Distinguish and handle SEPA Credit Transfer return (RTRN) versus reject (RJCT) messages in payment processing

Steps

1. Understand the distinction: a RJCT (reject) is issued before the payment is settled (typically same day) because the payment fails validation; a RTRN (return) is issued after settlement when the beneficiary bank cannot apply the funds.
2. Parse the XML pain.002 CustomerPaymentStatusReport for RJCT messages — extract the 'ReasonCode' element to determine the rejection reason (e.g., AC01 for incorrect account number, AM04 for insufficient funds).
3. For RTRN messages (received in a pacs.004 PaymentReturn message), extract the return reason code and the original transaction reference to match against your payment ledger.
4. On RJCT, the payment has not left your account — reverse the debit in your ledger and notify the sender immediately; funds are not at risk.
5. On RTRN, the payment has settled and been returned; reconcile the returned credit to your account and update the payment record status; notify the originating party.
6. Map ISO 20022 return reason codes to human-readable descriptions for customer notification; maintain a lookup table of the codes relevant to your payment types.