What aspect of an instant payment scheme reduces settlement risk?

Immediate or near real-time settlement is key in reducing settlement risk within an instant payment scheme. Settlement risk arises when one party completes their part of the transaction (such as sending money) but the other party does not, potentially leading to financial losses. By ensuring that transactions are settled instantly or very quickly, both parties can have immediate certainty that the transaction is complete and irreversible. This minimizes the duration of exposure to risk since the funds are transferred and confirmed almost immediately, thereby eliminating the window of time during which one party could default on the obligation.

In contrast, options involving higher liquidity, complex transaction processes, or continuous transaction fees do not directly address the timing and finality of the payment settlement, which are critical components in mitigating settlement risk. Their roles may pertain to operational efficiency or cost management rather than the core issue of risk associated with the delay in settlement.