Journey of payment topic 7

In: Topic7

The Journey of a Payment

An overview of the key parties, costs, and processes involved in moving money from one point to another.

groupsThe Main Parties in a Payment

Getting a payment to its destination involves several key people and entities. Each plays a distinct role in the payment's lifecycle.

Remitting Payment Service Provider (PSP): The remitter's bank or payment provider that starts the process.
Beneficiary Payment Service Provider (PSP): The beneficiary's bank that receives the funds on their behalf.
Correspondent Bank/Agent: Another provider used when making international payments or for specific domestic clearings, as most banks don't have direct access to every clearing system worldwide.
Clearing System: The network that processes the payment between the banks. Examples include CHAPS and Bacs in the UK, or CHIPS and Fedwire in the USA.

Before a payment is sent, the remitter's provider performs several crucial checks:

Credit Checks: Ensuring there are enough funds in the account.
Formatting Checks: Verifying the payment information is in the correct format for the clearing system.
AML & Sanctions Checks: Screening for potential money laundering or terrorist financing red flags.

PSPs are compensated for processing payments, and the costs can vary. The way fees are handled often depends on the type of payment.

Direct Fees: Charging for specific services, like urgent, high-value, or international payments. Low-value domestic payments might have minimal or no fees.
Flat Monthly Charges: A set fee for a certain number of transactions.
Compensating Balances: Offering fee-free services if a client maintains a certain non-interest-earning balance in their account.
Float: Earning interest by holding a client's funds for a period before making the payment. This practice is less common now, especially with the rise of instant