What impact does real-time settlement have on settlement risk?

Real-time settlement significantly reduces settlement risk by allowing transactions to be executed and settled instantaneously or nearly so. In traditional settlement systems, there might be delays between the time a transaction is initiated and when it is completed. During this delay, the risk of one party defaulting increases, as the funds or securities may not be available to the other party when expected.

By implementing real-time settlement, both parties can confirm that transactions are completed immediately, which mitigates the risk of one party not fulfilling their end of the deal. This immediate transfer of value and ownership means that once a transaction is initiated, it is completed almost instantaneously, effectively minimizing the window for potential defaults. As a result, real-time settlement helps to enhance the overall stability, efficiency, and trust in payment systems, making it a better option for financial transactions.