RTGS in banking

Real Time Gross Settlement (RTGS) is an online system for settling transactions of financial institutions, especially banks. 

RTGS systems are  push payment systems with transactions initiated by the paying bank. If Bank A or one of its customers needs to pay $1,000 to Bank B or one of its customers,Bank A initiates the transaction and Bank B is immediately paid $1,000 electronically by Bank A. There is no physical exchange of money.

Examples of RTGS systems include CHAPS in the UK and Fed Wire in the United States. Each country has its own RTGS system. This electronic payment system is normally maintained or controlled by the central bank of a country. The RTGS system is suited for low-volume, high-value transactions. It lowers settlement risk, besides giving an accurate picture of an institution’s account at any point of time. 

Such systems are an alternative to systems of settling transactions at the end of the day, also known as the net settlement system such as BACS. In the net settlement system, all the inter-institution transactions during the day are accumulated. At the end of the day, the accounts of the institutions are adjusted. Extending the example above, say another person deposits a check drawn on Bank B in Bank A for $500. At the end of the day, Bank A will have to "electronically" pay Bank B only $500 ($1000 - $500).

In an RTGS system, transactions are settled across accounts held at a Central Bank on a continuous gross basis. Settlement is immediate, final and irrevocable. Credit risks due to settlement lags are eliminated.