How to Trace a Payment Flow: The Eight Questions to Ask

Tracing a payment flow means tracing two journeys rather than one. The instruction travels in seconds through whoever decides on it. The money travels later, between banks, along a different path. Eight questions do it, and the first asks what the average payment is. A system whose average payment is small answers several of the other seven differently from one whose average is large.

Almost every payment flow anybody draws is a picture of the instruction. The boxes are the parties a message passes through, the arrows are the message, and every single arrow can be in the right place while the whole picture contains no money at all. The omission is not a small one. Money is the half people go looking for a drawing to answer, and the half the drawing usually does not have.

Somebody opening a diagram like this wants to know particular things. Where is the money now. Who is holding it. Who is asked. Who has already paid out and is waiting to be covered. Every one of those is a question about money, and a perfectly accurate map of a message answers not one of them. The eight questions below exist to force the second journey onto the sheet beside the first.

Each of the eight questions is answered in detail elsewhere, and what the eight add is the order in which to ask them. The eight are not anybody's method and they carry no name. Gathered up, they are simply the questions answered earlier in the subject, put in a sequence that works on an arrangement nobody has ever seen before.

What does tracing a payment flow actually trace?

Two journeys, and they are not alike in any respect worth naming. The first is the instruction. Somebody says move this money, that saying travels to whoever has to decide on it, a decision comes back, and a screen changes. The instruction is quick, it is documented, its messages have names, and it can be drawn from a specification without asking anybody anything.

The second is the money. The money moves later, and it moves between banks rather than between the parties on the first drawing. Money touches a different set of hands, takes a different length of time, and leaves almost no trace in the documents that describe the first journey. Nobody can read it off a specification. Only asking party by party produces it, and so few drawings have it.

The household version is worth holding onto. The whole of this guide runs on it. A cheque is handed to somebody. The cheque is the instruction: it is written, it is handed over, it is in their pocket within a minute, and everybody involved can see it. The money is not in their pocket. The money moves days later between two banks that never met the payer, and a cheque safely in a pocket says nothing whatever about where the money is.

Draw two lines, not one, and refuse to call the sheet finished while the second line is empty. That single instruction is most of what this guide teaches. Everything after it is a way of filling the second line in.

Why is the average payment the first question rather than a detail?

Because it is the one number that makes the other answers predictable before they have been asked for. The average payment is the value carried divided by the number of payments. The average is a property of the arrangement rather than a portrait of any single payment on it, and asking for it takes one sentence.

Work it on the invented system this subject has used throughout. Setu Payments Limited, an invented payment system, reports 1,200 crore instructions in the stated year and Rs 3,60,000 crore of value riding on them. Put the value over the count: Rs 3,60,000 crore across 1,200 crore instructions comes to Rs 300.00/- an instruction. Run it the other way, 1,200 crore multiplied by Rs 300.00/-, and Rs 3,60,000 crore comes back, so the pair is holding rather than merely looking reasonable.

Now watch what falls out of that one figure before a second question has been asked. Anything that costs a fixed amount for each instruction is heavy on an instruction carrying Rs 300.00/-, so the arrangement has to make everything done once for each payment nearly free. Nobody can look at a single instruction at that count, so whatever checking happens has to happen once, at the business, rather than payment by payment. Settling each instruction on its own is impossible at that count, so the arrangement is pushed towards gathering them and settling the difference. And somebody has to stand in for a great many businesses too small to be membersA party that settles directly inside a payment arrangement rather than reaching it through somebody else. The conditions a party has to satisfy are set by the authority named in the table below. of the arrangement themselves.

Each of those four readings was worked out elsewhere from this same number, and asking the average first rather than last is what puts all four within reach. One figure, asked for in one sentence, and four of the answers that would otherwise have to be chased are already on the sheet.

The teaching lands on the reversal, so turn the figure round. Freeze the Rs 3,60,000 crore exactly where it is and set an average of Rs 3,00,000/- against it instead. The average is 1,000 times larger and the value was not allowed to move, so the same value now sits on 1.2 crore instructions, 1,000 times fewer. Every one of the four readings reverses. A fixed amount for each instruction is weightless against Rs 3,00,000/-. A single instruction of that size can be looked at on its own. Settling each one separately becomes affordable. And the parties involved are large enough to be members in their own right.

