The Reserve Bank Information & Transfer System (RITS)

The Reserve Bank doesn’t just decide interest rates. It’s also responsible for Australia’s electronic payments system. Here’s a quick overview with a trigger warning: this explanation contains a large number of acronyms!

The Reserve Bank Information and Transfer System (RTIS)

The Reserve Bank Information and Transfer System (RTIS) is the central platform for settling transactions in our interbank payment systems. This provides Real Time Gross Settlement (RTGS) services, ensuring:

• Real-Time Settlement

• Liquidity Management (for banks)

• Security

• Integration (Australian financial market infrastructure, including the New Payments Platform (NPP).

The New Payments Platform

So, what’s the NPP? The New Payments Platform is infrastructure for instant payments. It launched in February 2018 and includes the Fast Settlement Service (FSS), which does exactly what it’s name suggests:

• Real-Time Payments: FSS allows instant transfer of funds between accounts at different financial institutions, 24/7 (eg OSKO, which also allows fast payments to be made using an alias such as a mobile number).

• Settlement: individually and immediately.

If you’re thinking “but why aren’t all of my payments processed immediately?” here’s why:

For many bank payments we still use a system developed in the 1970s - the Bulk Electronic Clearing System (BECS). BECS was designed to run on the mainframe and mid-range systems that were common in the banking sector during the late 1970s and 1980s. This included hardware from manufacturers like IBM, which dominated the market with their mainframes and mid-range AS/400 systems.

(Side note: if you know an accountant or bookkeeper who performed data entry on AS/400 systems - telling them GUIs are better is a great way to start an argument)

BECS was created to move payment systems from manual paper-based systems that were slow and prone to error, like cheques. This is roughly what the cheque process looked like:

• Cheque Issued: The payer wrote a cheque and gave it to the payee.

• Cheque Deposited: The payee deposited the cheque into their bank account.

• Bank Processing: The payee's bank physically transported the cheque to the payer's bank, usually through a clearinghouse.

• Clearing: The payer's bank verified the cheque details, checked for sufficient funds, and processed the payment.

• Settlement: Funds were transferred from the payer's account to the payee's account.

• Notification: Both banks updated their respective customers' account balances.

Despite its age, BECS still handles a substantial volume of transactions - on average about 5.5 million transactions DAILY. It’s still critical infrastructure! The RBA has a target to decommission BECS by June 2030, at which point that 2+ billion annual transactions will move over to the NPP.

As you can imagine, this is a mammoth project, and the consequences of failure would be … not ideal.

The RBA publishes updates every two years. The most recent review was released on 12 June, and the project and associated risk management seems to be going well, thank goodness.