Payments Academy
Payment state machine lists every PAYMENT OPERATIONS STARTED LIVE 01 Payment state machine - can sit in and every move between states ACTIVE 02 Settled - means the money has moved finally QUEUED 03 Received to rejected transition - payment can move from received to rejected QUEUED 04 Blocked state machine - If an operator or a system tries one QUEUED 05 Instruction identification - assigned by the sender and names QUEUED A payment state machine lists every state a payment can sit in and every move between states that is allowed Step 1 of 5 Payment state machine lists every STARTED Payment state machine can sit in and every move between states ACTIVE Settled means the money has moved finally QUEUED Received to rejected transition payment can move from received to rejected QUEUED Blocked state machine If an operator or a system tries one QUEUED Instruction identification assigned by the sender and names QUEUED A payment state machine lists every state a payment can sit in and every move between states that is allowed
Settled: money moved finally PAYMENT OPERATIONS IN PROGRESS LIVE 01 Payment state machine - can sit in and every move between states DONE 02 Settled - means the money has moved finally ACTIVE 03 Received to rejected transition - payment can move from received to rejected QUEUED 04 Blocked state machine - If an operator or a system tries one QUEUED 05 Instruction identification - assigned by the sender and names QUEUED Settled means the money has moved finally Step 2 of 5 Settled: money moved finally IN PROGRESS Payment state machine can sit in and every move between states DONE Settled means the money has moved finally ACTIVE Received to rejected transition payment can move from received to rejected QUEUED Blocked state machine If an operator or a system tries one QUEUED Instruction identification assigned by the sender and names QUEUED Settled means the money has moved finally
Received to rejected transition PAYMENT OPERATIONS IN PROGRESS LIVE 01 Payment state machine - can sit in and every move between states DONE 02 Settled - means the money has moved finally DONE 03 Received to rejected transition - payment can move from received to rejected ACTIVE 04 Blocked state machine - If an operator or a system tries one QUEUED 05 Instruction identification - assigned by the sender and names QUEUED A payment can move from received to rejected when a check fails Step 3 of 5 Received to rejected transition IN PROGRESS Payment state machine can sit in and every move between states DONE Settled means the money has moved finally DONE Received to rejected transition payment can move from received to rejected ACTIVE Blocked state machine If an operator or a system tries one QUEUED Instruction identification assigned by the sender and names QUEUED A payment can move from received to rejected when a check fails
Blocked state machine moves PAYMENT OPERATIONS IN PROGRESS LIVE 01 Payment state machine - can sit in and every move between states DONE 02 Settled - means the money has moved finally DONE 03 Received to rejected transition - payment can move from received to rejected DONE 04 Blocked state machine - If an operator or a system tries one ACTIVE 05 Instruction identification - assigned by the sender and names QUEUED If an operator or a system tries one of these moves, the state machine blocks it, logs the attempt, and raises an alert to the operations team. Step 4 of 5 Blocked state machine moves IN PROGRESS Payment state machine can sit in and every move between states DONE Settled means the money has moved finally DONE Received to rejected transition payment can move from received to rejected DONE Blocked state machine If an operator or a system tries one ACTIVE Instruction identification assigned by the sender and names QUEUED If an operator or a system tries one of these moves, the state machine blocks it, logs the attempt, and raises an alert to the operations team.
Instruction identification PAYMENT OPERATIONS COMPLETE LIVE 01 Payment state machine - can sit in and every move between states DONE 02 Settled - means the money has moved finally DONE 03 Received to rejected transition - payment can move from received to rejected DONE 04 Blocked state machine - If an operator or a system tries one DONE 05 Instruction identification - assigned by the sender and names ACTIVE The instruction identification is assigned by the sender and names the instruction Step 5 of 5 Instruction identification COMPLETE Payment state machine can sit in and every move between states DONE Settled means the money has moved finally DONE Received to rejected transition payment can move from received to rejected DONE Blocked state machine If an operator or a system tries one DONE Instruction identification assigned by the sender and names ACTIVE The instruction identification is assigned by the sender and names the instruction

Key points of this lesson, in order.

0:00 / 4:21 Step 1 of 5

Payment State Machines and Correlation

Payment Operations Architecture: State, Resilience and Control, Lesson 1 of 8, Narration 4:21, D11 Operations, exceptions and reconciliation

SettlementCreditorReturn

What you will learn

Your objective. By the end of this lesson, you will be able to explain payment state machines and correlation. A payment state machine lists every state a payment can sit in and every move between states that is allowed, and it is the single control that keeps operations, settlement and customer service looking at the same truth.

Why it matters. If an operator or a system tries one of these moves, the state machine blocks it, logs the attempt, and raises an alert to the operations team.

Chapter objective: How payments are tracked, recovered and controlled in operations

Key learning points

  • Payment state machine lists every
  • Settled: money moved finally
  • Received to rejected transition
  • Blocked state machine moves
  • Instruction identification

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.

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

Return: A payment that is sent back to the sender after settlement because it cannot be credited to the beneficiary.

Banking architecture diagram showing Payment State Machines and Correlation.

