Payment System RTGS

Payment System RTGS

1.
Q: Interbank funds transfers can now be processed quickly. Can you explain how this happens? In the past, funds transfers between banks could take several days.

A: This is clearly made possible by modern progress and advanced technology. BI now employs what is called the BI-Real Time Gross Settlement (RTGS) system for processing interbank funds transfers. The RTGS system is a settlement process in which payments are individually processed (gross settlement) in an electronic system in real time.

2.
Q: Can you explain what is meant by real time? How much time is needed for settlement of funds transfers through the BI-RTGS system?

A: The BI-RTGS system does indeed support the settlement of individual transactions (gross settlement) in real time. Nevertheless, the meaning of real time must be understood from the bank perspective. Why? This is because the time taken for completion of transactions ultimately depends on the technology employed by the individual bank. If a bank uses an online system linked to all branch offices, the time needed will obviously not be long. However, if the bank does not have online facilities, time will be needed for manual book entry processing before funds are made available to customers. In this case, transactions will clearly require longer time.

3.
Q: Why does gross settlement apply to transactions on the BI-RTGS? What is the difference with net settlement?

A: The gross settlement system is indeed different from the net settlement system used in clearing. In a clearing system, settlement takes place in a process called offsetting. That means that claims are subtracted by the bank’s liabilities to other clearing banks to obtain a net position at the end of the clearing period. The clearing mechanism takes a longer time to process funds transfers compared to the BI-RTGS system.

4.
Q: If almost all banks are BI-RTGS members, why do funds transfer charges vary from bank to bank?

A: It should first be clarified that banks transferring funds on the BI-RTGS system are charged Rp 7,000 per transaction from 07:00 to 15:00 hours local time in Jakarta. From 15:00 to 17:00 hours, during what is customarily referred to as the cut-off period, the BI-RTGS system charges Rp 15,000 per transaction. In regard how banks calculate their charges for funds transfers, this is left entirely to the discretion of the individual bank. The calculation of these charges also depends on operating costs, investment and other costs related to the use of the RTGS system. Banks can therefore be expected to set varying levels of transfer charges.

5.
Q: Can you explain the funds transfer mechanism used in the BI-RTGS system?

A: Because the question is about the mechanism, the answer is somewhat technical but not too complicated. From a high-level perspective, the system can be explained as follows. Each BI-RTGS member bank will input funds transfer orders into the RTGS terminals installed at member banks. These orders will then be forwarded to the RCC, or RTGS Central Computer, the heart of the processing system at BI. The RCC will then initiate processing and check the account balance of the bank sending the funds transfer order. If the account of the sending bank at BI has sufficient balance, i.e. is equal to or greater than the amount of the funds to be transferred, the RCC will execute the funds transfer by simultaneous posting to the accounts of the sending bank and the receiving bank. However, if the sending bank has insufficient account balance, the credit transfer order will be placed in the queue in the RTGS system. As explained, the RCC will continually check the account of the sending bank for sufficient balance to process the funds transfer. If there is sufficient balance, the funds transfer will proceed immediately.

6.
Q: But isn't there any facility or mechanism for a BI-RTGS member bank with insufficient balance to complete a transaction?

A: There is. To cover this, the central bank provides the Intraday Liquidity Facility (FLI). This facility enables RTGS member banks with insufficient balance to keep processing transactions in order to maintain the smooth flow of payments among members. Of course, to use the BI-RTGS system, each member is required to maintain a high level of liquidity throughout the day.

7.
Q: How much is permitted to be transferred through the BI-RTGS mechanism?

A: There is no limit on the amount of a transfer. Any amount can be transferred through the BI-RTGS system. It is true that certain times, such as in advance of religious festivities or official holidays, are marked by a massive surge in transaction activity. To keep the system working smoothly during periods of soaring transaction activity, BI has been compelled to impose restrictions on RTGS transactions above Rp 25 million.

8.
Q: If so, then it is important to maintain the smooth flow of transactions through the BI-RTGS system. But the risk of system failure is a real possibility. Can you explain what BI has done to anticipate this eventuality?

A: Of course, the transactions processed through the BI-RTGS system account for 95 percent of turnover in the domestic payment system. There is reason to be concerned about critical impact from BI-RTGS system failure. Even only a minor breakdown could affect financial system stability as a whole. For this reason, BI has given enormous attention to the security and reliability of the system.
To ensure the security and reliability of the BI-RTGS system, a series of tests was performed at each stage of development and system enhancement, for example, when developing encryption or the highly complex codes that could affect the networks to be used. BI also asked PT Telkom to conclude a service level agreement related to the provision of the network infrastructure used to support RTGS transactions. Moreover, there are regular performance upgrades for each computer used by BI, the system operator, and RTGS member banks. Each operational officer in charge of the system is registered and issued a password according to his or her powers and responsibilities. The BI-RTGS system is also provided with a backup system to cover the event of possible breakdown in the main system. The backup system is tested with all members each year to ensure that members are better prepared for possible emergencies in the main system.