Since the invention of currency in the early 7th BC, its transfer has always been a problem. However, in today’s world, nothing is left untouched by technology, making a transfer of money, no exception. Electronic payments, or commonly known as e-payments, are currently the most widely used money transfer systems in the world.

When it comes to originating the payment orders, most of the corporations tend to employ wholesale payment systems for better convenience. It is done either for their good or the benefit of a third party. Such systems are essential parts of the funds’ transfer activities. Where the typical transfer systems make use of actual debit and credit entry, payment message systems are somewhat different.

To move money, they convey administrative messages or relevant instructions. The actual transfer of funds takes place by the initiation of real entries that debit the account of the originating customer and credit that of the beneficiary.

In case the beneficiary or his / her institution’s account is with that of the originating customer’s. It is the institution that typically internally handles the transaction with the help of a book transfer. And if the beneficiary’s or his / her related accounts are outside that of the originator, then the respective parties will look after the transactions through payment systems.

Such types of transfer done through telecommunication are known to us as a financial messaging system and are rightly famed with ISO 20022 Migration for their instant money transfer services.

1. The Physical & Logical Controls

Payment messaging systems are known for swift fund transfer from one corner of the world to another. However, the process is not that immediate, but the issuing institution has immediate liability. Such a liability owed by the disbursing party. Hence, the logical and physical controls of the financial messaging system must include;

  • Limited access to the staff members who are assigned the responsibility for the payment messaging system’s management.
  • An algorithmic access to process the restriction upon inquiry basis
  • The allocation of legal access to the encrypted payments data and application corresponding to different functionalities and requirements.
  • Authentication and identification control that helps in authenticating access to payment systems.

Moving Funds

Transferring money from bank to bank. For instance, say two customers from one bank reside in two different countries and want to transfer funds. The customer from country ‘A’ asks his bank to send the money to the customer in the country ‘B.’ The bank’s branch in the country ‘A’ will contact its counterpart in the country ‘B.’ Now, it will wire funds and make the bank entries necessary in its system. Voila, the money has been transferred, all thanks to the payment messaging system.

However, the process is often not as simple as it seems. The involvement of more than one financial institutes adds to its complication. For instance, in case of unavailability of the branch in one country, it might loop other institutions – known as correspondent banks –to get the transactions done. But if you get lucky and both the banks maintain accounts at a third bank, they may bring in the third institution to accelerate things. First, the message is identified, and then a secured message is sent over through the payment messaging system between the banks, and a book transfer is done.

2. Pros and Cons

The corporate world has experienced firsthand problems arising from delayed payments, prompting them to do something to expedite things to some extent. Such instances have made the payment messaging system a god-sent and its idea extremely alluring. The need for instant payment has contributed to the growth of the payment messaging system, as today, we have more than just a few of such systems working throughout the world.

Nevertheless, the technology always comes with pros and cons. Here are some key benefits and disadvantages of instant/real-time payment systems.

3. KEY BENEFITS

No corporation would want to get the funds transferred at snail’s pace, which is precisely and how it happens with the conventional transfer systems. Getting paid faster is the ultimate wish of any corporate treasury executive, and the immediate settlement eliminates the days-taking process. This is particularly beneficial to customer-to-business, aka C2B payments, where the organization processes its payments without any delay and as per the plan with very few exceptions.

For business-to-consumer, aka B2C payments, many services such as Same Day ACH or Zelle provide both the business and the consumer with a taste of speed, and the real-time payments only make it better.

Refunds are another famous business-to-consumer case. Many systems providing their clients with disbursement management platform test their corporate clients for the ability to provide their customers with rebates immediately. By merely putting in the required information, the money can be transferred from one account to another instantly instead of ‘a few days.’

For the business to business payments, speed may be less of an incentive, since most corporations wish to pay their vendors a little later instead of paying them right away. But, if a retailer is seeking vendor shipment instantly to restock the shelves, real-time payment will do the job in a cost-efficient manner.

The most significant advantage of real-time payment systems is it is efficient and standardized messaging and the payment, which is above the wires, checks, and ACH payments. Another function the RfP (request-for-payment) allows members to send alerts to their customers for the due payments.

4. KEY CHALLENGES

In spite of the countless benefits of real-time payment systems, it comes with quite a few challenges. Some issues arising from the payment messaging systems might even scar the organization.

In the ACH payment case, even the instant ones, organizations transfer information through files to the banks, after which the payments get processed and settled at regular intervals by the system. However, real-time payment focuses on resolving each transaction independently and instantly. For most companies, this system necessitates some significant technological and operational changes. Therefore, banks are formulating remedies to bridge the issue and help corporate customers by making them able to use appropriate channels.

RTP feature tackles each payment smartly by ensuring to settle them timely and individually.
For most companies, this requires significant changes to their technology, operations, and even business structures.

Due to this, we now see banks aspiring to build better solutions to reduce disparity and empower corporate customers by enabling them to use more viable payment options.

5. Conclusion

Technology has been facilitating us for quite some time now, and it has crept its way into the banking systems as well. However, it is advisable for the corporate consumers of payment messaging systems to stick with one unless they can handle it better, for if things go out of hand, it can rupture the image of your organization.