Overnight batch transfers and 24-hour transaction times between banks may become a thing of the past following an upgrade to the cash-clearing infrastructure used by the Reserve Bank of Australia (RBA).
As customers go about their day-to-day financial transactions, back-end banking infrastructure works to send file transfer requests between banks, requesting updated information on who owes what to whom.
Information is passed through to the Reserve Bank Information and Transfer System (RITS), which clears low-value transactions between banks and other financial institutions and works to settle them all in a batch process at 9am the next day.
The RBA is now working to upgrade the way transactions are cleared and settled with an ongoing software upgrade.
The upgrade involves not only an overhaul of the RITS code, but a change in the way banks transfer information. Currently, banks exchange transactional files several times per day to update customer transactions, as well as clear and settle cash. For example, a file exchange at 10am will also send what's known as a file settlement instruction to the RBA. The RBA will then build an advance copy of what is to be settled for batch settlement the next day.
With the new system, banks will be able to send the file settlement instruction earmarked with a command that tells the RBA to settle the transaction instantly, meaning that if a bank has a core banking system that enables real-time transactional banking, customers could see funds transferred instantly between institutions.
What it means for banks
The RBA lays down infrastructure for Australian financial institutions to take advantage of, such as the newly constructed bilateral network that operates hand in hand with the RITS overhaul and the local implementation of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, which both set secure standards for sending messages between institutions.
Although these upgrades that the RBA continues to implement will gradually become available to banks over the coming year, without the right core systems and supporting transaction handling processes, the modernisation will make little difference since transactions will be held up by the banks' own systems.
Banks including the Commonwealth Bank, National Australia Bank and Westpac have flagged core-banking migrations, with the Commonwealth Bank ahead of the game, having implemented real-time banking for transactional customers late last year.