Have you ever wondered how big companies and banks in Nigeria move large amounts of money quickly and safely?
There’s a special system called RTGS that helps them do just that! Think of it like a special express lane for bulk money transfer and settlements.
Key takeaways:
- RTGS stands for Real-Time Gross Settlement. It means money moves instantly (real-time) and directly (gross) between banks, without any delays or waiting.
- Super safe: Like a high-tech vault, it protects big transactions from bad guys.
- No waiting time: The money doesn’t have to wait for other transfers to finish before moving (gross settlement).
- Higher fees: There are fees for using RTGS which is relatively higher than other settlement systems, so it’s best for big transactions.
- Banks handle it: You can’t use it directly, but your bank can help you with RTGS transfers. There are other ways to move money (NIBSS), but RTGS is the fastest and safest for large amounts.
What is RTGS?
RTGS is a technical acronym. The term refers to one of many sophisticated payment systems relevant to the banking and finance industry.
Precisely speaking, the system makes it possible to transfer both funds and securities from one bank to another. Now, you’d be wondering what the highlight is with this system. Or what makes it stand out from any of the others out there?
The answer is that the RTGS enables instantaneous payments for large amounts - and it does so on a gross basis. This new term is the watchword in the definition.
By operating on a gross basis, the RTGS system processes transactions individually. More importantly, Each of these transactions is completed without offsetting other transactions. This deviates from the traditional settlement process where transactions are balanced out against previously transferred funds.
Needless to say, RTGS is a highly technical payment mechanism. Its complexity makes it necessary for Central Banks alone to have control over the system.
What Does It Stand for
RTGS stands for “Real-Time Gross Settlement System”. The two major components of this payment system are outlined in its name. These are the words “real-time” and “gross”.
Functions of RTGS
High Security:
This one function of RTGS equally answers the question of “Why it was created”. The RTGS system has high security, making it well-suited for mitigating the risk of high-value transactions.
24/7 Service Availability:
The RTGS system is always up and running. We mean that literally. The system is designed to run for 24 hours every day and for 365 days at a stretch. This makes it super reliable, don’t you think?
Large Transaction Volumes:
There are several other payment systems similar to the RTGS. However, the RTGS is one of few which can keep up with very large transaction volumes.
Limitless Transfer Amount:
While there is a minimum transaction amount, there is usually no upper or maximum limit for RTGS payments. The minimum amount varies from country to country.
It is advisable that you contact the relevant authority to verify the existing limits to transactions before using an RTGS system.
Immediate Clearing:
The complexity of processing notwithstanding, this system is popular for the immediate clearing of transactions.
Why It was Created
Sources suggest that the RTGS system was created to support an unusually high volume of transactions while providing unusually low-security risks. The fact that the system operates in real-time means that transfers are processed within a very short timeframe.
This makes it difficult for hackers to intercept and manipulate such transactions.
Is RTGS a Currency?
No. RTGS is not a currency. First things first, currency acronyms/abbreviations are all written in three letters. Secondly, these three-letter briefs are often easy to decode. This is because the acronym gives sort of a good hint on the actual word.
The abbreviation RTGS has none of these characteristics since it consists of four letters and does not give any pointers to its full description. This clarifies that RTGS is not a currency.
How RTGS Transfers Work in Nigeria. RTGS Payment Methods
Customers can make RTGS payments in one of two ways. The first is through an online banking platform which has the RTGS option enabled.
They must follow the banking platform instructions to initiate a payment and then wait for the system to process the transaction.
The other way to utilize the RTGS for payment is through a local bank branch which supports the system. This is an offline method of payment. The customer simply walks into the bank branch, locates the right payment counter, and fills out the RTGS form.
It is important to note that reversal of an RTGS transfer cannot be done. This makes it mandatory to fill in the correct details before initiating a transaction.
RTGS payments occur in real time. However, a CBN circular proposes that there are four net settlement sessions. These sessions are numbered 1 through 4 and they are pegged at 9 am, 12 noon, 3 pm, and 6 pm. The receiving bank has the responsibility of crediting the recipient account within 30 minutes of the transfer.
Difference between RTGS and Other Settlement Systems
We have previously mentioned that RTGS is not the only type of payment system available in Nigeria. Most of the others are less technical in nature, but they are all operational and fully accessible to customers.
One such is the NIP, otherwise known as the NIBSS Instant Payment. The NIP is a product of the Nigeria Inter-Bank Settlement System designed to enable instantaneous transfers.
Sounds similar to the RTGS functions? Yes, it does. However, there are still a lot of differences between these two systems. The first is in the transaction limit; as the NIP only allows NGN 5 Million and NGN 10 Million transfers at a time to personal and corporate accounts respectively.
The RTGS on the other hand, does not have an upper/maximum transaction limit. Only a lower/minimum limit.
Another difference between the NIP and RTGS systems is that one does not operate on a gross basis while the other does. Can you guess which one it is?
It is also clear that the RTGS system stands apart from the NEFT or NIBSS Electronic Funds Transfer system. There are two major differences here. One is that the maximum transaction limit for NEFT is set to NGN 100 Million.
The second difference between both systems is that NEFT transfers are received within 24 hours and nothing less.
RTGS Charges
Bear in mind that using the RTGS system attracts charges. This includes a flat fee of NGN 950 and a Value Added Tax (VAT) which is calculated based on the transfer amount.
Conclusion
The Real-Time Gross Settlement System will be a dream come true if you’re an industry player who performs high-volume, high-value transactions.