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Home > Markets and Payments > Deferred net settlement service

Deferred net settlement service

​Accounts in the Bank’s Real-Time Gross Settlement (RTGS) system are used to settle the net obligations arising from customer transactions for the main sterling retail payment systems. Each retail system settles on a multilateral, deferred net basis:

  • Clearing and exchange: The sterling retail systems do not require RTGS to be open for the clearing and exchange of customer instructions between direct participants. Some of the systems already provide 24/7 payment services to customers. Processing customer payments occurs in other infrastructure, outside of the RTGS system.
  • Multilateral net: Settlement takes place between the RTGS accounts of direct participants on a multilateral net basis i.e. a single amount is paid or received by each direct participant, equating to the net of all payments made to and from all other direct participants.
  • Deferred: Settlement takes place after the individual customer payments are cleared, exchanged and posted to customer accounts. In the UK this ranges from Bacs, which settles once every business day, to Faster Payments, which settles three times every business day.

Unlike for CHAPS, the Bank does not settle individual customer transactions. The retail systems can continue to process customer payments when the Bank’s RTGS system is closed including, in some cases, overnight and at the weekend.

Retail payment systems that settle at the Bank

Each system determines its own access criteria as well as the number and duration of settlement cycles. If not all direct participants are eligible for an account in RTGS, ineligible institutions use the services of one of the other direct participants to settle their obligations arising from the payment system.

Bacs. The UK's ‘automated clearing house’, processing Direct Debits (utility bills, subscriptions) and Direct Credits (salaries, pensions, benefits) across a three day cycle with net settlement taking place once a business day in RTGS. 

Faster Payments Service. FPS provides near-real time payments 24/7 and is used for standing orders, internet and telephone banking payments. FPS settles net, three times every business day in RTGS.

Paper-based cheque and credit clearings. Net settlement of cheques and paper credits in RTGS between financial institutions operates on a three day cycle.

LINK, the UK's ATM network settles in 24 hour cycles; cycles that take place over the weekend and on public holidays all settle on a net basis on the following business day in RTGS. 

Visa Europe, one of the card systems (for Visa debit, credit and prepaid cards) which settles in 24 hour cycles. Cycles that take place over the weekend and on public holidays all settle on a net basis on the following business day in RTGS.

The Bank provides additional services in relation to Bacs, Faster Payments and the cheque and credit clearings to help reduce, or eliminate credit risk between the direct participants.

  • For Bacs and Faster Payments, direct participants hold a portion of their balance in a Collateralisation Account (one for each scheme membership) to cover the maximum possible net debit positions they could reach. If a participant defaults, the cash set aside can be used to complete settlement.
  • For Cheque and Credit, the Bank manages a pool of collateral provided by direct participants to cover a failure or delay in settling by one or more direct participants.

System operators