BUSINESS PAYMENT Procedure, Flow and Secure

OUTLINE
Corporate payment
B2B e-commerce
Payment systems for B2B
B2B International Payment
Issues in B2B payment
B2B payment in Vietnam
PAYMENT SYSTEM REVIEW Goals, Elements, Relationship,
Issues
 PAYMENT SYSTEMS: OVERVIEW
Transfers Value
Institutions
A payment system is any
Instruments
system used to settle
financial transactions People
through the transfer of
Rules
monetary value.
Procedures
Standards
Technologies A common payment system is the operational
network that links bank accounts and provides for
monetary exchange using bank deposits.
CURRENT ENVIRONMENT - SIX CORE PAYMENT SYSTEMS
COMPARISONS & ATTRIBUTES
Payment System Ownership How It Operates Risks

Checking Banks and Private Intra-bank batch clearing by image Recipient bears the fraud and NSF
Processors primarily and some paper risk
Credit Card Publicly and privately Real-time authorization and batch Recipient guaranteed good funds
owned networks clearing. from most transactions
Known as a “pull’ payment
Debit Card Publicly and privately Real-time authorization and batch Recipient guaranteed good funds
owned networks clearing. from most transactions
Known as a “pull’ payment
Cash No Ownership No transaction processing and no Recipient has minimal risk, risks can
settlement. include counterfeit currency, theft
The only anonymous system and it has and employee security
no rules
ACH Bank Ownership Electronic and batch processing. Recipient bears the fraud,
A “push” payment for the initiator and a NSF/settlement risk
“pull” payment for the receiver
Wire Transfer Fed Wire by FRB, Real Time clearing and settlement. Fully guaranteed payment, open to
CHIPS by its member A “push” payment potential fraud risk through sharing
of account information
COMPARISON OF PAYMENT METHODS
Payment Method Benefits Limitations

Paper checks and • Most familiar • Very expensive, $8-$14 per check
manual payments • Infrastructure in place • Manual processes
• Vendor controls timing • High risk of fraud
• Delays clearance • Float value now minimal
ACH • Inexpensive, less than .20/transaction • Initial set up with ACH processor
• Automated in ERP system • Bank account info required
• Reduce manual workload
• Improve control and oversight
• Designed for repetitive and high volume
transactions

Commercial Cards • Extended payment terms • Recipient absorbs processing costs

• Rebate of financial incentives • Requires initial set-up
• Robust remittance data • Requires IT investment
• Built in fraud and security • Communication/marketing
• Charge back rights to payee/supplier base

Wire Transfers • Global coverage • Expensive

• Occur in real time, reliable • Secure
• Immediate availability of funds • Limited ability to be reversed
• High transactions values • Not designed for high volume of payees
 CLEARING AND SETTLEMENT
Low value payments Large value payments Central Bank

National Clearing Centres Real Time Gross Settlement System RTGS

Electronic Settlement accounts

CB Interfaces
End of day Net systems Liquidity
Queuing mechanism
Cards Net balances
interfaces G/L
Exchange interface Monitoring
Securities

Balances Real Time Commercial Bank Interface

Electronic
transactions HQ commercial banks

Regional clearing Regional offices

paper

Local offices
Local clearing paper
Commercial banks

ATM, POS, PHONE, INTERNET, E-COMMERCE

Clients Clients Clients

SOURCE: WORLD BANK
MODERN PAYMENT SYSTEM
OBJECTIVE OF PAYMENT SYSTEMS
To allow the payee to obtain money, fiduciary or its equivalent
­ Usually in his bank account (convertible to fiduciary)
­ Cash is rare except for low-value face-to-face payments
­ How does the money get into the bank account?
Payment in real money is called settlement
Most payments are not settled individually
­ Example: bank checks, ATM withdrawals – too small for separate transfers of funds;
batched for efficiency
Batching to determine how much money must be paid is called clearance or
clearing
Payment systems must provide for both clearance and settlement
PAYMENT ISSUES
How does the payor know how much to pay?
(bill presentment, invoicing)
What mechanism will be used to “pay” (payment)?
When will payment be made (before, during, after)
How will the payments be added up? (clearance)?
How will the payee receive real money (settlement)?
How will the payee credit the payor (reconciliation)?
What records are available to the parties (audit)?
Security for all the above
­ authentication of parties
­ prevention of forgery

2004 MICHAEL I. SHAMOS

PAYMENT SYSTEMS BY TIMING
Prepaid Systems (Bank access before transaction)
­ Cash
­ Octopus, phone card
­ Bank stored-value cards (GeldKarte)
Instant-Paid Systems (Access during transaction)
­ Debit card
Post-Paid Systems (Access after transaction = credit)
­ Credit card, EZPass, Speedpass
­ Checks & electronic forms, eChecks
­ Commercial invoice
Huge differences in risk, authentication, cost

