What's RTGS and ACH?

If you've ever wondered how banks process large transactions or how your salary magically appears in your bank account, you can thank Real-Time Gross Settlement (RTGS) and Automated Clearing House (ACH) systems.

In this article, I'll simplify the complex world of high-value payments and explain how RTGS and ACH work in a way that even a "dummy" can understand.

RTGS: Instant and Secure Money Transfers

RTGS (Real-Time Gross Settlement) is what DHL Express is, a super-fast, high-security courier service but for money. When you make a payment, as an individual, financial institution or any other business, each transaction is settled individually and instantly via RTGS (for a single high value payment).

RTGS is one of the most used payment systems within Central Banks. Once a high amount of money (single transaction only) is transferred from one bank (A) to another bank (B), it is done and irrevocable.

This means that once the payment is initiated, the money is immediately transferred from the sender's account to the receiver's account, without any delay or risk of non-payment.

ACH: The Batch Processing

ACH (Automated Clearing House), on the other hand, is what a ferry is for people, cars and other goods, a cost-effective bulk delivery service - but for smaller payments. Instead of processing transactions individually, ACH systems group multiple transactions together and process them as a batch.

This allows banks to handle a large volume of low-value transactions, such as bill payments or direct deposits, in a more efficient and economical manner. While ACH may not be as instantaneous as RTGS, it still offers a reliable and convenient way to transfer funds, especially for recurring payments (your salary, utilities/bills payments, and whatnots).

To Recap How RTGS and ACH Work

Speedy Payments: With RTGS, Financial institutions can enjoy lightning-fast transfers, ensuring that money reaches its destination instantly. ACH, although not as immediate, still processes payments efficiently, saving time and effort.

Enhanced Security: RTGS provides a high level of security by guaranteeing that each transaction is settled in real-time, eliminating the risk of non-payment or fraud. ACH transactions are also secure, ensuring that funds are safely transferred between accounts.

Convenient & Cost-effective Transactions: ACH makes it easier for banks to manage recurring payments, such as utility bills or loan installments.

Conclusion: RTGS and ACH systems may sound complex, but at their core, they are simply mechanisms (Just kidding, not that simple behind the scenes, but you got the point) that allow for fast, secure, and efficient high-value payments.

The fun part is you don't need to have a background in finance; your bank (issuing) does the work in coordination with your country central bank and the receiving bank

So next time when Netflix debits your credit card you know which processes are actually triggered behind the scenes...