Instant Bank Settlement
One of the bank’s role is being a settlement agent which provides a risk free means of discharging payment obligations between the two parties. The bank has a system which they call the Real Time Gross Settlements System or the RTGS. The RTGS is a fund transfer system where the transaction of transferring money or securities takes place from one bank to another in “real time” and in “gross.” The settlement in “real time” means the payment or the transfer of funds is done instantly and there is no waiting period. Once the money is transferred, the transaction is considered successful and settled. Once the transaction is processed, the payments are considered final and it is irrevocable.
This kind of settlement requires no physical exchange of money. It is an electronic payment from one bank to the other. This kind of instant bank settlement is monitored usually by the Central Bank of that country. A bank customer or a client has to remember that this kind of settlement is immediate and once it is processed, it is considered final and irrevocable. The advantage of this system is that the settlement lags are eliminated which lowers credit risk
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