2004 MICHAEL I. SHAMOS

 50 Protocols for Secure El

SYSTEM ISSUES
Physical support (smart card, files, encrypted strings)
Value representation (denominations, numbers)
Location of value store (bank, electronic wallet)
Bank card or purse holder
Discharging power (who accepts it?) Merchant server

Internet or
Mode of use (remote, face-to-face) Mobile Network

Methods of payment (credit transfer, jeton exchange)

Genuineness (is it valid? stolen? double-spent?) Authorization server
Payment
gateway
Authentication (of user)
Traceability (anonymity, privacy)
Scalability, cost
Secure Financial Network
Issuer bank Acquirer bank

2004 MICHAEL I. SHAMOS

FIGURE 2.15
B2B E-COMMERCE REVIEW
B2B E-COMMERCE
Mô hình bên mua
Mô hình bên bán
B2B E-COMMERCE MARKET
 Payment in Transaction Process
NATIONAL ECONOMY / FINANCIAL MARKETS

CUSTOMER PAYMENT SERVICE SYSTEM

BANKING SYSTEM
INTERBANK SYSTEM
Buyer Seller
Payment Payment
Access Access
Point Point
Buyer Clearing House Bank Seller
Bank Central Bank

Agree on Instruct Initiate Clear/ Complete Notify of Complete

Trade Payment Payment Switch Settle Payment Payment Trade
INTEGRATING PAYMENTS WITH UPSTREAM PROCESSES
Buyer Seller

Purch
Purchasing Order Sales
Dept. PO Dept.
No.

Ship &
Invoice
Receiving Shipping
PO
Dept. No.Invoice & Invoicing
No. Dept.

AOP,
Payment
Accounts Invoice Accounts
Payable No. Payment Receivable
No.

SOURCE: COMMERCENET
TRIPLE A-MODEL
BUSINESS PAYMENT
CORPORATE PAYMENT LANSCAPE
B2B PAYMENT MARKET
B2B PAYMENT CHARACTERISTICS
High dollar value
Tied to paperwork
­ Requisitions, authorization, purchase order,
shipping documents

Financial controls, auditing

Connection with legacy ERP and
accounting systems
Cash management
International issues
­ Customs documents, foreign currency
B2B PAYMENT METHODS AHC, A2A,
B2B PAYMENTFundamental B2B Payment Problem
Payment
Buyer’s Seller’s
Bank Bank

• Trust, Authentication,
Reconciliation of Authorization Reconciliation of
payment/trade • Link Payments & Trade payment/trade

Messaging &
Trade Information

BUYER SELLER
• How is authentication performed?
• How is payment made?
INTERNATIONAL PAYMENT B2B Payments
Buyer Supplier
Order
• Procurement • Order Mgmt
• Receipt Status Order Confirmation • Fulfillment
• Reconciliation • Credit and
and Payment Collections
­ Letters of Credit for • Financing/
Advance Shipping Notice
• Financing/
Invoice
Global Payments Cash Mgmt Cash Mgmt

­ *Letter of credit (L/C)

Letter of Credit/ Payment Guarantee/
­ Digital River’s World Escrow/ Financial Insurance/
Payment Line of Credit/
Risk Management
Institution Trade Finance/
Risk Management
Cash Cash
Payment Receipt
Details
Logistics Providers
Proof of Delivery Packing List Details
• Order Mgmt
Shipping Invoice • Credit/ Collections Proof of Delivery Cash
• Financing/ Cash Mgmt Shipping Invoice Payment
Details
Payment Payment (Shipping
Cash Receipt Details
Authorization Authorization Charges)
Logistics (Shipping
Provider Charges)
Bank
Buyer Cash Account Cash Supplier
Bank Bank
Account Cash Account
FOREIGN EXCHANGE EXAMPLE
BANK T (US)
US BANKS (NOSTRO ACCOUNT)
BANK S (UK)
BANK S WILLING TO SELL
BANK B (US) USD ACCOUNT BANK C (UK) 1 MILLION GBP
WANTS TO BUY FOR USD
1 MILLION GBP (NOSTRO ACCOUNT) BANK B
FOR USD GBP ACCOUNT
UK BANKS

US FEDERAL THE BANK

RESERVE BANK OF ENGLAND
BANK B USD ACCOUNT BANK S GBP ACCOUNT
BANK T USD ACCOUNT BANK C GBP ACCOUNT

CENTRAL
SETTLEMENT ONE: BANKS SETTLEMENT TWO:
BANK B PAYS 1.78 BANK S TRANSFERS
MILLION USD TO BANK T 1 MILLION GBP TO BANK C

SELLER S NOW HAS 1.78 BUYER B NOW HAS 1

MILLION USD IN BANK T MILLION GBP IN BANK C
© 2004 MICHAEL I. SHAMOS
BILL OF LADING PURPOSE: LINK PAYMENT TO SHIPMENT

(B/L) TRANSACTION 1. BUYER SENDS SIGHT DRAFT TO SELLER

(ORDER TO BANK TO PAY ON SIGHT WHEN
ALSO PRESENTED WITH B/L
BUYER SELLER
2. SELLER DELIVERS
8. BUYER PRESENTS GOODS TO CARRIER;
B/L, CLAIMS GOODS CARRIER GIVES B/L
4. SAILING 6. SELLER’S BANK
7. BUYER’S BANK LANDING CARRIER CREDITS SELLER’S
DEBITS BUYER’S DOCK ACCOUNT, NOTIFIES
ACCOUNT, GIVES SELLER
B/L TO BUYER

