OUR, SHA and BEN: who pays the charges

Every cross border payment passes through several banks, and every bank that handles it charges a fee. The question of who pays those fees is decided by the charge arrangement, which is one of three codes, OUR, SHA or BEN. OUR means the sender pays all the charges. The sender's bank charges the sender, and each bank in the chain is paid by the sender, so the beneficiary receives the full amount. The sender pays the charges of the sending bank, the beneficiary pays the charges of the receiving bank and any intermediary banks, so the beneficiary receives the amount less the charges deducted along the way. BEN means the beneficiary pays all the charges. Every bank deducts its charge from the amount, and the beneficiary receives what is left after all deductions. The charge code is carried in the payment message itself, in field 71A of the MT103 and in the ChrgsInf element of the pacs.008, so every bank in the chain can see it and knows whether it may deduct its charge. A bank that deducts a charge on an OUR payment is breaking the arrangement, and the sending bank can claim the deduction back. A bank that fails to deduct its charge on a SHA payment is giving away its revenue. The analyst must ensure that the system sets field 71A correctly, that it is carried through every hop in the chain, and that it is not lost when the message is converted from MT to ISO 20022 or back. A payment of USD 10,000 is sent from a company in India to a supplier in Germany. The sending bank charges USD 25, the correspondent bank charges USD 25, and the beneficiary bank charges USD 15. If the charge arrangement is OUR, the sender pays USD 10,000 plus USD 25 plus USD 25 plus USD 15, a total of USD 10,065, and the beneficiary receives exactly USD 10,000. If the arrangement is SHA, the sender pays USD 10,000 plus the sending bank's USD 25, a total of USD 10,025, and the beneficiary receives USD 10,000 less the correspondent charge of USD 25 and less the beneficiary bank charge of USD 15, which is USD 9,960. If the arrangement is BEN, the sender pays exactly USD 10,000, and the beneficiary receives USD 10,000 less USD 25 less USD 25 less USD 15, which is USD 9,935. The choice of charge arrangement is a commercial decision, and it is usually made by the sender in agreement with the beneficiary. A buyer who has agreed to pay a supplier USD 10,000 in full will choose OUR, because the supplier must receive exactly USD 10,000 and any deduction would be a breach of the contract. A company that pays a large number of small amounts to overseas beneficiaries may choose SHA, because it is the standard and the cheapest arrangement for the sender, and the beneficiary accepts that a small charge will be deducted. A beneficiary who has agreed to bear the costs, for example in a transaction where the beneficiary is selling a service and has priced the charges into the fee, may accept BEN. The practical difficulty with OUR is that the sending bank does not know in advance how much each intermediary bank will charge, so it cannot always guarantee that the beneficiary will receive the full amount. In practice, banks that offer OUR will charge the sender a higher fee upfront, and will use arrangements with their correspondents to ensure that the full amount is delivered, or will refund the difference if a deduction happens. Some corridors have a guaranteed OUR service, where the sending bank guarantees the full amount and absorbs any unexpected deduction. The analyst must know whether the bank offers a guaranteed OUR or a best efforts OUR, and must explain the difference to the customer. Regulators have taken an interest in charges because customers were not told what they would pay. In the European Union, the Payment Services Directive requires the bank to disclose the full cost before the customer confirms, including the exchange rate, the spread, and the charges. In the United Kingdom, the Payment Systems Regulator has set rules on the transparency of cross border payment costs. In India, the Reserve Bank requires banks to disclose the charges and the exchange rate upfront. The analyst must build these disclosures into the payment journey, must test that the amounts shown are accurate, and must ensure that the charge code shown to the customer is the charge code sent in the message. There is one more charge that catches analysts out: the charge for a return or a recall. If a payment is returned, the banks in the chain may deduct their charges from the returned amount, so the sender receives back less than was sent. If a payment is recalled, the sending bank may charge a fee for processing the recall, and the receiving bank may charge a fee too. The analyst must include the return and recall charges in the customer communication, because a customer who sent USD 10,000 and receives back USD 9,900 needs to know why USD 100 is missing, and the answer must be in the notification, not discovered when the customer checks their balance. The analyst's test pack for charges should include all three arrangements on the same corridor, with the same amount, and should verify the amount the beneficiary receives in each case. The test should also include a payment where an intermediary bank deducts a charge on an OUR payment, to verify that the system detects the deduction and raises an exception. And the test should include a payment where the charge code is missing from the message, to verify that the system defaults to SHA, which is the SWIFT default when field 71A is absent, and that the customer is told. Charges are not a minor detail. They are the most common source of customer complaints in cross border payments, and the analyst who gets them right prevents more complaints than any other single fix.