Wire transfer and card transaction business scenarios

For this scenario, consider that Sara Connor, who lives in New York, must pay GBP 121 to John Brown, who lives in Manchester, England. Sara is considered the debtor, and John is the creditor.

Sara requests her bank in New York (perhaps through a self-service channel) to send GBP 121 to John Brown. The debtor’s bank then initiates the transfers.

In order for the money to reach John at his bank, the debtor’s bank needs to have a correspondent bank relationship, because they don't have business dealings with the creditor’s bank and they don't deal in British pounds. So, the debtor’s bank in New York instructs an intermediary bank based in London to process the payment to the favor of the creditor’s bank in Manchester.

For the money to get to what is called the covering bank in London, the debtor’s bank has to send it to their intermediary. The intermediary bank then transfers it to the covering bank. Once the covering bank has the money, they match what they call the cover (the funds) with the instruction from the debtor’s bank in New York to then pay John Brown the money.

But imagine that two weeks after the payment was debited and sent from Sara’s account, John contacts Sara to say that he never received the payment that Sara sent.

Sara then contacts her bank in New York and asks them to trace her payment. This kind of investigation is known as a CCNR (Creditor claims non-receipt). The Debtors’ bank in New York checks and confirms they have made the payment to the correspondent bank in London. The correspondent bank then confirms that they received the funds, and they connect to the creditors’ bank in Manchester.

The creditor’s bank in Manchester confirms that everything was processed correctly, and requests that the correspondent bank and the remitters’ bank re-examine the transfer. After several investigations, they discover that the beneficiary’s bank only credited John GBP 101, as they took a GBP 20 fee on the transfer, and because John was expecting GBP 121, he didn’t think to look for a lower amount, less bank charges.

This is a very common scenario, but also looking at the complexity of the institutions involved, it is easy to see how exceptions and disputes can occur in multiple steps of the process. For example, if the debtor’s bank in New York sends the money to the intermediary bank in New York but sends it in the debit currency from the start of the process (without converting it on submission), and if the correspondent bank in London makes a mistake in the reference number between the instruction and the money, that causes a mismatch and would result in an exception, because the banks involved would not be able to match the instructions and the payments.

Pega Smart Investigate™ is Pega’s industry leading solution for handling these kinds of complex payment investigations and is able to support bank-to-bank communications in such matters using the Swift network.

In this scenario, Sara Connor purchases a pair of glasses from an online retailer using her credit card. Sara is the cardholder, and the online retailer is the merchant. When Sara makes the purchase, the merchant requests authorization through their payment processor, which then contacts the card network (for example, Visa or MasterCard). The card network then contacts Sara's issuing bank to authorize the payment. Once the payment is authorized, the transaction is completed, and Sara receives a confirmation of her purchase.

However, when Sara receives the glasses, she finds that they are broken. She contacts the merchant to request a refund. The merchant refuses to issue a refund, stating that the damage must have occurred after delivery. Sara, dissatisfied with this response, contacts her issuing bank to dispute the transaction.

Sara's issuing bank initiates a dispute process. For low-value transactions, the issuing bank might write off the amount and credit Sara's account. However, because this case involves a higher value item, the issuing bank escalates the dispute through the card network's dispute resolution process, known as the chargeback process.

The card network contacts the merchant’s acquiring bank, which then informs the merchant of the dispute. The merchant has the option to either accept the chargeback and refund Sara or to contest the chargeback by providing evidence that the glasses were not damaged when shipped.

If the merchant contests the chargeback, the acquiring bank forwards the evidence to the card network, which then reviews the case. The card network arbitrates between the issuing bank and the acquiring bank to determine the outcome. If the card network rules in favor of Sara, the chargeback is upheld, and Sara is refunded. If the card network rules in favor of the merchant, the chargeback is reversed, and Sara is provided with an explanation for the decision.

Throughout this process, various exceptions and disputes can arise, such as authorization errors, processing errors, or fraud. For example, if Sara's card was charged twice for the same transaction, this would be a processing error that could also be disputed. Additionally, if Sara's card information was used fraudulently, she could dispute those charges as well.

This scenario highlights the complexity of the transaction lifecycle and the various steps involved in resolving disputes between cardholders, merchants, issuing banks, acquiring banks, and card networks.

Pega Smart Dispute is Pega’s solution for handling these matters and is compliant with orchestrating and managing the chargeback process for all major card schemes for issuing and acquiring banks.