3. SELLER SENDS B/L WITH

DRAFT TO BUYER’S BANK

BUYER’S SELLER’S
BANK BANK
5. BUYER’S BANK PAYS
DRAFT TO SELLER’S BANK

CARRIER IS AN ESCROW AGENT. IF B/L IS NOT PRESENTED, GOODS WILL NOT BE DELIVERED.
IF SELLER NEVER SHIPS GOODS, THERE WILL BE NO B/L AND BUYER’S BANK WILL NOT PAY
INTERNATIONAL ELECTRONIC PAYMENTS
B2B Payment Practices in the Financial Supply Chain
Enterprise Invoice Presentment and Payment
­ *Electronic Invoice Presentment and Payment (EIPP)
­ The EIPP Models
­ Seller Direct
­ Buyer Direct
­ Consolidator
­ EIPP Options
­ ACH Network
­ *Purchasing cards (p-cards)
­ Fedwire or Wire Transfer
EIPP
• Statements or bills rendered on
Web (1)
• Multiple bills consolidated
at one site (2)
• Customers visit the site
to view bills (3)
• Customers review bills,
schedule payments (4)
• Remittance information
returned to biller (5)
• Payments routed from
customer's bank to
biller’s account (6)
SOURCE: VALERIE KRAMER, PNCBANK
EIPP PARTICIPANTS
PERSONAL FINANCE SYSTEM,
DATA PARSING
AGGREGATOR,
BILL FORMATTING
BANK
BILLER HOSTING

DATA FLOW ®

BILL
INFO

PAYMENT
ORDERS

¬ MONEY FLOW

PAYMENT AND REMITTANCE

PROCESSING SOURCE: EBILLING.ORG
INVOICE GENERATION

Convert
XSL
Stylesheets MIME
•HTML S/MIME SMTP
Legacy •OFX
XML •Excel

Render Secure Submit

Modern
Tracking
Demographic X.509 Delivery Info

User Info Certificates Info

Input

Account Management
SOURCE: STEVE KILLE
INVOICE DELIVERY ARCHITECTURE Delivered
Statement

Statement Distribution STATEMENT

Raw Generation & Tracking

Secure 000.00
Statements Email 000.00
=====
Archive 000.00
Administration

URLs
Account Management
(web links)

Action/Payment
Manager
Actions SOURCE: STEVE KILLE
 CREDIT CARD TRANSACTION
1. BUYER TENDERS CREDIT CARD INFO TO SELLER

BUYER SELLER
6. SELLER SHIPS GOODS TO BUYER
2. SELLER TRANSMITS
10. BUYER’S BANK PAYMENT DATA TO
8. SELLER’S BANK SELLER’S BANK
11. BUYER PAYS SENDS BILL TO
BUYER CREDITS SELLER’S
BUYER’S BANK ACCOUNT 5. SELLER’S BANK
USING SOME NOTIFIES SELLER
OTHER METHOD
OF PAYMENT 7. END OF DAY,
3. SELLER’S BANK
SELLER UPLOADS
ASKS BUYER’S BANK COMPLETED
FOR AUTHORIZATION
BUYER’S SELLER’S TRANSACTIONS
TO BANK
BANK BANK
4. BUYER’S BANK
AUTHORIZES/REJECTS

9. BUYER’S BANK PAYS

SELLER’S BANK
CLEARANCES: SETTLEMENTS:
2. HOW MUCH SHOULD SELLER GET? HOW? 7. SELLER GETS PAID
-- HOW MUCH SHOULD EACH BANK GET/PAY? HOW MUCH? 9. SELLER’S BANK GETS PAID
10. HOW MUCH SHOULD BUYER’S BILL BE? 11. BUYER’S BANK GETS PAID
© 2004 MICHAEL I. SHAMOS
CORPORATE PAYMENT
Global A2A payment
CORPORATE PAYMENT KPI
A2A PAYMENT: BENEFITS & ISSUES
B2B PAYMENT TRENDS
Trend 1: Instant payments will
become the norm
Trend 2: All cross-border payments
will be fast and trackable
Trend 3: A common messaging
platform and an information-rich
experience
B2B PAYMENT ISSUES Cost, Time, Risk
B2B PAYMENT
ISSUES (1)
 B2B PAYMENT
e detail, Strategic Treasurer’s

ISSUES (2)
Survey took a closer look at the
and the actions that companies
es.

BEC) fraud.
ed attacks in the last 12 months.
ch attacks was relatively low, with

s leading to a loss.
eft of sensitive data via phishing

n attack – and while only 7% of