The Message Dilemma: SMS and DMS

SMS (Single Message System) and DMS (Dual Message System).

Well, it is not your standard SMS, that’s for certain!

But for a payment and fintech enthusiast, it is a term that might ring a bell.

Well, coming to context, these two terms are the proud carriers of our every transaction, a common word that we use.

SMS and DMS are two distinct messaging formats for a transaction that carry details like the amount, RRN number, issuer bin, and many other parameters.

And both of these systems have their own quirks!

But before we get into these messaging formats, do we really understand what the word transaction implies and its aftermath?

Well, dive in,

A transaction is a message in its most rudimentary form. It contains every piece of information about payment details and is transmitted by card networks to financial institutions.

That’s not all, it also happens in these below-specified stages.

• Authorization: Authorization is the process that involves the approval or decline of a transaction. Here, the cardholder’s identity, credentials, and availability of funds required for the payment are all validated.
• Clearing and Settlement: Once authorization is successful, clearing is the next step where the network validates the transaction, calculates the fees, and passes on the same to the issuer for settlement. And settlement is the actual fund movement.

So, now that a transaction is successful, what’s its impact on your bank account?

Well, that’s where the next concept comes in,

Available balance and ledger balance

• Available balance: The actual balance that is available in your account for you to use
• Ledger balance: This is the total amount of funds present in your account, depending on the credit or debit of any pending payment.

Now that we have got the anatomy of a transaction, it is time to explore SMS and DMS.

Single Messaging System (SMS)

In this format, the passing of the authorization message, clearing, and settlement all happen in a single sequence, and it doesn’t require an authorization response from the issuer to fulfill the transaction.

Let’s break this down even more with a common scenario.

Most of us would have received a WhatsApp message or even a standard text from businesses advertising their services and products now and then. The business does not require your acceptance every time to receive the message. It is automatically pushed as you would have signed up for the business eons ago.

Likewise, this is the case with the Single Messaging system, and it is the standard format when making transactions using your debit card for a payment or ATM withdrawal. So, here the authorization information passing, clearing, and settlement all happen in one shot, and your available balance is updated in real-time.

Dual Messaging System (DMS)

Like the name tag above, the transaction data is sent over in two stages. In the first stage, the authorization message is sent over to the issuer for transaction approval via the card network. Upon receiving the approval, the transaction is processed for clearing and settlement. The popular use case of DMS-led transactions is credit cards.

Bit long, is it?

Well, here’s a common scenario for DMS.

When you use any social media app, for example, Instagram, there are two divisions of chats available in your profile. One is the direct chat option that you can use to chat with your followers and the other is the “Request” tab.

Here you will receive messages from non-followers, it is akin to the authorization approval sought by the seller. But those people can chat with you, if and only if you approve of their message. So, here your approval is authorization, and the following conversation is similar to the clearing and settlement phase of DMS led transaction.

SMS Vs DMS- The epic battle

Difference between SMS and DMS across different categories

The world of payment and fintech is powered by intricate systems like Single Messaging System (SMS) and Dual Messaging System (DMS), each playing a crucial role in facilitating transactions. Whether it’s the instant updates of SMS or the layered approval process of DMS, these systems are the backbone of modern financial transactions, ensuring security, reliability, and convenience for users worldwide.

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P.S: What topic do you think we should explore next? Let us know in the comments.