Wholesale payment systems can be categorized as one of the three different types: these are 'netting' system, 'real time gross settlements' system (RTGS) and 'hybrid' systems.

Netting systems are primarily based on simple assertion that the net payment position of an institution can be viewed as sum of all the inward transfers minus sum of all the outward transfers. This simple formula can give the net settlement position of any financial institution.

The RTGS systems, as the name suggests, on the other hand, comprises of continuous settlements on gross basis transaction by transaction in real time on either bilateral or multilateral basis between the participating institutions. The hybrid systems could be viewed as a mix of the above two.

RTGS system could be defined as ""a funds transfer system in which payment orders are processed one by one in real-time; and which provides for the immediate settlement of all payments provided that there are enough funds or overdraft facilities on the issuer account with the settlement agent".

The settlement agent can be defined as "a settlement agent, in order to eliminate settlement risk and ensure that payments are settled immediately and irrevocably, must be an agent which runs no risk of failure, i.e. a central bank."

A joint study of the World Bank and the IMF have indicated that payment systems in as many as 42 countries were non-compliant with the established guidelines and need serious investment in upgrades and implementation in order to make them compliant with the Basel 11 guidelines.

Some of the few key countries currently deployed with RTGS are Japan, Hong Kong, Singapore, China, Thailand, Malaysia, Vietnam, Korea, Taiwan and Turkey. Apart from these, RTGS systems are currently under deployment in Pakistan Philippines, Sri Lanka, India, Oman, and Iran.

The State Bank has been taking the lead in deploying RTGS. The SBP has been actively developing strategy with the banking sector for improving existing payments systems in line with international best practices and to effectively regulate them on continuing basis.

RTGS system, scheduled for roll out during 2005, will be another milestone in the reforms of the banking sector by bringing it at par with economically developed countries. RTGS introduces and bring efficiencies in inter bank settlements through rapid, electronic means of payment systems settlements.

The banks in Pakistan are driven right now to be Basel 11 compliant. Basel 11 is a set of core framework policies which encompasses the entire risk dimension of financial institutions on global scale.

Basel 11 is essentially the name of the accord which was finalized in Basel, Switzerland and is driven primarily by the need for a systemic risk assessment and categorization of banks. Part of Basel 11 accord covers payment systems transcending both national and international boundaries. The Basel 11 guidelines for payment systems are as follows:

1) The system should have a well-founded legal basis under all relevant jurisdictions;

II. The system's rules and procedures should enable participants to have a clear understanding of the system's impact on each of the financial risks they incur through participation in it

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access

X. The system's governance arrangements should be effective, accountable and transparent

The BIS guidelines on implementation of Basel 11 accord covering payment systems place key responsibilities on the central banks from both monitoring as well as compliance perspectives.

These responsibilities include ability of central banks to effectively monitor the inter bank payments, arbitrage in case of disputes, traceable audit trails for payment instructions, ensuring dependability and usability quality of payment systems, and public disclosure on the risks associated with such payment systems.

The central bank, where possible and appropriate, could be the prime mover of implementation of such payment systems and, oversee adherence to the above given core guidelines, for payment systems beyond its logical boundaries and deployed within third parties.