Real-time payment (RTP) systems 

are advanced electronic payment systems that enable the immediate transfer and settlement of funds between banks and financial institutions. Here's an overview of how they typically work:

Integration with Banks: RTP systems are integrated with the banks through secure, standardized communication protocols. These integrations enable banks to send and receive payment instructions and confirmations to and from the RTP system. The integration often follows international standards like ISO 20022, which allows for comprehensive data exchange.

Sending Payment Instructions: When a customer initiates a payment, the sender's bank formats this transaction request into a message that is compatible with the RTP system. This message includes all necessary details such as the amount, recipient account information, and any additional transaction details.

Receiving and Processing Payment Instructions: Upon receiving the payment instruction from the sender's bank, the RTP system validates the transaction. This includes checks for sufficient funds, fraud detection, and ensuring compliance with regulatory requirements.

Communication with Receiver's Bank: After validation, the RTP system forwards the transaction details to the receiver's bank. This is done in real-time, allowing for immediate processing.

Immediate Funds Availability: One of the defining features of RTP systems is that the receiver's bank credits the recipient's account instantly upon receiving the confirmation from the RTP system. The funds are made available for use by the recipient without any delay.

Settlement of Funds Between Banks:

• Intraday Settlement: In many RTP systems, settlement of funds between the banks happens on an intraday basis. This means that throughout the day, the RTP system keeps track of the net amounts owed by each participating bank.
• Central Bank Accounts: At the end of a specified settlement period, the net positions are settled through accounts that the banks hold at the central bank. Each bank's account is debited or credited with its net position.
• Liquidity Management: Banks manage their liquidity positions throughout the day to ensure they have sufficient funds to meet their settlement obligations.

Confirmation and Notification: After the transaction is processed, the RTP system sends a confirmation message to both banks. The banks then notify their respective customers (sender and receiver) of the transaction's completion.

Record Keeping and Reconciliation: Both banks update their transaction records for accounting and reconciliation purposes. They ensure that all transactions processed through the RTP system are accurately reflected in their systems.

In summary, the RTP system acts as an intermediary that facilitates real-time communication and transaction processing between the banks. The settlement process, typically involving accounts at the central bank, ensures that the banks' respective positions are balanced, maintaining the integrity and stability of the financial system.

Real-time payment systems (RTPS) have been adopted by many countries, with 60 countries live on real-time payments networks. The global instant payment transaction volume reached USD 70.4 billion in 2020 and is expected to grow at a CAGR of over 30% by 2024.

Overview of some of the major and well-known instant payment systems globally, along with a brief description of each:

 North America

• FedNow Service (USA): Developed by the Federal Reserve, it’s expected to launch in 2023.
• The Clearing House’s Real-Time Payments (RTP) (USA):Launched in 2017, offers real-time payments for financial institutions.
• Interac e-Transfer (Canada): Enables individuals and businesses to send and receive money instantly.

  Europe:

• TARGET Instant Payment Settlement (TIPS): Offered by the European Central Bank, it allows real-time money transfer in euros.
• UK Faster Payments Service: Launched in 2008, enables near-instant payments in the UK.
• SIC (Switzerland):  Established in 1987. Known for its high reliability and security, critical for Switzerland's financial market.
• Greiðsluveitan (Iceland) - Started in 2000. Its USP is the facilitation of efficient, domestic electronic payments within Iceland.
• Elixir Express (Poland) - Established in 2012. It provides 24/7 service, ensuring continuous availability for urgent payments.
• BiR (Sweden) - Launched in 2012. Known for its simplicity and user-friendliness, appealing to a broad user base.
• Swish (Sweden) - a mobile payment system allowing instant transfers
• Nets (Denmark) - Started in 2014. It’s recognized for its seamless integration with Denmark’s digital banking ecosystem.Greiðsluveitan

 Asia: 