Two arrangements can carry exactly the same value in a year and be completely different businesses, and the average payment is the one number that says which of the two an arrangement is. Nothing else about an arrangement separates the two so cleanly, and that is why the average is asked first.

Who gave the instruction, and who was being asked?

Question two, and it has exactly two answers. Either the payer instructed the bank holding their own money, or somebody on the receiving side asked the payer's bank to release money against a permission the payer gave earlier. Everything else is detail hanging off one of those two.

The everyday version is a wedding. In the first shape, the couple hand the caterer the money themselves. In the second, they tell their bank months ahead that this caterer may take an agreed amount when the date arrives, and the caterer then asks for it. Both end with the caterer paid. The two shapes are not remotely the same arrangement, and they do not fail the same way.

The answer to question two predicts three things that would otherwise have to be chased: whether a decision was made that somebody can be asked about later, whether anybody put money up before collecting it, and where a dispute starts. When the payer instructed their own bank, the decision sits with that bank and the dispute starts there. When somebody asked against an earlier permission, there is a party on the receiving side that presented the request, and there is usually somebody who released money before they had collected it. Asking on an earlier permission builds a different chain with different people in it, and a card networkA shared rule book that two banks with no agreement between them each undertake to follow, so a request raised by one can be answered by the other. The rule book and the banks that follow it are covered separately. is one of the parties that can sit inside that second shape rather than the first.

At each step, does the money pass through this party's books?

Question three is asked of every box on the drawing, one box at a time, and the answer is a yes or a no rather than a paragraph. Does the money pass through this party's books, or does this party only carry the instruction? Each box is marked with the answer before the next one is taken up.

The marks matter far more than the names do. A payment gatewayA party whose job is to carry a business's payment requests to whoever must decide on them. The gateway's work and where it stops are covered separately. and a payment aggregatorA party that collects payments on behalf of many businesses and passes each business its share. The aggregator and what it must do with money in its hands are covered separately. and a merchant acquirerThe party that answers for a business to everybody else in a payment chain, so the chain has somebody accountable for it. Covered separately. are three different things, and none of those names gives the answer to question three on its own. The mark does.

Every box marked yes is a party that can delay the money, is holding money that does not belong to it, and is a party somebody has a claim on, and every box marked no can do none of those three things whatever it is called. That is why one column of yes and no marks is worth more than a list of party names. A courier who carries a sealed envelope differs from one who is handed the cash to deliver. Both are in the chain, both can be late, and only one of them can be late with the payer's money in their pocket.

Where is the money at the moment the screen says done?

Question four is the one the whole subject has been circling. Its three answers decide how everything after it is read, so it belongs in the middle of the sheet rather than at the end.

Three positions are possible, and all three occur. The money has not moved at all, and what now exists is an obligation between two banks. Or the money has moved between the banks and the payee has not yet been credited. Or the payee has been credited and the banks have not yet settled with each other. Every one of those is an ordinary, working state of an ordinary, working arrangement. None of them is a fault.

All three look exactly the same to the person holding the phone, and telling them apart is most of what tracing a payment flow buys. The screen is a report on the first journey. The screen says only that an instruction was accepted. Reporting on the second journey is not something it was ever built to do.

The household version again. A cheque cleared into an account and a cheque merely deposited look identical in the hand: in both cases what is held is a stamped counterfoil. Only one of them means the money has arrived. The counterfoil does not say, so nobody who cannot tell the two apart has made a mistake.

What discharges the obligation, and when?

Question five. Every payment ends with one movement somewhere that makes an obligation between two parties go away, and that movement is what has to be found. The movement often falls nowhere near the parties on the first drawing, and almost never at the moment the screen changed.

Two things to look for, and they are both shapes rather than numbers. First: does that movement discharge this payment on its own, or does it discharge a great many payments together as one difference? NettingWorking out what two parties owe each other across many payments and moving only the difference, instead of moving every amount separately. Covered separately. is the second of those, and where an arrangement uses it, the movement that ends one payment also ends thousands of others. Second: was the payee credited before that movement or after it? The two answers between them identify who was carrying the amount in the gap, and that is question six.

The interval between the two events, the hours it runs in and every cut-offThe moment after which an instruction joins the next round rather than the one now running. Where each of them falls belongs to the authority named in the table below. inside it are set by the authority named in the table below, they move, and the sheet carries a row for them rather than an answer. That is not a dodge. Knowing that an interval exists and who sets it survives every revision; knowing what it was last year survives none.

