What Is RTGS

RTGS stands for Real Time Gross Settlement. It is a money transfer system that allows the transfer of funds from one bank account to another in real-time and on a gross settlement basis. The term, ‘real-time’ implies that transactions through RTGS are processed right when they are initiated by the sender, and ‘gross settlement’ means that the instructions regarding the transfer of funds occur on a one-to-one basis. RTGS is the continuous process of settling payments on an individual order basis without netting debits with credits across the books of a central bank. Once completed, real-time gross settlement payments are final and irrevocable. In most countries, the systems are managed and run by their central banks.

How does RTGS Work

When you hear the term real-time, it means the settlement happens as soon as it is received. So, in simpler terms, the transaction settles in the receiving bank immediately after it is transferred from the sending bank. Gross settlement means transactions are handled and settled individually, so multiple transactions aren’t bunched or grouped together. This is the basis of a real-time gross settlement system.

An RTGS system is generally used for large-value interbank funds transfers operated and organized by a country’s central bank. These transfers often require immediate and complete clearing. As mentioned above, once transactions are settled, they cannot be reversed.

In 1970, the U.S. Fedwire system was launched. It was the first system resembling a real-time gross settlement system. It was an evolution of the telegraph-based system used to transfer funds electronically between U.S. Federal Reserve banks.

The British system, called the Clearing House Automated Payment System (CHAPS), is currently run by the Bank of England. France and other Eurozone nations use a system called Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET2). Other developed and developing countries have also introduced their own RTGS-type systems.

Real-time gross settlement lessens settlement risk—also referred to as delivery risk—overall, as interbank settlement usually occurs in real-time throughout the day—instead of simply all together at the end of the day. This eliminates the risk of a lag in completing the transaction. RTGS can often incur a higher charge than processes that bundle and net payments.

The features of RTGS

Here’s all that you need to know about money transfer through RTGS-

• Transactions made through RTGS are processed on a one-to-one basis
• RTGS facility can be accessed at any time, on any day of the year
• The Real Time Gross Settlement method is mostly used for transactions of high value
• The RTGS service can be used using both online and offline modes
• To process transactions through RTGS, the following details must be provided
  • Amount to be transferred
  • Bank Account number
  • Beneficiary’s name
  • Bank’s branch
  • Beneficiary’s IFSC
  • Beneficiary’s bank branch

Benefits of RTGS

RTGS systems, increasingly used by central banks worldwide, can help minimize the risk to high-value payment settlements among financial institutions. Although companies and financial institutions that deal with sensitive financial data typically have high levels of security in place to protect information and funds, the range and nature of online threats are constantly evolving.

Real-time gross settlement can allow a smaller window of time for critical information to be vulnerable, thus helping mitigate threats. Two common examples of cybersecurity threats to financial data are social engineering or phishing—tricking people into revealing their information—and data theft, whereby a hacker obtains and sells data to others.

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