • payment transaction can be done within a bank, with other banks or with other banks in other countries.

  • payment transaction can be done in the same currency or in different currency.

Parties involved in a payemnt #

Payments can be classified by the number of parties involved to consummate a transaction, for example, a credit card transaction requires minimum of 4 parties (the purchaser, the seller, the issuing bank, and the acquiring bank), a cash payment requires a mininum of 3 parties (the seller, the purchaser, and the issuer of the currency), a barter payment requires a minimun of 2 parties (the purchaser and the sellter).

Most common parties involved in a payment:

  • Debtor
  • Creditor Beneficiary
  • Beneficiary Bank
  • Intermediary Bank a bank that acts on behalf of the beneficiary bank, payments can reach the intermediary bank before being credited to the beneficiary/creditor which is the final destination for the transfer.

Fields involved in a payment #

Most common fields for creating a payment:

  • Debtor Account Number
  • Creditor/Beneficiary Account Number
  • Beneficiary Bank Name
  • Beneficiary Bank Address
  • Receiving Party/Beneficiary Name
  • Beneficiary Address
  • Intermediary Bank Name
  • SWIFT Code BIC
  • Payment Amount
  • Value Date

Payment classification #

Electronic Funds Transfer #

  • Wire
  • Book
  • Giro
  • Chips
  • Fedwire

Region-vise classification #

Different payment channels (UOB) #

  • IDB
  • H2H

Different triggering approaches of payment #

  • Freeform

    • user prefer this method in case payments, which are less frequently, needs to be created
    • every time user initiates a payment by Freefrom, every detail need to be entered
  • Payment from Template

    • user prefers this method in case payments needs to be initiated frequetly
    • Tempalte is a pre-populated form to create payment transactions
    • Templates are used for recurring payments where only the payment amount or couple of other details needs to be entered during payment initiation
    • Templates can contain one or more beneficiaries in which case it is called multi-beneficiary/batch template
  • File Import

    • user prefers this method in case payments needs to be made to large number of beneficiaries
    • file contains freeform payments
    • different types of file formats used in different payment channels

State Transition #

State Transition of a Payment #

State Transition of a Template #

State Transition of a File Import #

Payment System classification #

Debtor AgentCreditor AgentPayment System Classification
Bank ABank ABook Transfer
Bank A in City 1Bank B in City 1Local Payment
Bank A in Country 1Bank B in Country 1Domestic Payment in Local Currency
Bank A in Country 1Bank B in Country 2Cross Border Payment required FX

Payment Instruction & Payment Request #

Payment InstructionPayment Request
DirectionPUSHPULL
Domain NameCredit TransferDirect Debits/Request for Debits
Initiated ByDebtorCreditor
ModePaper payments:
-  Cheque
-  Demand Draft/Pay Order
-  Traveler Cheque
Paper Request:
-  Mandate Form
ModeEletronic payments:Eletronic Request:

Backoffice/Downstream (UOB) #

  • DMP
  • NPP
  • PDR

Payment clearing and settlement #

FX #

SWIFT #

ISO 20022 #