The Real-Time Gross Settlement system (RTGS) at a glance: RTGS is a funds transfer system that permits one bank to transfer money to another in real time and in full. It’s used by central banks to settle high-value, time-critical interbank payments. Unlike standard transfers, these payments are final and irrevocable the moment they are processed.
In the world of global finance, RTGS is the difference between waiting days for settlement and achieving instant liquidity.
This glossary will explain the essential terms your team needs to understand in order to manage liquidity, achieve operational resilience and move toward faster, safer payments.
What is a Real-Time Gross Settlement in banking?
Real-Time Gross Settlement (RTGS) is the continuous transfer of funds between banks, settled individually on an order-by-order basis (gross settlement).
- Real-Time: Payment instructions are processed and settled continuously, rather than deferred to a later time
- Gross Settlement: Each funds transfer is settled individually, on an instruction-by-instruction basis
The aim is to minimize settlement risk for high-value transactions. Because funds are transferred immediately on the books of the central bank, RTGS payments are considered final and irrevocable once settled.
What is RTGS transfer?
An RTGS transfer is a specific type of electronic fund sharing reserved for high-value or critical transactions where immediate clearing is needed. While retail customers might use it for property purchases, it’s primarily the domain of financial institutions.
Key participants include:
- Central Banks: The operator of the RTGS system (e.g., The Bank of England, The Federal Reserve)
- Commercial Banks: Direct participants who hold settlement accounts with the central bank
- Clearing Houses: Entities that facilitate the exchange and validation of payment instructions prior to settlement
- Corporate Treasuries: Large organizations moving significant capital for payroll, vendor payments or investment
How long does an RTGS transfer take?
Speed is the defining characteristic of the system. In a RTGS transfer, the beneficiary bank receives the funds as soon as the remitting bank sends them through the system.
- Immediate Settlement: Unlike deferred net settlement (DNS) systems which process payments in batches at the end of the day, RTGS are handled individually and in real time
- The Two-Hour Rule: In many jurisdictions, once the beneficiary bank receives the payment message, it’s required to credit the beneficiary’s account within a specified timeframe - often within two hours
However, ‘real-time’ depends on the operating hours of the central bank's RTGS system. Transactions initiated outside these hours will be queued for the next working day.
What about cross-border RTGS transfers?
Cross border real time gross settlement is significantly more complex than domestic transfer. Because there is no single global central bank, cross-border high-value payments typically rely on a network of correspondent banks or linked regional systems (like the EU's TARGET2).
Recent initiatives, such as the G20 roadmap and the migration to ISO 20022, are aiming to link domestic RTGS systems to facilitate faster, cheaper and more transparent cross-border payments.
How does the payment settlement process work?
The payment settlement process in an RTGS environment is a structured workflow designed for finality and security.
Here’s how it typically works:
- Initiation: The remitting customer initiates the transfer
- Validation: The sending bank verifies funds availability and performs necessary AML checks (anti-money laundering)
- Message Generation: The bank sends a payment message - often via Swift - to the central bank's system
- Settlement: The central bank debits the sending bank's settlement account and credits the receiving bank's account immediately
- Notification: The receiving bank is notified of the credit
- Beneficiary Credit: The receiving bank credits the final beneficiary's account
Bringing the process to life: A real-world example
To understand the speed and finality of the system, imagine a large corporate property purchase where timing is critical.
The Scenario: A corporation is buying a new warehouse for £5 million. The contract stipulates that funds must be received by 2:00 PM for the keys to be released.
10:00 AM (Initiation): The corporation instructs their bank (Bank A) to transfer £5m to Bank B via CHAPS (the UK's RTGS system).
10:05 AM (Submission): Bank A’s system instantly checks the corporation’s account balance and performs automated AML checks. Bank A sends the payment message to the Bank of England.
10:15 AM (Settlement): The central bank receives the instruction, debits Bank A’s settlement account, and credits Bank B’s account for £5 million. At this moment, the funds have legally moved.
10:16 AM (Completion): Bank B receives confirmation and immediately credits the warehouse vendor’s account, since RTGS payments are final and irrevocable.
Outcome: The warehouse vendor confirms receipt, and the keys are released - all within minutes.
Common challenges
|
Challenge |
The Problem |
The Impact |
|
Liquidity |
RTGS payments require banks to have sufficient funds immediately available |
High liquidity costs; banks must manage intraday liquidity precisely to avoid gridlock |
|
Operational Risk |
The system operates in real-time with no ‘undo’ button |
Errors in account numbers or amounts are difficult or impossible to reverse |
|
Fraud & Cyber Threats |
The speed and finality of RTGS make it an attractive target for fraudsters |
If a hacker initiates a transfer, the funds are gone instantly, leaving little time for intervention. Solutions like PaymentSafe can help mitigate this risk |
|
Interoperability |
Different standards across borders (e.g., legacy formats vs. ISO 20022) |
Friction in cross-border payments, causing delays or data truncation or other friction |
Protecting against RTGS threats
Modern payment hubs use advanced technology to manage RTGs transfers securely and protect against fraud.
This is where Eastnets steps in. Our solutions centralize payment workflows, allowing institutions to manage RTGS, ACH and instant payments on a single platform.
RTGS best practices checklist
To maintain operational resilience and security, institutions should follow these best practices:
- Intraday Liquidity Monitoring: Implement real-time dashboards to track settlement account balances and avoid failed payments
- Straight-Through Processing (STP): Automate message formatting and validation to reduce manual errors and processing time
- Real-Time Fraud Detection: Since RTGS payments are irrevocable, screening for threats must happen before the message is sent
- ISO 20022 Readiness: Upgrade payment engines to support the data-rich ISO 20022 format, now required by major central banks
- Business Continuity: Maintain robust backup systems to ensure connectivity to the central bank, even during outages
FAQs about the Real-Time Gross Settlement (RTGS) system
RTGS is primarily meant for large value transactions. In many jurisdictions, a minimum transfer limit applies (e.g., ₹2 lakhs in India). But there is generally no upper limit, making RTGS ideal for wholesale banking and other transfers that require immediate settlement.
Yes, RTGS is considered one of the safest methods for high-value transfers. Settlements occur directly in the books of the central bank, and once a payment is processed, it’s final and irrevocable.
For a consumer, an RTGS transfer allows the secure transfer of large sums, such as a house deposit, with the confidence that the recipient will receive the funds the same day, often within hours.
No. A defining feature of the real-time gross settlement system is irrevocability. Once the central bank has processed the settlement, the transaction is final and cannot be reversed.
In Net Settlement systems (like ACH or BACS), transactions are accumulated and offset against each other, and only the net difference moves at the end of the day.
In Real-Time Gross Settlement, every transaction is settled individually and instantly for minimizing settlement risk.
The Clearing House Automated Payment System (CHAPS) is the UK’s high-value sterling payment system. It provides efficient, settlement risk-free and irrevocable payments.
For UK-based financial institutions, CHAPS is the specific implementation of Real-Time Gross Settlement.
It is commonly used for:
- Financial institutions settling money market and foreign exchange transactions
- Corporates making high-value payments such as taxes or supplier invoices
- Solicitors completing housing and property transactions
Ready to modernize your payment operations?
PaymentSafe combines real-time processing, universal connectivity and an intuitive interface to help your institution manage RTGS payments and liquidity efficiently, all while staying aligned with evolving ISO 20022 standards.
Empower your team to process payments faster, safer and smarter.
Sources and references
- Bank of England - CHAPS
- Bank of England - RTGS
- Federal Reserve - Fedwire
- What is ISO 20022? How smaller institutions can become ISO 20022 compliant