Difference between RTGS and EFT

Key Difference: 'RTGS' stands for Real Time Gross Settlement. It is an online system through which the funds can be transferred from one institution to the other in real time and on ‘gross’ basis. 'EFT' stands for Electronic Fund Transfer. Like RTGS, in EFT settlements, the funds can also be transferred from one EFT enabled branch of bank to the other EFT enabled branch of same bank or other bank. EFT operates on a deferred net settlement (DNS) basis and the settlements are done at particular timings and in batches.

EFT and RTGS are the terms that are used in context to bank transactions. In a broader sense, both these terms are related to electronic money transfer from one bank to another bank. In India, both EFT and RTGS mechanism are maintained by Reserve Bank of India to ensure the security of transaction.

'RTGS' stands for Real Time Gross Settlement. As the name indicates, a settlement in RTGS is done on a real time. It is an online system through which the funds can be transferred from one institution to the other. Banks are important institutions that use this kind of settlement. This electronic payment system is normally controlled by the central bank of a country. This involves no physical exchange of money but the values in the electronic accounts are changed.

All transactions sent through RTGS are queued and submitted on the basis of ‘First in first out’. RTGS enabled banks can also prioritize the transactions according to the requirement. Transactions are settled on one to one basis without clubbing with other transaction. Transactions between banks are settled on a continuous gross basis (on a transaction by transaction basis) with the Central Bank.

In RTGS, the transactions are processed continuously. Therefore, the transfers are quick and very useful during emergencies. It is a real time processing system thus, there is no waiting time attached with this system. Once the transaction is settled, it is irreversible. RTGS also helps in giving a clear picture of the accounts at any instance. The World Bank also offers help to countries who want to implement the system. RTGS systems are generally secure as they are designed by keeping the international standards in mind. Goals of RTGS:

1. To reduce settlement risk due to settlement lag

2. To reduce credit risk

3. Speed up the process of high value payments

4. To give accurate position of the participating bank

‘EFT’ stands for Electronic Fund Transfer. EFT enables the individuals or institutions to electronically transfer the funds from any bank branch to any individual or institutions that may have an account in any other bank branch. However, this may cover transactions with international banks also. For example,  EFT facility provided by Bank of Baroda in India allows electronic transfer of funds from this bank to any bank in Uganda via Bank of Uganda. NEFT on the other hand, deals with the transactions within the country.

EFT is an alternative settlement scheme under which the settlements happen in a batch process. Typically, at the end of the day the settlement is done. However, in some countries, the settlement in batches can be done at various durations of the day. The request received after the lapse of particular time interval has to wait for the next time interval.  Thus, the payment is not quick and the waiting time is more in comparison to RTGS. As, ‘NEFT’ is also an electronic fund transfer method, it is often used as EFT/NEFT indicating both EFT as well as National Electronic Fund Transfer.

In both the cases, the remitting customer gets back the money if it is not credited to the beneficiary account.

 

RTGS

EFT

Definition

Transactions are processed and settled in real time and on gross level

Transactions are processed and settled in batches, typically at the end of the day.

Money Transfer System

Swifter

Comparatively slow

Transactions

Focus on high value transactions

Usually any transaction

Inter-bank Payment

Participating banks pay only the net difference of debit and credit

Each transaction is generally settled individually

Amount

Minimum is fixed at a certain amount

No maximum limit

No minimum or maximum stipulation of amount.

Image Courtesy: kanyakabank.in, telegraph.co.uk

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