Who is out of pocket between the two events?

Question six, and the sheet is not finished until a name is written against it. Somebody almost always is, and the question is not asked out of sympathy. A party carrying money it has not yet been covered for has a strong reason to want the arrangement to work quickly, and that pressure is where the shape of the whole thing comes from.

A short list turns a vague question into an answerable one, and the candidates here are few enough to learn. A payer's bank that acted on a request before it had collected anything. A payee's bank that credited its customer before it had been settled with. A party that has received money for a great many businesses and has not yet paid them. And a business that handed over goods before the payment was final.

The party in the gap is the party whose interests explain most of the arrangement's design. Ten shops in one market share one delivery van, and whoever pays for that van is the one pressing hardest for the route to be quick. A payment arrangement works the same way. The party that funds the gap is the party pushing on everything about how long the gap is allowed to be.

When it fails, what state is it in and who is it raised with?

Question seven answers exactly two things and nothing else. The state the amount is in, and the party the matter is raised with. A payment that stops is a thing that happens, in an arrangement with many parties and many steps, and it is not evidence about anybody.

The general shape of the answer holds across every arrangement there is. An amount that has left one party and not reached another is at a specific, nameable point on the second journey rather than nowhere at all. The amount is sitting with a party already marked yes for custody. And the party to raise it with is the party that acted. The bank the payer instructed both took the instruction and holds a record of what it did with it, so as a first step that bank is almost always the one.

A reader who has answered questions three, four and five already knows which party was holding the amount when it stopped, and that is the answer somebody in the middle of this otherwise spends days finding. The custody marks say who could be holding it. The answer about the moment the screen said done says how far along it had got. The answer about discharge says whether the movement that ends it had happened yet. Put those three together and the point is located.

The time allowed at each step, the route a reversalA movement that returns an amount to where it came from, undoing the effect of an earlier one. The route it follows and the time allowed at each step sit with the authority named in the table below. follows and what has to be answered by when are set by the authority named in the table below. They move. The sheet carries a row for them and no answer, and that row is the honest part of it.

What is each party paid for, and which of those is set rather than agreed?

Question eight is asked last, and the reason is the most useful thing in this guide. Question eight is the only one of the eight whose answer has to be got somewhere else.

Some of it can be established from the shape of the arrangement and nothing more. Which side of the payment the money comes out of. Which parties it is divided between. And whether what is charged is struck once for each payment or as a rate on the value moved. Direction, destination and shape can all be reasoned out from how the chain is put together, and all three survive every revision anybody makes.

The authority named in the table below fixes every level, every floor and every ceiling, and every one of them moves. No amount of reasoning about the shape of a chain produces a number that somebody else fixes. Trying anyway is how an account ends up confidently wrong.

Saying which parts of a payment flow a reader can work out for themselves and which parts have to be read at a source is the last thing this subject has to teach, and it generalises far beyond payments. Directions and shapes belong to the reader. Levels belong to somebody else.

How is the whole thing written down on one sheet?

So that the reader leaves with something in hand rather than with a feeling. The sheet has five parts and it fits on one side of a single sheet of paper.

Two lines across the top, one for the instruction and one for the money. A box for each party on the chain, every box marked with the answer to question three. A mark on the money line for the moment the screen says done, and a second mark for the moment the obligation is discharged. A name written against question six, putting the party that carries the gap on the paper rather than in somebody's head. And four rows at the foot with the authority named inside them and nothing filled in.

The test of a finished sheet is that it can be read off, for any moment chosen, to say where the money is and who is out of pocket. If that cannot be done, the sheet is not finished, and the missing part is almost always on the second line.

How does anybody use eight questions in practice?

Who sets the conditions at every step?

Four things circled in this guide are not the writer's to state, and they are not an arrangement's either. Every one of them is set by the authority in the table below, every one of them moves, and an account that wrote one out would be wrong rather than merely out of date on the day it changed.

The same four rows recur throughout this subject, and meeting them in one place shows that an empty row is the durable part. A row carrying only its label and a place to look leaves the reader holding a question, and a question can be taken to the source and closed. A filled row that has gone stale hands over an answer that will be trusted and should not be.