FAQs in Payments - Part 1

1.?????Do MT 103 Announcement used in Cover method always use Tag 53 and Tag 54 and MT 103 Serial always use Tag 53 and Tag 56 to represent sender correspondent and receiver correspondent? Or Can any of the pair of tags be used in either message to represent the correspondents?

Solution: We cannot use any pair of tags in either message.

MT 103 Announcement used in Cover method always uses Tag 53 and Tag 54. When we use Tags 53 and 54, it means we are settling through correspondents.

MT 103 Serial always uses Tag 56 and Tag 57. If we do not want to settle through correspondents, the only option is to use Tags 56 and 57.

2.?????Can the originator bank send a serial to its correspondent, which then sends MT103 and MT202 COV to the subsequent parties? I.e., Can the senders correspondent convert a serial MT103 inward to a cover outward when forwarding to its correspondent and the beneficiary bank? Or should the message chain maintain serial method till the end?

Solution: Yes, we need not maintain a Serial method chain till the very end. A sender may not be able to find the whole chain up to the beneficiary. He will forward the MT103 to his correspondent who will take care of finding how to settle the payment. The correspondent can then use a serial or a cover method for the settlement.

3.?????Do we have any field identifiers in MT 103 message to differentiate between Serial and Cover messages?

?Solution: There are no specific Tags in the MT103 telling to differentiate between a serial or cover message. The receiver must analyse the message content to find out if it is a serial or a cover. In general, we have fields 53 and 54 in a cover message, while in a serial message fields 56 and 57 are used. But we may receive a serial message with field 53B. So, the content of the message must be analysed.

4.?????What are the benefits Cover method has over Serial method?

Solution:

·???????Overall cost reduction because Intermediaries tend to take charges on the serial MT 103. But banks don’t charge while exchanging MT 202COV messages (We don’t have Details of Charges field in MT 202)

• Accounts of privileged customers can be credited before the MT 202COV is received and that value-added service is very appreciated.
• There are benefits with regards to Nostro reconciliation for the receiving party, specifically the manual reconciliation. The cover payment is credited on the receiving bank’s Nostro account. And the receiving bank usually gets a MT910/MT950. A payment operator can easily investigate and follow the payment as we have the announcement and the cover for the same transaction. For a serial payment, the receiving bank gets just one MT103. It does not know anything until the MT103 arrives.
• Better liquidity forecast and management: When some banks receive the announcement, they credit the liquidity forecast account. They cannot do that for a MT103 serial since they do not know that the payment is on the way.

5.?????What is the difference between RMA and Accounting Relationships between banks while exchanging payment messages?

Solution: To exchange any MT messages (except for MT 3 series and MT 9 series), banks need to have an RMA relationship irrespective of whether or not the banks have an Accounting Relationship. RMA does not qualify for Accounting Relationship. RMA is the service where the receiving bank specifies which message types the sending bank is allowed to send. Therefore, banks must have an RMA while exchanging both Serial and Cover payment messages.

Case 1: If the Ordering Institution has neither an RMA nor Account Relationship with Beneficiary Bank, there’s no choice and Serial Method must be used.

Case 2: If the Ordering Institution has both an RMA and Account Relationship with Beneficiary Bank, Serial method will used as they can transact directly.

Case 3: If the Ordering Institution has an RMA but no Account Relationship with Beneficiary Bank, Both Serial and Cover methods can be used. But Cover method is preferred due to the cost and other benefits it has.

6.?????Which field in the pacs.009 (header or document) confirms that the underlying pacs.009 is a pacs.009 COV message. How to differentiate between a pacs.009 Core and a pacs.009 COV?

Solution: For a pacs.009 COV, Settlement Method must take the value COVE.

7.?????Which tag in the MT 202 is used to differentiate between an MT 202 and an MT 202COV?

?Solution: Tag 21 in MT 202 is either empty or takes the value “Nonref”.

Tag 21 in MT 202 COV takes the value of Tag 20 of the underlying 103 payment. 202 COV also has Underlying payment details.

8.?????What are MT 104 and MT 204 messages used for?

Solution: MT104 is used for Direct Debit transactions involving customers whereas MT204 is used for Direct Debit transactions between financial institutions. These messages are initiated by the creditor provided he has an authorization from the debit party to debit his account.

9.?????Is it solely geography that determines if a cover message is used instead of a serial message?

Solution: The answer is no. The cover method is also called European method because it is the prevailing settlement method in Europe. A serial method is called American method because it is the prevailing settlement method in the USA. But they are many other parameters.

• A bank can decide to settle payments with a correspondent only via the serial method if it wants to. In this case, it will never send a cover payment to that correspondent.
• A correspondent may not accept the cover method too. Senders must then send only serial payments.

10.?Can MT2XX messages be sent between two banks in the same country? Is it mandatory, as they could also settle the same through the local clearing?

Solution: Going through a local clearing is the most common and cheapest way to settle the funds. But Banks can use SWIFT messages, if a destination bank, which is an Indirect participant in the Local Clearing, may not be reached through a local clearing.

Examples: RTGS systems usually process MT2XX from one bank to another located in the same country. In Europe, we have the clearing system EBA/EURO1 which process MT2XX too. And two German/French/Italian banks can exchange MT2XX through EURO1.

Reference: https://www.paiementor.com/