Author: gwbrink

SEPA Credit Transfer

This model describes a simple, commonly used, model for SEPA Credit Transfer (SCT) and assumes the use of a single “Clearing and Settlement Mechanism”.

  1. The Debtor (Originator in EPC terms) creates an instruction to transfer an amount in Euros to from his bank account in the SEPA area to the bank account in the SEPA area of the beneficiary. The standard message format is pain.001, but the instruction can also be entered directly in the banking application.
  2. The Originator PSP (Debtor Bank) validates the instruction and checks if there are sufficient funds to execute the transaction. If all checks are okay, the instruction converted into an interbank instruction (pacs.008) and is forwarded to the Clearing and Settlement Mechanism.
  3. The CSM validates the instruction, and if valid:
    1. (A) Creates the settlement instruction to transfer the funds from the Originator PSP to the Beneficiary PSP via the accounts both hold at the European Central Bank.
    1. Forwards the original instruction to the Beneficiary PSP
  4. The Beneficiary PSP informs the Beneficiary that the account is credited.

Timelines

Regular SCT

For regular SEPA Credit Transfer the legal times is that the Beneficiary receives the funds in his account the next working day latest. Often timelines are much faster.

SEPA Instant Credit Transfer

For regular SEPA Instant Credit Transfer the Beneficiary receives the funds in his account 10 seconds after the Originator PSP created the instruction.

Complexer models

More complex models can include the use of “Payment Initiation Service Provider (PISP)”, Intermediary PSP, split of the CSM function in Clearing activities and Settlement performed by different actors.  Since the timelines are governed by EU legislation and EPC Rulebooks, the complexity of the process will not increase the mentioned timelines.

Credit Card Payment (online)

The model below describes a standard process for Credit Card payments in an online scenario. The process assumes that Capture of the payment happens immediatly after Authorization.

Process steps

  1. The Cardholder (Customer) enters his card details in the payment page presented by the Merchant.
  2. The Merchant sends the payment information to the Payment Gateway.
  3. The Payment Gateway encrypts and converts the payment instruction and sends it to the Payment Processor.
  4. The payment processor resolves the Card Network (Visa, MasterCard, JBC, etc.) and forward the payment instruction to the correct network.
  5. The Card Network resolves the Card Issuer and forward the payment instruction to the Issuer Processor / Issuing Bank.
  6. The Card Issuer validates the transaction including checking if the Cardholder has sufficient funds. If positive, the Customer Card balance is debited.
  7. The Issuer Processor informs the Card Network if the transaction is succesful or not
  8. The Card Network forwards the result to the Payment Processor.
  9. If the result is positive, the Payment Processor informs the Acquiring Bank to credit the Merchant Account.
  10. The Payment Processor informs the Payment Gateway
  11. The Payment Gateway informs the Merchant about the result.
  12. On a positive result, the Merchant informs the Cardholder and fulfils the order. On a negative result the Merchant acts according to their own business process.

The Four Corner Model (Generic)

The Four Corner Model is the basic model for understanding payment processing. The essence of payments processing is a Payer wanting to transfer funds from its account at his bank to the account of the Payee held at the same or another bank.

The basic process is that the Payer instructs his bank in some shape or form to take funds out his is bank account an put it in the account of the Payee. The Debtor Bank than transfers the funds to the Creditor bank after which the Creditor Bank credits the account of the Payee.

This model is the basic form used to explain payment processes, for different payment processes additional players can appear.

Terminology

The payment industry uses a lot of terms to identify the same object or sometimes uses the same terms but with a slightly different meaning. The terminology used can be specific for a certain domain.

For example, in Card processing the Payer is often referred to as “Cardholder” or “Consumer” where in ACH payments the Payer is often referred to as “Debtor”. Similar in Card Payments the Payee is mostly referred to as “Merchant” and the Creditor Bank as “Acquiring Bank”.