Bank Request for Payment

When a bank sends a Request for Payment (RfP) on behalf of a payee (client) to the payer's bank for recognition and funding via FedNow and Real-Time Payments (RTP) systems, the workflow involves specific steps to ensure a smooth and secure transfer of funds. Here’s a breakdown of the process, emphasizing how the RfP is sent from the payee's bank to the payer’s bank:

1. Client (Payee) Initiates the RfP:

• The payee (typically a business or individual) wants to request a payment from a payer (e.g., a customer).
• The payee’s bank (or service provider) gathers details such as:
  • Payee details: Account number, bank details, etc.
  • Payer details: Account number, name, etc.
  • Payment amount and currency.
  • Invoice or bill reference (if applicable).
  • Due date and payment terms.
• This information is compiled into an RfP file.

2. Payee's Bank Prepares the RfP:

• The payee’s bank will format the RfP according to the standards required by either FedNow or RTP.
• The RfP message format is typically structured according to the ISO 20022 standard, ensuring consistency across different banks and systems.

A simplified XML structure for the RfP message might look like this:

xml

<Document>

  <ReqForPaymt>

    <PayeeInfo>

      <Name>ABC Corp</Name>

      <AcctNumber>123456789</AcctNumber>

      <RoutingNumber>987654321</RoutingNumber>

    </PayeeInfo>

    <PayerInfo>

      <Name>John Doe</Name>

      <AcctNumber>987654321</AcctNumber>

      <RoutingNumber>123456789</RoutingNumber>

    </PayerInfo>

    <PaymentInfo>

      <Amount>500.00</Amount>

      <Currency>USD</Currency>

      <DueDate>2024-10-01</DueDate>

      <InvoiceRef>INV-12345</InvoiceRef>

    </PaymentInfo>

  </ReqForPaymt>

</Document>

3. Payee's Bank Sends the RfP to the Payer’s Bank:

• The payee’s bank sends the RfP to the payer’s bank via the FedNow or RTP network. The message includes all relevant payment information, including the amount requested and the due date.
• FedNow and RTP act as intermediaries, facilitating the transmission of the RfP between the payee’s and payer’s banks.
• FedNow API or RTP API are typically used to submit the RfP request. These APIs provide secure, real-time communication channels.
• For FedNow:
  • The bank might use a FedNow Service API to submit the RfP.
  • For RTP, the submission would go through The Clearing House’s RTP network.

4. Payer's Bank Receives and Recognizes the RfP:

• The payer’s bank receives the RfP and validates it:
  • Ensuring that the payer’s account is valid and has sufficient funds.
  • Verifying the details of the payment request (e.g., amount, payee, currency, etc.).
  • Validating the authentication and compliance checks for the RfP.
• Once validated, the payer's bank notifies the payer (their customer) about the payment request. This notification can come through various channels, such as email, a mobile app, or online banking.

5. Payer Approves the RfP:

• The payer (e.g., John Doe) receives a notification about the payment request from their bank.
• The payer can either:
  • Approve the request, allowing the funds to be transferred to the payee.
  • Reject the request (if there's a dispute or error).
• The payer may have options such as:
  • Approving the full amount or part of it (if allowed).
  • Setting up automatic payment rules (especially for recurring requests).

6. Payment Execution via FedNow or RTP:

• Once the payer approves the request, the payer’s bank initiates the real-time payment.
• The funds are transferred instantly from the payer’s account to the payee’s account.
• This process typically takes seconds, as both FedNow and RTP are real-time payment systems designed for immediate settlements.

FedNow ensures that funds are transferred between banks almost instantly, and RTP provides a similar real-time transfer system through The Clearing House.

7. Acknowledgment and Confirmation:

• After the payment is executed, both the payer’s bank and the payee’s bank receive real-time confirmation of the transfer.
• The payee’s bank credits the funds to the payee’s account.
• Both the payee and payer receive a confirmation of the transaction completion, typically through their bank's online platform or via notifications.

8. Tracking and Reporting:

• Both banks and customers can track the status of the RfP and payment in real time.
• For regulatory and compliance reasons, banks may also generate reports on RfP activity, which helps in maintaining records for future audits.

Workflow Example

1. ABC Corp (Payee) Requests Payment:
   • ABC Corp sends a payment request to John Doe (the payer) for $500 using the bank’s RfP service.
2. Payee’s Bank Sends the RfP:
   • ABC Corp’s bank creates the RfP message, formats it according to ISO 20022 standards, and sends it to John Doe’s bank through the FedNow or RTP network.
3. Payer’s Bank Notifies John Doe:
   • John Doe’s bank notifies him about the payment request.
4. John Doe Approves the Payment:
   • John Doe reviews and approves the payment request via his bank’s online system.
5. Real-Time Payment Execution:
   • The payer’s bank executes the payment immediately, transferring $500 to ABC Corp’s bank.
6. Acknowledgment and Confirmation:
   • Both banks receive confirmation that the payment was successful, and ABC Corp’s account is credited with the funds.

Key Technologies Involved:

• FedNow: A real-time payment service by the Federal Reserve for instant transfers between banks.
• RTP: A real-time payments network managed by The Clearing House, used for immediate interbank transfers.
• ISO 20022: The messaging standard for both FedNow and RTP, ensuring that payment requests are structured uniformly.
• APIs: Banks use APIs provided by FedNow and RTP to send and receive RfP messages and process payments.

Security and Compliance:

• The entire process is protected by strong encryption and authentication mechanisms to ensure that the payment requests and transactions are secure.
• Regulatory compliance (such as KYC, AML, and OFAC checks) is a critical part of both FedNow and RTP systems, ensuring all parties comply with legal standards.

This end-to-end workflow allows payees to request payments and receive funds quickly and securely, with real-time confirmation and settlement enabled by the FedNow or RTP system.