Reserve Bank of Australia - Payments Settlements

Summary

This video explains the role of Australia's Payments Settlements Department in facilitating payments across financial institutions. It highlights the process of settling high-value payments in real time through the Reserve Bank's RITS system, while low-value payments are settled the following day. The department also supports the development of a new real-time payments platform, allowing users to send payments instantly with remittance information. This innovation promises to streamline transactions, such as buying a car, by enabling immediate payment confirmation and enhancing efficiency within the Australian economy.

Takeaways

• 😀 Payments are considered the 'plumbing' of the economy, facilitating the exchange of goods and services.
• 😀 Over half of payments involve buyers and sellers banking with different institutions, requiring interbank transfers.
• 😀 In Australia, payments between financial institutions are settled through exchange settlement accounts at the Reserve Bank.
• 😀 High-value payments are settled in real time to minimize risk during the transaction process.
• 😀 Low-value payments, such as card and EFTPOS transactions, settle the next business day, except for direct entry payments which settle the same day.
• 😀 The Reserve Bank Information and Transfer System (RITS) is responsible for settling around $170 billion in high-value payments daily.
• 😀 RITS also handles approximately $7 billion in low-value payments each day.
• 😀 The Payments Settlements Department manages settlement for Reserve Bank-initiated transactions, such as open market operations.
• 😀 The department also handles settlement for transactions initiated by overseas central banks that use Australia's Reserve Bank.
• 😀 Innovation is a key focus for the Payments Settlements Department, especially with the development of a new real-time payments platform.
• 😀 The new platform will allow for real-time payments, enabling beneficiaries to see payments instantly and provide detailed remittance information.

Q & A

What role does the Payments Settlements Department play in the Australian economy?

The Payments Settlements Department is responsible for running the system that enables the settlement of payments across financial institutions, ensuring the smooth transfer of money between buyers and sellers.

How does payment settlement occur when buyers and sellers bank with different financial institutions?

When buyers and sellers bank with different institutions, money must flow from one financial institution to another to complete the payment. In Australia, this settlement happens across exchange settlement accounts at the Reserve Bank.

What is the significance of real-time settlement for high-value payments?

Real-time settlement for high-value payments eliminates the risk related to the obligation between financial institutions, ensuring that payments are settled instantly as they are exchanged.

How does settlement work for low-value payments in Australia?

Low-value payments, such as those made by cards, direct entry, and EFTPOS, are settled after the exchange, usually at 9 a.m. the next morning. Direct entry payments, however, are settled later on the same day of exchange.

What is the Reserve Bank Information and Transfer System (RITS)?

RITS is the system that settles payments in Australia. It settles around $170 billion in high-value payments and approximately $7 billion in low-value payments each day.

What other responsibilities does the Payments Settlements Department have apart from handling payments?

The Payments Settlements Department is also responsible for settling transactions initiated by the Reserve Bank, such as implementing open market operations, and settling transactions initiated by overseas central banks that bank with the Reserve Bank.

Why is RITS considered a critical component of the Australian financial system?

RITS is critical because it is essential to the smooth functioning of the Australian financial system. It is owned and operated by the Reserve Bank, and there is a heavy investment to ensure it is stable, reliable, and capable of meeting the needs of the Australian economy.

How is the Payments Settlements Department supporting innovation in the payments industry?

The Payments Settlements Department is actively supporting the development of a new payments platform that will enable real-time payments with remittance information, improving the speed and efficiency of financial transactions in Australia.

What benefits will the new payments platform bring to the Australian community?

The new payments platform will allow individuals to send payments in real time, enabling beneficiaries to receive and see the payment within seconds. It will also support sending detailed remittance information with payments.

Can you give an example of how the new payments platform could be used?

For instance, if someone buys an expensive car on the weekend, instead of writing a cheque, they could use their mobile phone to send a real-time payment to the car dealer. The dealer would immediately see that the payment has been made and could then hand over the keys.