Finance · Payments

Settlement (Payments)

Reference entry · last updated 20260910

Settlement discharges payment obligations through a transfer of funds. It follows clearing where a system uses a separate clearing process.[1]

1. First principles: settlement accounts

Institutions settle through accounts held with a settlement agent.[1] In PhilPaSSplus, BSP operates the system and holds participants’ peso settlement accounts.[6]

These accounts differ from customers’ deposit accounts. A customer credit or debit does not by itself identify the corresponding interbank settlement event.

2. Netting

Netting offsets mutual obligations by agreement.[2] Illustrative example: A owes B ₱900 and B owes A ₱400; their net obligation is ₱500 from A to B.

3. Finality

Settlement can be provisional or final. Finality concerns the point at which the transfer is irrevocable and unconditional under the applicable rules. A request to recover funds is a separate process.[5]

4. Prefunding

Prefunding places funds in an account before obligations must settle. InstaPay participants prefund net clearing obligations in demand deposit accounts at BSP. Indirect participants can use a sponsoring member.[3]

5. Real-time gross settlement

RTGS settles payments individually as they are processed. A retail system can also submit a net clearing result for settlement through an RTGS system. Each underlying customer payment remains distinct from that net posting.[4][6]