In December 2009, the CBN in a circular to deposit money banks entitled 'Maximum Limit on Cheque Payment' set a maximum limit on cheque payment at N10 million with effect from jan 1st 2010. Noting that any payment value exceeding N10 million should be made through the e-payment mode such as the Central Bank Interbank Funds Transfer System (CIFTS ie RTGS) and Nigeria Interbank Settlement System Electronic Funds Transfer (NEFT).
Again, the CBN in a circular to all deposit money banks (DMSs) in the country has directed that effective june 1, 2012, the daily cumulative free cash withdrawals and lodgements by individual and corporate customers must not exceed a maximum of N150,000 and N1 million ( this has been reviewed further to N500,000 and N3 million) respectively.
Consequently, a penalty of N100 per N1000 will be imposed on all individual cash transactions in excess of the limit, while corporate customers are to pay a fee of N200 per N1000.
The Circular added that, "contravention of this policy shall attract a fine of five(5) times the amount that the bank waives as a first offender, while the bank shall, subsequently pay ten (10) times the charges waived."
The above necessitates that all everyone understand the varied payment system in the country in order to educate our family and friends.
THE IMPORTANCE OF THE PAYMENT SYSTEM
The payment system of every country plays a very crucial role in its economy, because it forms the channel through which financial resources flow from one segment of the economy to the other. It therefore, represents the major foundation of the modern market economy.
It can be said therefore that the payment system in an economy plays three pivotal roles namely;
1. The monetary policy role.
2. The financial stability role.
3. The overall economic role.
In pursuit of a sound and sustainable payment system therefore, the CBN executed a reform of thr existing Real Time Gross Settlement (RTGS) scheme which was instituted in 2006.
WHAT IS RTGS?
Real Time Gross Settlement System (RTGS) is a funds transfer system where money is transfered from one bank to another on a "real time" and "gross" basis.
Settlement in "real time" means payment is not subjected to any waiting period i.e. transactions are settled as soon as they are processed.
"Gross Settlement" means that every transaction is paid for once without bunching or netting with any other transaction. And once processed, payment is final and irrevocable.
The core banking system (software) of each bank records the transactions of its customers for the bank's books while the RTGS transactions that take place for each bank is recorded in the books of the central bank.
Banks can access the RTGS system bu linking their core banking system software to the participants and web interface provided by the central bank.
The alternative to the RTGS is the NEFT transfer where settlement happens in a batch process, typically at the end of the day. The batch contains list of transactions and the sum settled is the net amount to be transacted between organizations.
RTGS vs NEFT
In NEFT system, the participating banks are to pay only the net difference of debit and credit of the transaction between them where as in RTGS each transaction is effected individually. Because of this nature, RTGS demands more liquidity o be available with the participating banks.
Example::
ABC-BANK is to pay XYZ-BANK the sum of N100,000 while
XYZ-BANK is to pay ABC-BANK the sum of N75,000.
In the NEFT system, the two transactions would be netted and one transaction from ABC-BANK to XYZ-BANK for the sum of N25,000 will be effected. Hence the total liquidity in the system needed for settling these two transactions is N25,000 which will be passed in only one credit entry.
In RTGS, the two transactions would be settled as individual transactions therefore, two transactions one for N100,000 and another for N75,000 will be effected. Hence the total liquidity in the system needed is N175,000.
Therefore though RTGS system has many advantages, its high liquidity need is a drawback. CBN is however expected to provide the additional liquidity needed by RTGS to the commercial banks.
BENEFITS OF RTGS
1. Receipt of funds is fast and secure
2. Funds will be available for use within hours from effecting the transfer
3. No issue of lost or misplaced cheques.
4. The ability to receive large value and time critical funds in real time
5. Payments are final and irrevocable
6. Reduced risk of cheque fraud
7. No issue of "bounced" cheques.
8. Competitive pricing
9. It allows for easier reconciliation of accounts as payments are immediate.
FAQ
Q:: What information is required to effect RTGS transfer?
A:: Payee's name, payee's account number, Bank's name and branch
Q:: If I use RTGS, what evidence is there that i have made the payment?
A:: You will be issued with a receipt as a proof of payment. Payees should also check their accounts to ensure that funds have been received.
Q:: What is the time frame for receiving funds after it has been sent via RTGS?
A:: The beneficiary bank is expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank would ordinarily be expected to credit the beneficiary's account withing 2 hours of receiving the funds transfer.
Q:: Is there a cut-off time for RTGS payments?
A:: Customers will be able to make RTGS transactions on weekdays during banking hours. Transactions submitted outside of this period or on weekends and/or public holidays will be processed on the next business day.
