Payments Training Hub
Hudson Trading payment 1 Hudson Trading payment NOW 2 JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original The payment starts with a corporate debtor in New York, a textile importer called Hudson Trading, which owes USD 100,000 to a supplier in Germany called Rhein Textil GmbH. Step 1 of 5 Hudson Trading payment 1 NOW Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original The payment starts with a corporate debtor in New York, a textile importer called Hudson Trading, which owes USD 100,000 to a supplier in Germany called Rhein Textil GmbH. Step 1 of 5
JPMorgan Chase routes payment onward 1 Hudson Trading payment 2 JPMorgan Chase NOW 3 Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original JPMorgan Chase does not hold a direct relationship that lets it settle straight into Deutsche Bank Step 2 of 5 JPMorgan Chase routes payment onward 1 Hudson Trading payment 2 NOW JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original JPMorgan Chase does not hold a direct relationship that lets it settle straight into Deutsche Bank Step 2 of 5
Deutsche Bank validation fails payment 1 Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation NOW 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original Deutsche Bank receives the pacs.008 and runs its own validation, and this is where the payment fails. Step 3 of 5 Deutsche Bank validation fails payment 1 Hudson Trading payment 2 JPMorgan Chase 3 NOW Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original Deutsche Bank receives the pacs.008 and runs its own validation, and this is where the payment fails. Step 3 of 5
Payment reaches final negative status 1 Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status NOW 5 JPMorgan matches pacs.002 to original Because the payment has reached a final negative status, Deutsche Bank must send a pacs.002 to inform the previous agent, which is Citibank in London. Step 4 of 5 Payment reaches final negative status 1 Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation 4 NOW Payment reaches final negative status 5 JPMorgan matches pacs.002 to original Because the payment has reached a final negative status, Deutsche Bank must send a pacs.002 to inform the previous agent, which is Citibank in London. Step 4 of 5
JPMorgan matches pacs.002 to original 1 Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status 5 JPMorgan matches pacs.002 to original NOW JPMorgan Chase receives the pacs.002, matches it to the original pacs.008, and starts the customer recovery work. Step 5 of 5 JPMorgan matches pacs.002 to original 1 Hudson Trading payment 2 JPMorgan Chase 3 Deutsche Bank validation 4 Payment reaches final negative status 5 NOW JPMorgan matches pacs.002 to original JPMorgan Chase receives the pacs.002, matches it to the original pacs.008, and starts the customer recovery work. Step 5 of 5

Steps of this lesson, in order.

0:00 / 4:40 Step 1 of 5

Worked Example: A Rejected USD 100,000 Payment Traced Bank by Bank

Reject and Return in CBPR+, Lesson 5 of 7, Narration 4:40, D11 Operations, exceptions and reconciliation

Settlementpacs.008Creditor

What you will learn

Your objective. By the end of this lesson, you will be able to explain worked example: a rejected USD 100,000 payment traced bank by bank. The payment starts with a corporate debtor in New York, a textile importer called Hudson Trading, which owes USD 100,000 to a supplier in Germany called Rhein Textil GmbH.

Why it matters. Because the payment has reached a final negative status, Deutsche Bank must send a pacs.002 to inform the previous agent, which is Citibank in London.

Chapter objective: Learner explains reject and return in CBPR+, describes when pacs.002 is mandatory for a final negative status, and shows how pacs.004 works as a separate settlement instruction. Learner uses real amounts, banks and message names to show how reject and return work in practice.

Key learning points

  • Hudson Trading payment
  • JPMorgan Chase routes payment onward
  • Deutsche Bank validation fails payment
  • Payment reaches final negative status
  • JPMorgan matches pacs.002 to original

Key terms

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

pacs.008: An ISO 20022 message for a financial institution to financial institution customer credit transfer. It replaces MT103 in cross border payments and carries structured debtor, creditor, charges and...

Creditor: The party that is owed money and receives a payment, such as a supplier, a seller or a service provider.

Exception investigation workflow showing Worked Example: A Rejected USD 100,000 Payment Traced Bank by Bank.

Practise this lesson

Exercise

Handle the exception described in this lesson the way the lesson prescribes.

Use the exception type, the reason code and the recovery path in this lesson.

  1. What to do. State what happened, what the correct action is, what must not be done, and what the post-incident review should capture.

Correct result. The correct action is the one the lesson prescribes for this exception type, with the right reason code and the right message. The payment must not be resent without checking whether it already settled, because that creates a duplicate.

Why. An exception handled wrongly is worse than the exception itself. A duplicate payment is a loss, and an unlearned exception will happen again.

Check your understanding

Practice question

Which of the following best describes worked example: a rejected USD 100,000 payment traced bank by bank?

Takeaway and next step

What to remember

The rejected payment is now closed in every system, no nostro account was debited, and the only record of the failure is the pacs.002 chain and the audit trail it created.

Reconcile the payment in this lesson against its statement and find the break.

Open the Accounting and Reconciliation Lab →

Builds on "Nostro and Vostro Relationships and the INDA/INGA Settlement Method in Reject and Return Flows".

