What does the concept of deferred net settlement in payment systems entail?

The concept of deferred net settlement is characterized by processing payments in batches and then settling the net amount later. This means that instead of each transaction being settled immediately as it occurs, transactions are accumulated over a specific period. At the end of this period, the total net amount of transactions is calculated and settled. This approach allows financial institutions to manage their liquidity more effectively since they only need to settle the net differences rather than making multiple individual payments continuously. It is particularly useful in systems where large volumes of transactions are processed, as it reduces the overall settlement burden and can enhance operational efficiency.