Grades 3–5 · Societies
What happens between a payment instruction and a completed transfer?
Requesting a payment and completing it are different events. A system first receives an instruction about who should pay whom and how much. It must check the instruction before changing its record of the balances.
In the diagramA payment instruction is not settlementBuyerStart: 8ShopStart: 2Instruction: 3 tokensPermission presentSettlement pendingTransferred: 0Buyer 8 • shop 2 • total 10
In this fictional record, called a ledger, the buyer has eight tokens and the shop has two. The buyer requests a payment of three. The system requires permission and enough tokens. Permission is present in the picture, but the instruction is still pending: the completed update has not happened, so the balances remain eight and two.
When the payment settles in this simple system, both sides change together. Three tokens are subtracted from the buyer and three are added to the shop. The balances become five and five. The same ten tokens are still accounted for; recording the payment does not create an extra three.
This sequence explains why sending an instruction is not itself proof that the receiving balance has changed. Real payment systems can involve more organizations and stages, but the distinction between a request, its checks and its completion remains important when interpreting what a payment record actually shows.
About this explanation
Starting knowledge: Count balances and follow a stated exchange sequence.
Sources
- Bank of England — How do card payments work?
- Bank of England — How is money created?