Central Bank rolls out safe-tt

The Central Bank has introduced a new system called Real Time Gross Settlement system (RTGS) or safe-tt,  to clear and settle TT dollar payments between commercial banks. The system, which  came into effect on October 14, not only reduces the risks of a transaction but caters for businessmen who deal in large sums of money. “The importance of this new system is that payments can now be settled faster, safer and generally in a more efficient manner,” according to the Bank. Any payment made in a form other than cash requires some arrangement whereby the money value passes from the payer to the payee, the Bank noted, and pointed out that examples of non-cash forms of payment are cheques, debit/credit cards and other electronic payments. The arrangement is referred to as the clearing and settlement system. In general, arrangements for paper-based payments involve a longer time span than those for electronic forms.

Cheques may take as much as four days to clear and settle. In Trinidad and Tobago, it is generally only after this time that the payee receives the money. For large sums of money, $500,000 and over, for instance, there are arrangements in place to clear and settle cheques in a shorter time, but until the money moves from one bank to another, the payment is not assured. “In other words, the payment can be reversed. In the period of time between receiving the payment instrument, eg a cheque, and receiving the money (without the possibility of a reversal) the beneficiary has some uncertainty about his funds,” the Bank said. Banks also, to the extent that they give access to the funds before receiving the money, run risks, the Central Bank said. The risks are compounded where, particularly in the case of large sums of money, the receiver was planning to use the money to settle obligations to others. In order to prevent these risks and also to provide businesses and individuals with clearing and settlement systems that are comparable to those in the developed world, the Central Bank introduced the RTGS,  named safe-tt.

Here’s how it works:
Businesses will request their bankers to make their large value TT$ payments through safe-tt and also request their creditors to pay them through safe-tt. The minimum requirement would be the account information of the beneficiary and sufficient funds into the payer’s account. The bank would send a payment request through the Central Bank which would debit the paying bank’s account and credit the beneficiary’s bank account, passing on the information on the beneficiary to the receiving bank. This all happens electronically using the SWIFT messaging system which was previously used only for international payments. The system is being used for large value and time critical payments since it is most cost effective in these cases, the Bank stressed. The Bank is also working with the commercial banks to improve arrangements for smaller value payments, noting that another automated system, an Automated Clearinghouse (ACH), is to be introduced in 2005 to meet this need. The ACH would be a facility for clearing high volume, low value retail payments, including direct debits and credits, in a batch system. This other system is a multilateral net settlement arrangement which is more cost effective for large numbers of small value payments, the Bank said.