Bank Chain (Correspondent and Intermediary) Setup in SAP

This post will through light on the complete steps involved in Bank Chain (Correspondent and Intermediary Bank) Setup in SAP.

What is Bank Chain, Correspondent Bank and Intermediary Banks?

Bank Chain is an SAP functionality which helps in making payment via more than one bank. For example, payments via the correspondence banks or the intermediary banks. In SAP, we are allowed to have at max 3 Intermediary banks to process any bank transaction successfully.

Bank Chain addresses scenarios like, say, we have to make payment in US dollars by Citibank, Berlin to a bank in the USA via Citibank, New York. Such requirements can be addressed via Bank Chain functionality.

Let’s try to understand this with an example. If Bank A wants to move funds to Bank B but neither has an account with the other then it will be necessary to find an intermediary bank (I) that has a relationship with both A and B. And then the funds would travel from Bank-A to Bank-I and finally to Bank-B. Hope this helps in understanding the Bank Chain concept.

Before the advent of Bank Chain, when making a payment to a business partner abroad. We had to specify the house bank and the business partner’s bank when processing payments. These two banks represented the start and end of the payment cycle. No third bank was involved. And, it was the responsibility of the house bank ( or the payment initiating party) to determine via which bank(s) the payment should be made. But now, using the bank chain functionality we can easily specify the bank chain ourselves. Leading to faster payment transaction processing and considerable cost savings through reduced bank charges.

A Correspondent Bank or Intermediary Bank is a bank in Bank Chain, where funds are transferred prior to reaching their destination, the beneficiary bank.  If the payment bank is across an international border, the intermediary bank or Correspondent Bank may also act as the currency exchange provider.

The key difference between the two bank type is that a Correspondence Banks, which are a third-party bank, are authorized to provide services on behalf of another bank. So in this case, the Correspondence Bank acts like an agent of the . Whereas, the Intermediary banks are also third-party banks used to facilitate international transfer and funds settlement between two banks. Another difference is that Correspondent banks are able to handle more currencies comparatively.

Integration

Bank Chain functionality works only with Automatic Payments Program (Tcode F110) functionality.

Bank Chain (Correspondent and Intermediary) Setup in SAP

Time needed: 1 hour.

Bank Chain (Correspondent, Intermediary) Configuration in SAP

  1. Define Scenario

    TCode and Menu path: SPRO > SAP Customizing Implementation Guide > Financial Accounting > Bank Accounting> Bank Chain > Define Scenario
    Direct Table Maintenance:
    Customizing Object: VC_TBCHO
    Transaction: SM30

    A scenario describes which criteria are used to find a bank chain. The scenario determines how the bank chain will be sought.
    Bank Chain Configuration

  2. Activate Bank Chain

    TCode and IMG Path: SPRO > SAP Customizing Implementation Guide > Financial Accounting > Bank Accounting> Bank Chain > Activate Bank Chain
    Direct Table Maintenance:
    Customizing Object: TVCHAINCO
    Transaction: SM30

    In this activity, we activate the bank chain function. In doing so, we specify which bank chain is to be determined during a payment.

  3. Create General Bank Chain

    Payment is independent of a business partner’s bank details.

    TCode and IMG Path: SPRO > SAP Customizing Implementation Guide > Financial Accounting > Bank Accounting> Bank Chain > Create General Bank Chain
    Direct Table Maintenance:
    Customizing Object: VC_TBCH1
    Transaction: SM30

    In this activity, we define general bank chains. This means that payments can be processed via a general bank chain and are not dependent on the business partner’s bank details.

  4. Define Partner-specific Bank Chain

    Payment is dependent on a business partner’s bank details.
    SAP MENU, choose Accounting > Financial accounting > Bank
    House banks > Edit | to define Bank Chains for House Banks.
    TCode for Create/Edit: FIBHU
    TCode for Display: FIBHS
    Bank to Bank Transfer
    TCode for Create/Edit: FIBTS
    TCode for Display: FIBTU
    Business partners > Edit | to define Bank Chains for Customers and Vendors.
    TCode for Create/Edit: FIPS
    TCode for Display: FIPU

    If we want to make a payment via a Bank Chain, and the intermediary bank dependents on business partner’s bank details, then in such case we have to define a partner-specific bank chain.
    Bank Chain - Intermediary and Correspondence data setup

With these steps, we are done with the configuration and the required Intermediary Bank Master data.

Next, we have to execute the Automatic Payment Run and check the Payment Run Tables: REGUH for the intermediary bank details in fields like REGUH-BTYP1, REFUH-BNKS1, REGUH-BNKL1 and others.

Bank Chain data in REGUH table

The above step by step process gives an idea of how we can set up the bank chain in SAP. For detailed configuration steps, please check link: Detailed Configuration of Bank Chain in SAP.

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