Learning Objectives:

  • Explain how RTGS systems operate.

  • Explain how ACH systems operate.

  • Identify major domestic payment systems.

3.1 Real-Time Gross Settlement (RTGS)

RTGS is a system where transactions are settled individually and continuously in real time, provided the sending participant has sufficient balance or credit. Key features:

  • Finality: Settlement is final and irrevocable.

  • Risk Mitigation: Eliminates settlement risk between participants.

  • Liquidity Requirement: Participants must have sufficient balances.

3.2 Automated Clearing House (ACH)

ACH systems process high-volume, lower-value payments in batches:

  • Net Settlement: Settlements occur at designated times.

  • Efficiency: Reduces the total value that needs to be settled.

  • Common Uses: Direct deposit, bill payments, business-to-business payments.

3.3 Major Systems

Key domestic systems include:

  • Fedwire (US): The US Federal Reserve’s RTGS system.

  • CHIPS (US): A private clearing system for large-value payments.

  • CHAPS (UK): The UK’s high-value clearing system.

  • TARGET2/T2 (EU): The European system for large-value payments.

 

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