Banks maintain accounts with the Reserve Bank in order to transfer value between one another. When a bank sends a payment to another bank the sending bank also advises the Reserve Bank to transfer the equivalent value from its account at the Reserve Bank to the receiving bank's account. Once the Reserve Bank has transferred the value between the sending bank's account and the receiving bank's account, it will not be reversed. Before the RTGS system was implemented, this transfer between the accounts at the Reserve Bank only took place once a day on a net aggregated basis. Under that regime, if a bank could not meet its payment obligation at the end of the trading day then theoretically all payments for the previous day would be reversed.
Settlement risk continues after the customer accounts have been updated.
The complexity of unwinding this process was unacceptable to the Reserve Bank. This occurs after overnight processing is completed and is normally finalised before 8.40am. With the RTGS technology and processes in place, development of customer services such as SCP is now possible. SCP offers irrevocable payments to the customers of banks. SCP is a domestic payment system - only NZ dollar currency transfers are accommodated.