WHAT IS RTGS ?
The acronym “RTGS” Stands For ‘Real Time Gross Settlement’. It is a funds transfer system where money is moved from one bank to another in ‘real-time’, and on gross basis.
‘Real-time’ means that the payment transaction isn’t subject to any waiting period. The transaction will be completed as soon as the processing is done, and ‘gross settlement’ means that the money transfer is completed on a one to one basis without clustering with another transaction.
To initiate a funds transfer, the sending bank dispatches a payment message, which is subsequently routed to the central bank and to the receiving bank as the system processes and settles the transfer. There are mainly 2 types of message flow structures that are used in the RTGS system namely, Y shaped structure and V shaped structure.
Y SHAPED MESSAGE FLOW STRUCTURE
Some RTGS systems, and particularly those that use the Swift network, apply the Y-shaped structure. In this case, the payment message is transmitted by the sending bank to a central processor located at the joint of the “Y”. It then strips the payment instruction received from the sending bank by suppressing all the commercial information not strictly needed for settlement and sends this core subset to the central bank.
Upon receipt of the core subset, the central bank checks that the sending bank has sufficient covering funds on its account and informs the central processor of the status of the transfer, for instance
queued or settled. Once settled, the full message containing the confirmation of settlement is rebuilt by the central processor and sent to the receiving bank.
In terms of flow of information, the central bank receives only a settlement request and sends a settlement confirmation.
Therefore, the settlement agent does not know the business information exchanged between the sending and receiving bank.
Thus, the Y shaped message flow structure is considered to be the most secure and it also enables the central RTGS processor to concentrate on what it does best i.e. settle transactions, while the other housekeeping tasks are taken care of by other sub-systems.