jamtronix

In the last post, I talked about 'Deferred Net Settlement', which is when each bank aggregates a days transactions, and then settles with each other bank the net total of all the days transactions with that other bank. In other words, 100,000 individual transfers might be rolled up in to one single inter-bank payment.

This approach is used for a couple of reasons:

1. It minimises the number of inter-organisation transfers of data (remember, this system evolved in the days when exchanging data with another organisation meant handing over big ol' mofo tapes.
2. It minimises the number of transfers between Electronic Settlement Accounts (ESAs) held by the RBA. As we'll see below, these transfers need manual authorisation.
3. The banks get to play with money being transferred for up to a 3 days before handing it over to it's final destination [1]

But some people just can't wait that long. When an investment fund screen-jockey likes his razor so much that he buys the company (or at least, $100M worth of shares in it), then the daily interest on the payment would be enough to buy a new car. Maybe not a beemer, but certainly a nice shiny yellow barina (with air) so the missus can pop out to the hairdresser [2]. And you don't get to be a Big Swinging Dick by leaving money on the table.

So the RBA runs a system called RITS - the Reserve Bank Information and Transfer System. This is currently an old-skool text-mode application. Any time a transfer is requested through this system, information about the transaction needs to be entered by both parties involved in the transaction. Only if both parties enter the same information will the transaction be processed. This stops the kind of massively expensive stuffups that can follow on from seemingly trivial typos.

As soon as both parties have authorised a transfer, and the RBA has confirmed there are enough funds in the ESA that the money is coming out of, the current balance of each party's ESA is adjusted. Each RITS transfer is acted on immediately, there is no batching netting of multiple transactions. This makes RITS a 'Real Time Gross Settlement' (RTGS) system.

RITS also has a number of 'feeder systems' that can post transactions in to RITS, which I will discuss in a later post. The daily net positions for BECS direct entry transactions are also batch loaded in to RITS.

So now let's follow a direct deposit transaction through the systems again to see how everything hangs together.

First, I use the Bank 1 website to request a $106.98 transfer. I enter the BSB assigned to a branch of Bank 2, and the account number of a customer of that branch. Immediately, Bank 1 debits my account balance (stored in the database they control) and stores somewhere the fact that there is a direct deposit to be processed overnight.

Overnight, Bank 1's BECS processing application gets this transaction, and puts it in a file along with all the other BECS direct entry transactions initiated by Bank 1 customers to be sent to Bank 2. This file then gets sent (most likely via FTP) to Bank 2. Bank 1 and Bank 2 the independantly calculate the net movement of money between Bank 1 and Bank 2, and notify the RBA (via RITS) what amount needs to be settled. The RBA adjusts the ESA balances belonging to both Bank 1 and Bank 2, and finally bank 2 adjusts the record of the recipient's bank account, stored in the database that bank 2 runs. Finally, when the recipient logs in to their banking website, they will see that their balance has been increased.

Simple, really.

Next post I will talk about the CECS system used for processing credit card and debit card transactions via EFTPOS.

Footnotes

• [1] By 'play' I mean 'invest in the short term money market', not 'pile up in a big heap and roll around in'.
• [2] RRP is current at time of writing and may change without notice. Does not include on road costs or dealer delivery charges.