This article is targeted at those who need to deal with bank accounts in different countries while processing transactions. It explains certain aspects associated with the process in different parts of the world.
Every US based business, dealing with bank accounts internationally, should pay attention at these things and the particularity of the process in each country of operation.
Globally, there are two types of systems, which are most popular today. Systems of the first type, allow for one-phase processing of fund transfers between accounts, while systems of the second type allow for two-phase processing.
One-phase processing of bank account transfers
One-phase processing is used in such countries as the USA and Canada. In these countries inter-bank fund transfers are conducted through a nation-wide clearing house. In the US, for instance, the clearing house is the Federal Reserve. A merchant has to send a file with the list of transactions to be funded (withdrawals) to the clearing house; within one or two days it gets the requested funds from the clearing house. After that the clearing house sends transaction requests to respective banks to verify the availability of funds and complete these transactions. Usually, member banks will then have certain time period (up to sixty days in the US) to either confirm transaction or decline it. If a bank declines a transaction for whatever reason, then the return is sent to the merchant, who originated the transaction, and the funds are forcibly withdrawn from the merchant’s bank account (check our article on ACH returns for details).
Two-phase processing of bank account transfers
Two-phase processing is used in the UK (BACS), EU (SEPA), and Australia. Under this approach clearing houses are also used. However (in contrast to one-phase systems), in such systems as BACS and SEPA all bank accounts must be registered within the system before any financial transactions can be processed through them. A registration file with the list of accounts is sent by a merchant to the respective financial authority (body), which issues payment mandates to merchants. (At the stage of bank account registration invalid bank accounts can be identified). Within a certain period after the registration (generally, about two weeks after the mandates are obtained) the merchant can start processing actual transactions. After that the process, generally, follows the same patterns as during one-phase processing. The clearing house contacts member banks to clear the funds. However, most of two-phase systems, usually, provide most of the responses within three days and do not require the 60-day wait period (as the accounts are already registered in the system). However, some banks may delay payments, while some other banks may dispute them post factum.
The advantage of the first system is its simplicity, while the advantage of the second system (although more complex) is its reliability. I.e. in the second case merchants have better chances of getting their money from valid bank accounts of their customers, however, implementation of a two-phase system requires more efforts.
If you are a payment gateway provider, processing worldwide, and you want to process in the countries, using different banking systems, you need to pay attention at the architecture of the whole process. Your main objective in this context is to make your payment gateway capable of working with both one-phase and two-phase systems, while providing your customers with a unified integration API.
Visit the UniPayGateway website if you are interested in the diagram illustrating this topic.