What is Real Time Gross Settlement?

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  • Written By: John Lister
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 August 2019
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Real time gross settlement is a system of transferring funds between one bank and another. Unlike some systems, the money changes hands instantaneously. The "gross" in the name refers to the fact that every transaction is completed individually rather than being combined with others.

More than 20 counties around the world have a real time gross settlement scheme. There is also a scheme with covers all the member states of the European Union. The United States has a real time gross settlement scheme named Fedwire. The Canadian equivalent, LVTS, is not technically a real time gross settlement scheme as the settlements actually take place at the end of each financial day.

Services using a real time gross settlement scheme work electronically. Rather than any physical assets changing hands, the respective bank's overall balance simply changes electronically with each transaction. Because of this, most such schemes are overseen by national government to make sure there is no foul play.

Such schemes have the advantage that they effectively eliminate credit and security risks. The person receiving payment gets the money virtually instantaneously and can thus easily make sure they do not supply the relevant good or services until they get payment. Once a payment is made under such a scheme, it cannot be reversed. There is also virtually no security risk as neither party has to withdraw the money from the bank, not even in a "secure" form such as a banker's draft.


The schemes also have advantages for the banks themselves. The main one is that they can keep track of their overall "cash" levels throughout the day. Because they simply have one figure which is constantly and automatically updated, there is no need to calculate a running tally.

A real time gross settlement scheme differs from the other main system, known as net settlement systems. These involve tallying up all the payments moving back and forth between banks during a day, then one bank paying another a single amount to "settle up" at the end of the day. Such schemes may be cheaper to run as there is less administration involved. The downside is that, depending on the banks involved, customers may find they cannot transfer money instantly, even if they are using a telephone or Internet banking service. This can be particularly frustrating if the combination of banks means that the money leaves one customer's account immediately but does not arrive in the other customer's account until the end of the day.


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