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

A payment hub goes down for an hour during the morning peak. Payments queue but none are lost. After recovery, what matters most for the operations report?

Takeaway and next step

What to remember

A payment in rejected state must never move to settled, a payment in returned state must never move to reserved, and a payment in settled state must never move back to validated as if the money had not moved.

Move the payment in this lesson through its states and see which transitions are allowed.

Open the Payment State Machine Simulator →

Builds on "Worked Example: The Same EUR 10,000 Payment as pacs.008 Under CBPR+ and SEPA".

Transcript and full text

Show transcript

A payment state machine lists every state a payment can sit in and every move between states that is allowed, and it is the single control that keeps operations, settlement and customer service looking at the same truth. The core states are received, validated, reserved, settled, failed, expired, rejected and returned, and a payment enters the machine the moment the instruction arrives at Meridian Bank. Received means the instruction has arrived but has not been checked, validated means the format, account and compliance checks have passed, and reserved means funds have been held for the payment. Settled means the money has moved finally, failed means settlement was attempted and did not complete, expired means a time limit passed before settlement, rejected means the instruction was refused, and returned means the funds have been sent back to the sender. Allowed transitions follow the order of the work, and each one is triggered by a real event such as a validation result, a funds check, a settlement confirmation or a timeout. A payment moves from received to validated when the checks pass, from validated to reserved when funds are held, and from reserved to settled when the settlement system confirms final movement. A payment can move from received to rejected when a check fails, from reserved to expired when a cut off passes without settlement, and from settled to returned only when a formal return instruction arrives. Each transition writes a record with the time, the event and the system that made the change, so an auditor can replay the payment from arrival to outcome without asking anyone what happened. Illegal transitions are moves the state machine must refuse, because they would let a payment exist in two contradictory states at once. A payment in rejected state must never move to settled, a payment in returned state must never move to reserved, and a payment in settled state must never move back to validated as if the money had not moved. If an operator or a system tries one of these moves, the state machine blocks it, logs the attempt, and raises an alert to the operations team. Testing this control means feeding the system a rejected payment and trying to settle it, feeding it a returned payment and trying to reserve funds for it, and confirming that every attempt is refused and recorded. A state machine that allows an illegal transition is a defect, not a feature, and it must be fixed before the system goes live. End to end traceability ties every record to one payment through three identifiers that travel across systems and across banks. The instruction identification is assigned by the sender and names the instruction, the end to end identification names the whole payment from debtor to creditor, and the UETR is a globally unique reference that follows the payment through every bank in the chain. In the worked example, Meridian Bank receives the USD 120,000 instruction from the London corporate, assigns a UETR, and passes the same UETR to Harbour Bank as the correspondent. When the corporate calls to ask where the money is, operations searches one UETR and sees the instruction, the validation result, the reservation, the settlement attempt and every status report, instead of searching five systems with five different references.

A payment state machine lists every state a payment can sit in and every move between states that is allowed, and it is the single control that keeps operations, settlement and customer service looking at the same truth. The core states are received, validated, reserved, settled, failed, expired, rejected and returned, and a payment enters the machine the moment the instruction arrives at Meridian Bank. Received means the instruction has arrived but has not been checked, validated means the format, account and compliance checks have passed, and reserved means funds have been held for the payment. Settled means the money has moved finally, failed means settlement was attempted and did not complete, expired means a time limit passed before settlement, rejected means the instruction was refused, and returned means the funds have been sent back to the sender.

Allowed transitions follow the order of the work, and each one is triggered by a real event such as a validation result, a funds check, a settlement confirmation or a timeout. A payment moves from received to validated when the checks pass, from validated to reserved when funds are held, and from reserved to settled when the settlement system confirms final movement. A payment can move from received to rejected when a check fails, from reserved to expired when a cut off passes without settlement, and from settled to returned only when a formal return instruction arrives. Each transition writes a record with the time, the event and the system that made the change, so an auditor can replay the payment from arrival to outcome without asking anyone what happened.

Illegal transitions are moves the state machine must refuse, because they would let a payment exist in two contradictory states at once. A payment in rejected state must never move to settled, a payment in returned state must never move to reserved, and a payment in settled state must never move back to validated as if the money had not moved. If an operator or a system tries one of these moves, the state machine blocks it, logs the attempt, and raises an alert to the operations team. Testing this control means feeding the system a rejected payment and trying to settle it, feeding it a returned payment and trying to reserve funds for it, and confirming that every attempt is refused and recorded. A state machine that allows an illegal transition is a defect, not a feature, and it must be fixed before the system goes live.

End to end traceability ties every record to one payment through three identifiers that travel across systems and across banks. The instruction identification is assigned by the sender and names the instruction, the end to end identification names the whole payment from debtor to creditor, and the UETR is a globally unique reference that follows the payment through every bank in the chain. In the worked example, Meridian Bank receives the USD 120,000 instruction from the London corporate, assigns a UETR, and passes the same UETR to Harbour Bank as the correspondent. When the corporate calls to ask where the money is, operations searches one UETR and sees the instruction, the validation result, the reservation, the settlement attempt and every status report, instead of searching five systems with five different references.

Full lesson text (all scenes)

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