• India’s Unified Payments Interface (UPI): A real-time payment system facilitating inter-bank transactions.
• IMPS (India) - Established in 2010. Notable for its accessibility through mobile platforms.
• China’s Internet Banking Payment System (IBPS): Started in 2010. It’s key for handling large-volume, high-speed transactions in China’s vast economy.
• CIFS (Taiwan) - Launched in 2010. Recognized for ensuring secure and immediate interbank transfers.
• FAST (Singapore) - Introduced in 2014. It’s known for its efficient and secure real-time payment processing.
• KFTC (South Korea) - Started in 2014. Key for its integration with South Korea’s advanced digital banking services.
• Zengin (Japan) - Initiated in 1973. It’s notable for its early adoption and contribution to Japan’s advanced financial infrastructure.
• PromptPay in Thailand; Established: 2017, Known for its integration with the national ID and mobile phone numbers, making it easier for users to transfer money. It significantly enhances the convenience of sending and receiving funds, especially for small-scale transactions.

 Africa:

• South Africa’s Real-Time Clearing (RTC): Facilitates real-time interbank payment processing.
• Nigeria’s NIBSS Instant Payments (NIP): Provides instant payment services across Nigerian banks.
• GhIPSS Instant Pay in Ghana; Established: 2016, Enables instant interbank transfers, making it a key component in Ghana’s growing digital payment landscape. It’s particularly noted for improving the speed of transactions in the country’s banking sector.

 Australia:

• New Payments Platform (NPP): Launched in 2018, allows for immediate funds transfer between banks.

 Latin America:

• Brazil’s PIX: Launched by the Central Bank of Brazil, offers instant 24/7 payments.
• SITRAF (Brazil) - Launched in 2002. It offers a robust infrastructure for secure and efficient payment processing.
• SPEI (Mexico) - Introduced in 2004. Known for its real-time interbank electronic fund transfer service.
• TEF (Chile) - Started in 2008. It provides a 24/7 operational capability for uninterrupted payment services.
• Transfiya in Colombia; Established: 2020, A product of a private initiative, it focuses on financial inclusion and seamless micro-payments. Transfiya is recognized for its ease of use and has been instrumental in promoting digital payments in Colombia.

 Middle East:

• Masav’s Immediate Payment Service (Israel), Established 2920, This system aims to enable instant transfers between bank accounts 24/7, including weekends and holidays. It’s designed to support small and large transactions alike, enhancing the convenience and flexibility of payments in Israel’s financial landscape
• CliQ in Jordan; Offers a secure and quick way to make payments and transfer money using mobile phones. CliQ is part of Jordan’s drive towards a more digital economy.
• Fawri+ in Bahrain, Established: 2015, Provides instant fund transfers across banks in Bahrain, known for its efficiency and security. It caters to both individuals and businesses, facilitating real-time transactions.

Among the various approaches, the hub-centric model stands as the predominant choice. This model centralizes the clearing process at the clearing house, operating in a near real-time framework. Typically, it involves a four-stage sequence: firstly, the originating bank submits a payment request to the clearing house; secondly, the clearing house forwards this request to the receiving bank; thirdly, the receiving bank sends a payment confirmation back to the clearing house; and finally, the clearing house conveys this confirmation to the originating bank. The pivotal role of the clearing house encompasses the validation of transactions, computation of settlement positions, and the facilitation of payment instructions between banks. Upon successful processing of the payment instruction, the payee banks record the transaction and update the payee's account. Similarly, the payer banks post the transaction and update the payer's account following the receipt of payment confirmation. Settlements within this model are customarily executed on a deferred net settlement basis, conducted multiple times within a day to reduce counterparty risks.

Significantly, this model is exemplified by the implementation in Singapore's FAST payment network and the UK's Faster Payment System.

As delineated in the preceding section, the Real-Time Payment System (RTP) contrasts with the wholesale payment mechanism known as the Real-Time Gross Settlement (RTGS) system. Unlike RTP, which typically settles transactions on a deferred net settlement basis at least daily via a hub-centric model, the RTGS framework, in certain nations, is adapted to accommodate both low-value and high-value transactions. This adaptation may arise due to modest retail payment volumes or as a result of the system's evolutionary trajectory.

