What is Real-Time Gross Settlement (RTGS)?

What is Real-Time Gross Settlement (RTGS)?

Unlike ACH payments which rely on batch processing, when a customer requests a RTGS transaction be sent from their bank, that transaction is instantly sent to and settled at the receiving bank.

RTGS systems are managed on a nation-wide level by a given nation’s central bank, and transactions are limited to those who bank within that central bank’s country. While some RTGS systems may be available 24 hours a day year-round, each system and its operating hours are different.

RTGS is generally better-suited for larger transaction amounts where funds need to be moved quickly and as securely as possible. RTGS can help minimize the potential for fraud against large dollar amount payments by allowing a smaller window of time in which the critical information about a high-value payment is vulnerable.

Notable real-time gross settlement systems include:

• RTGS offered through the Reserve Bank of India
• TARGET2 in the EU (including their TIPS system)
• The UK’s CHAPS
• Fedwire’s Funds Service and FedNow (launching in 2023) in the USA

How Does Real-Time Gross Settlement (RTGS) Work?

There is no physical exchange of funds with a real-time gross settlement system. Rather, the central bank can simply adjust the account balances of both accounts involved in any given transaction. For example, if Dominga Davis sends Randal Whitley $1,000,000 the central bank can adjust their accounts accordingly: reducing Dominga’s and increasing Randal’s by $1 million.