FICO Treasury Part 3: Payment Approvals, Bank Communication and Payment Formats

📌 KEY POINTS
✅ The payment run creates payment documents and payment media files in the bank's format, increasingly ISO 20022 pain.001.
✅ Bank Communication Management groups payments into batches with approval workflows by amount and rule.
✅ Files are transmitted securely to banks, often through a connectivity service or network such as SWIFT or host-to-host.
✅ Banks return status messages (e.g. pain.002) that confirm acceptance or rejection per payment.
⚠️ Payment files that can be edited between creation and transmission are a serious fraud risk.

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▶ WHERE WE ARE
Part 2 controlled the accounts. Part 3 controls the money leaving them.

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▶ 1. FROM PAYMENT RUN TO FILE
The automatic payment program selects due items, creates payment documents and generates payment media through a format tree, commonly defined in DMEE or DMEEX. Most banks now accept ISO 20022 XML credit transfer messages (pain.001), with country variants. The format must be agreed and tested with each bank.

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▶ 2. BATCHING AND APPROVALS
Bank Communication Management groups payments into batches by house bank, currency or payment method and routes them for approval based on rules such as amount thresholds. Approvers see the batch content and can approve or reject, with each step logged. This separates the person who runs payments from those who release them.

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▶ 3. TRANSMISSION
Approved batches are sent to the bank over a secure channel: host-to-host connections, SWIFT through a service bureau or SAP's multi-bank connectivity service. The key principle is that files are generated and sent without manual handling, so nobody can change a beneficiary account after approval.

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▶ 4. STATUS MESSAGES
Banks return status reports (for example pain.002) that state whether a file and each payment were accepted, rejected or pending. Importing these into SAP updates batch statuses and lets the team react to rejections the same day. Without status handling, a rejected salary payment may only be noticed when an employee complains.

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▶ 5. PAYMENT FACTORY CONCEPT
Large groups centralise payments for many company codes in one entity, the payment factory, often combined with in-house cash. This standardises formats, reduces bank connections and strengthens control. The next part covers in-house cash and pooling.

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▶ STEP BY STEP

1. Run a test payment proposal and payment run, and display the payment media.
2. Identify the format tree used and the bank's required version.
3. Approve a test batch in BCM and check the approval log.
4. Import a test status message and review batch status.

✅ CHECKPOINT: a test payment goes from run to approved, transmitted and confirmed with a full audit trail.

A company saved payment files to a shared folder and uploaded them to the bank portal manually. An employee altered a beneficiary IBAN in the XML before upload, and the fraud was discovered only weeks later. The company moved to BCM approvals with automated host-to-host transmission, so files are never handled manually.

• Manual download and upload of payment files.
• One person running and approving payments.
• Ignoring bank status messages.
• Formats not tested with each bank before go-live.

• Automated, secure transmission without manual handling.
• Approval rules by amount and payment type.
• Status message import and daily rejection review.
• Bank format testing in a structured cycle.

Expect questions on the end-to-end payment process, the role of BCM approvals, ISO 20022 formats and why manual file handling is a risk.