A notable instance of this model is Switzerland's SIC system, which utilizes RTGS for managing both retail and high-value payments. Similarly, Japan's Zengin system processes both high-value and low-value transactions within the same clearing infrastructure. In this system, transactions are segregated based on their value: transactions equal to or exceeding 100 million JPY are routed through an RTGS, while those below this threshold are processed via a deferred net settlement (DNS) system. Another example is Mexico’s SPEI, which executes multilateral netting at intervals of a few seconds for processing both high-value and retail payments.

The final archetype in payment systems is the distributed model, characterized by the bilateral clearing of payments directly between the payer's and payee's banks.

Illustration 12.13 showcases this distributed payment model.

Australia's New Payment Platform (NPP) exemplifies this model. Diverging from the conventional practice of employing a deferred net settlement system, the Australian framework incorporates an element termed the Fast Settlement Service (FSS). This component operates continuously, providing 24/7 settlement services that augment the functions of the Real-Time Gross Settlement (RTGS) system.

SEPA Instant Credit Transfer

In the EU, all instant credit transfers in euro are based on the European Payments Council’s SEPA Instant Credit Transfer scheme (SCT Inst), which was launched in November 2017. The key features of SCT Inst include the service being consistently available (24 hours a day, 365 days a year); and it taking no more than ten seconds for the recipient’s payment service provider (PSP) to inform the payer’s PSP whether the money has been received and, in the case of a successful transaction, to make the funds available to the recipient. While uptake has been growing, the provision of instant payments to payment account holders is not available to the same degree across all SEPA jurisdictions. Measures to further harmonise the provision of instant payments across SEPA jurisdictions would increase customer choice and foster innovation, greater safety and strategic autonomy for European payments.

If you want to know more about how to transfer funds through the corresponding banking system, please get in contact with our Head of Corresponding Banking M. Amri Elarisse

Differences between RTP & ACH 

The key differences between a Real-Time Payment (RTP) system and an Automated Clearing House (ACH) system lie in their processing speed, transaction settlement, and use cases. Here are the main distinctions:

1. Processing Speed:

RTP System:

• Speed:Transactions are processed and settled almost instantaneously, typically within seconds.
• Availability: Operates 24/7/365, allowing for continuous processing of transactions.

ACH System:

• Speed: Transactions are processed in batches and can take from several hours to a few days to settle.
• Availability: Operates during banking hours, with specific processing windows on business days.

2. Transaction Settlement:

RTP System:

• Settlement: Settles transactions in real-time, meaning the funds are immediately available to the recipient upon completion of the transaction.
• Finality: Transactions are irrevocable once completed.

ACH System:

• Settlement: Uses batch processing, typically settling transactions in multiple batches throughout the day (same-day ACH) or next-day.
• Finality: Transactions can be reversed or canceled during the processing period.

3. Use Cases:

RTP System:

• Usage: Ideal for urgent payments, such as person-to-person (P2P) payments, bill payments, and business-to-business (B2B) transactions requiring immediate confirmation.
• Examples: PayPal’s Instant Transfer, Venmo, Zelle, and various corporate treasury applications.

ACH System:

• Usage: Suitable for non-urgent transactions, such as payroll, recurring bill payments, direct deposits, and vendor payments.
• Examples: Direct deposit payroll, utility bill payments, mortgage payments, and recurring subscription services.

4. Cost:

RTP System: Typically higher transaction fees due to the need for instant processing and settlement.

ACH System: Generally lower fees due to batch processing and delayed settlement.

5. Security and Compliance:

RTP System:

• Security: Utilizes advanced encryption and security measures to protect real-time transactions.
• Compliance: Must adhere to stringent regulatory standards due to the instantaneous nature of transactions.

ACH System:

• Security: Also employs robust security protocols but is more focused on protecting batch-processed transactions.
• Compliance: Adheres to regulations set by entities like NACHA (National Automated Clearing House Association) in the US, ensuring secure processing and settlement.