Automated Refunds Now Possible – Despite Banking Secrecy

Required knowledge

• Basics of the Swiss Payment Standards 
• In-depth knowledge of ISO 20022 message types

Refunds due to return of purchased products and erroneous credits occur frequently. Previously, an automated reversal was not possible. A certain amount of investigation and manual work on the part of the bank or the beneficiary and therefore follow-up costs were unavoidable. This is no longer necessary.

Use Case

If the account has already been credited and the beneficiary wishes to repay the money in whole or in part, the beneficiary can only achieve this with a new payment instruction. Under banking secrecy, the beneficiary’s bank is not able to disclose the originator’s banking relationship when crediting the beneficiary. As every IBAN contains, among others, the identity of the bank where the account is held (IID), it is legally prohibited from informing the beneficiary of the IBAN for the purpose of refunding – either by telephone, with a credit note, or in the account statement. Until now, therefore, the beneficiary had no choice but to ask the originator directly for their IBAN in order to create a manual payment instruction for the reversal using this IBAN.

Automation Thanks to Optional Service

From 18 November 2022, Swiss financial institutions find at their disposal a standardized solution for automated refunds that complies with Swiss Banking Secrecy. This is made possible by the new Swiss Payment Standards (SPS) (Figure 1). The standardization in SPS follows the SEPA Implementation Guidelines of the European Payments Council. It is generally aimed at customers who obtain account information with a camt message and make payments as a pain.001 message. Instead of the IBAN, the Account Servicer Reference is stated in the payment instruction, which along with the purpose code “RRCT” instructs the bank to use the IBAN of the referenced, original incoming payment as the credit account for the refund payment instruction. In order to maintain banking secrecy consistently, this IBAN may not appear either on debit advice or on account statements of the initiating party after the refund payment instruction has been executed.

Depending on the bank offering, the amount can be refunded regardless of the original credit. In addition, the debited account can differ from the account stated in the original credit. The bank is also free to decide on which channels and in which formats to offer this service.

Figure 1: Standardized refunding process

Account Servicer Reference As a Link

The Account Servicer Reference in the camt messages of the credit (Figure 2) is used as a substitute for the IBAN upon the refund of the credit. It is always unique at the “Entry Details” level (D-Level) and includes a unique booking reference allocated by the financial institution. This element allows the booking to be linked in various notification messages (e.g., camt.054, camt.053, MT940) and to be checked for duplicates at the booking level, and can now also be used instead of the IBAN in the event of a refund, if supported by the financial institution.

Figure 2: Account Servicer Reference in camt messages

Filling of pain.001 for a Refund

Pursuant to SPS, the “Category Purpose Code” element (Figure 3) is filled with the code “RRCT” in the event of a refund.

Figure 3: Category Purpose in a pain.001 message

Instead of the IBAN, which is typically unknown in the event of a refund, the “Creditor Account/Identification/Other/Identification” element (Figure 4) is filled with the Account Servicer Reference from the camt message of the original credit (Figure 2).

Figure 4: Creditor Account/Identification in a pain.001 message

Preparation for Automated Instant Payment Processes

Following the introduction of instant payments, the SPS standardization will make it possible from August 2024 to reimburse money seamlessly and automatically on the refund of purchased products and services, without manual intervention and without contravening banking secrecy.

Peter Ruoss
Product Owner Payment Software Partnerships, UBS Switzerland AG