Payment System and Real Time Gross Settlement Systems
Content
Payment System and Real Time Gross Settlement Systems (RTGS)
Payment System:
A payment system is a system for the transfer of money. What makes it a "system" is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts (e.g., checks), credit cards and other charge cards, documentary credit (such as L/C) and electronic funds transfers. Some payment systems include credit mechanisms, but that is essentially a different aspect of payment. Payment systems are used in lieu of tendering cash in domestic and international transactions and consist of a major service provided by banks and other financial institutions. In the US, they are regulated by different state statutes (UCC) and Federal regulations. Additional forms of payment systems (including physical or electronic infrastructure and associated procedures and protocols) are used to settle financial transactions in Automated teller machine networks, Stored-value card networks, bond markets, currency markets, and futures, derivatives, or options markets, or to transfer funds between financial institutions. Due to the backing of modern fiat currencies with government bonds, payment systems are a core part of modern monetary systems. Also, Electronic Payment is a subset of an e-commerce transaction to include electronic payment for buying and selling goods or services offered through the Internet.
Functions of Payment Systems Department: On becoming fully functional, the department will carry out following: • • • • • Formulate payment systems’ policies and facilitate adoption of international best practices. Introduce developmental strategies for modern payment systems. Operate real time gross settlement (RTGS) system for fund transfers & securities transactions efficiently and securely. Provide oversight to payment systems operated by others i.e. NIFT, ECH etc. Provide SWIFT services to internal departments and SBP BSC (Bank) Offices.
Real Time Gross Settlement Systems (RTGS):
Real Time Gross Settlement Systems (RTGS) are mechanisms that enable banks to make large-value payments to one another in real-time using online telecommunication facilities as well as state-of-the-art computer systems. The payments are settled on gross basis in real time thus minimizing the systemic risks that are inherent in large-value net settlement systems. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the central Bank, the payment is taken as final and irrevocable. Operation of RTGS:
Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds transfer message. The remitting bank receives a message from the Central Bank that money has been credited to the receiving bank. Based on this the remitting bank can advise the remitting customer that money has been delivered to the receiving bank.
RTGS in Pakistan: Keeping in view the global trend in payment systems development and the growing payments market in the country, SBP took the decision to implement the RTGS primarily with assistance from the World Bank. The implementation process of the project was started in 2005 which was finalized in 2008 when the RTGS System was inaugurated by the Prime Minister of Pakistan on 1st July 2008, the day when the central bank celebrated its 60th birthday. From 2nd July 2008, 39 direct member institutions started making their large value inter-bank payments via the new system The RTGS in Pakistan has been named as Pakistan Real-time Inter-bank Settlement Mechanism (PRISM). Using this system, the banks holding accounts at SBP are able to operate their accounts in real time from their own premises via computerized network between SBP and the participating Banks. With RTGS, Banks are able to settle with finality their large value transactions affecting their accounts at SBP (e.g. inter-bank lending/borrowing) immediately, provided sufficient balance is available in their account. At times, banks may face temporary shortage of funds in their accounts during the day. This shortage would be catered for in RTGS through the availability of intraday repos (a form of collateralized lending). Alternatively, the transaction can also be queued in the system until the required liquidity becomes available.
Payment System:
A payment system is a system for the transfer of money. What makes it a "system" is that it employs cash-substitutes; traditional payment systems are negotiable instruments such as drafts (e.g., checks), credit cards and other charge cards, documentary credit (such as L/C) and electronic funds transfers. Some payment systems include credit mechanisms, but that is essentially a different aspect of payment. Payment systems are used in lieu of tendering cash in domestic and international transactions and consist of a major service provided by banks and other financial institutions. In the US, they are regulated by different state statutes (UCC) and Federal regulations. Additional forms of payment systems (including physical or electronic infrastructure and associated procedures and protocols) are used to settle financial transactions in Automated teller machine networks, Stored-value card networks, bond markets, currency markets, and futures, derivatives, or options markets, or to transfer funds between financial institutions. Due to the backing of modern fiat currencies with government bonds, payment systems are a core part of modern monetary systems. Also, Electronic Payment is a subset of an e-commerce transaction to include electronic payment for buying and selling goods or services offered through the Internet.
Functions of Payment Systems Department: On becoming fully functional, the department will carry out following: • • • • • Formulate payment systems’ policies and facilitate adoption of international best practices. Introduce developmental strategies for modern payment systems. Operate real time gross settlement (RTGS) system for fund transfers & securities transactions efficiently and securely. Provide oversight to payment systems operated by others i.e. NIFT, ECH etc. Provide SWIFT services to internal departments and SBP BSC (Bank) Offices.
Real Time Gross Settlement Systems (RTGS):
Real Time Gross Settlement Systems (RTGS) are mechanisms that enable banks to make large-value payments to one another in real-time using online telecommunication facilities as well as state-of-the-art computer systems. The payments are settled on gross basis in real time thus minimizing the systemic risks that are inherent in large-value net settlement systems. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the central Bank, the payment is taken as final and irrevocable. Operation of RTGS:
Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds transfer message. The remitting bank receives a message from the Central Bank that money has been credited to the receiving bank. Based on this the remitting bank can advise the remitting customer that money has been delivered to the receiving bank.
RTGS in Pakistan: Keeping in view the global trend in payment systems development and the growing payments market in the country, SBP took the decision to implement the RTGS primarily with assistance from the World Bank. The implementation process of the project was started in 2005 which was finalized in 2008 when the RTGS System was inaugurated by the Prime Minister of Pakistan on 1st July 2008, the day when the central bank celebrated its 60th birthday. From 2nd July 2008, 39 direct member institutions started making their large value inter-bank payments via the new system The RTGS in Pakistan has been named as Pakistan Real-time Inter-bank Settlement Mechanism (PRISM). Using this system, the banks holding accounts at SBP are able to operate their accounts in real time from their own premises via computerized network between SBP and the participating Banks. With RTGS, Banks are able to settle with finality their large value transactions affecting their accounts at SBP (e.g. inter-bank lending/borrowing) immediately, provided sufficient balance is available in their account. At times, banks may face temporary shortage of funds in their accounts during the day. This shortage would be catered for in RTGS through the availability of intraday repos (a form of collateralized lending). Alternatively, the transaction can also be queued in the system until the required liquidity becomes available.