Transcript and full text

Show transcript

The payment starts with a corporate debtor in New York, a textile importer called Hudson Trading, which owes USD 100,000 to a supplier in Germany called Rhein Textil GmbH. Hudson Trading instructs its bank, JPMorgan Chase in New York, to pay Rhein Textil, and JPMorgan Chase debits the Hudson Trading account for USD 100,000 plus a USD 25 fee. JPMorgan Chase creates a pacs.008 for USD 100,000, with the creditor agent named as Deutsche Bank in Frankfurt, and sends it through the SWIFT network. At this point the payment is in flight, the debtor has been debited, and no beneficiary account has been credited yet. JPMorgan Chase does not hold a direct relationship that lets it settle straight into Deutsche Bank, so it routes the payment through an intermediary, Citibank in London, which holds accounts for both banks. Citibank receives the pacs.008, validates the message format, checks the sender authentication, and forwards the instruction to Deutsche Bank in Frankfurt. Citibank does not credit any customer account, because it is only a pass through agent in this chain, and it does not debit its nostro account yet, because settlement will happen when Deutsche Bank accepts the payment. The payment is now two steps into a three bank chain, and it still has not reached the beneficiary. Deutsche Bank receives the pacs.008 and runs its own validation, and this is where the payment fails. The creditor account number in the message belongs to an account that Rhein Textil closed three months earlier, after moving its operating account to Commerzbank. Deutsche Bank cannot credit a closed account, and it cannot guess the new account number, so it must reject the payment. The timing matters here. Because the creditor account has not been credited, the correct action is a reject, not a return. Deutsche Bank does not post any customer credit, and it does not move any nostro funds. Because the payment has reached a final negative status, Deutsche Bank must send a pacs.002 to inform the previous agent, which is Citibank in London. The pacs.002 carries the original references from the pacs.008, the status RJCT, and the reason code AC01 for an incorrect account number, with text explaining that the creditor account is closed. Citibank receives the pacs.002, matches it to the original instruction, and forwards the rejection onward to JPMorgan Chase in New York, so that the debtor agent learns the outcome. Each bank in the chain passes the status back along the same route the payment travelled forward. JPMorgan Chase receives the pacs.002, matches it to the original pacs.008, and starts the customer recovery work. It releases the USD 100,000 it had reserved for settlement, credits the Hudson Trading account for USD 100,000, and sends a message to Hudson Trading explaining that the payment was rejected because the beneficiary account is closed. Hudson Trading contacts Rhein Textil, obtains the correct Commerzbank account number, and instructs a fresh payment for USD 100,000. The rejected payment is now closed in every system, no nostro account was debited, and the only record of the failure is the pacs.002 chain and the audit trail it created.

The payment starts with a corporate debtor in New York, a textile importer called Hudson Trading, which owes USD 100,000 to a supplier in Germany called Rhein Textil GmbH. Hudson Trading instructs its bank, JPMorgan Chase in New York, to pay Rhein Textil, and JPMorgan Chase debits the Hudson Trading account for USD 100,000 plus a USD 25 fee. JPMorgan Chase creates a pacs.008 for USD 100,000, with the creditor agent named as Deutsche Bank in Frankfurt, and sends it through the SWIFT network. At this point the payment is in flight, the debtor has been debited, and no beneficiary account has been credited yet.

JPMorgan Chase does not hold a direct relationship that lets it settle straight into Deutsche Bank, so it routes the payment through an intermediary, Citibank in London, which holds accounts for both banks. Citibank receives the pacs.008, validates the message format, checks the sender authentication, and forwards the instruction to Deutsche Bank in Frankfurt. Citibank does not credit any customer account, because it is only a pass through agent in this chain, and it does not debit its nostro account yet, because settlement will happen when Deutsche Bank accepts the payment. The payment is now two steps into a three bank chain, and it still has not reached the beneficiary.

Deutsche Bank receives the pacs.008 and runs its own validation, and this is where the payment fails. The creditor account number in the message belongs to an account that Rhein Textil closed three months earlier, after moving its operating account to Commerzbank. Deutsche Bank cannot credit a closed account, and it cannot guess the new account number, so it must reject the payment. The timing matters here. Because the creditor account has not been credited, the correct action is a reject, not a return. Deutsche Bank does not post any customer credit, and it does not move any nostro funds.

Because the payment has reached a final negative status, Deutsche Bank must send a pacs.002 to inform the previous agent, which is Citibank in London. The pacs.002 carries the original references from the pacs.008, the status RJCT, and the reason code AC01 for an incorrect account number, with text explaining that the creditor account is closed. Citibank receives the pacs.002, matches it to the original instruction, and forwards the rejection onward to JPMorgan Chase in New York, so that the debtor agent learns the outcome. Each bank in the chain passes the status back along the same route the payment travelled forward.

JPMorgan Chase receives the pacs.002, matches it to the original pacs.008, and starts the customer recovery work. It releases the USD 100,000 it had reserved for settlement, credits the Hudson Trading account for USD 100,000, and sends a message to Hudson Trading explaining that the payment was rejected because the beneficiary account is closed. Hudson Trading contacts Rhein Textil, obtains the correct Commerzbank account number, and instructs a fresh payment for USD 100,000. The rejected payment is now closed in every system, no nostro account was debited, and the only record of the failure is the pacs.002 chain and the audit trail it created.

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