Faster settlement of interbank retail transactions under efficiency and liquidity constraints

The businesses and bank clients are increasingly looking for cross-channel real-time transactions. This not only brings in innovative FinTech opportunities, but also poses challenges to the cash flow efficiency, liquidity allocation and risk resilience of the domestic interbank clearing infrastructure for faster payments. In this work, we aim to implement an overarching liquidity-saving mechanism that integrates real-time clearing/settlement, priority queue management, and hourly netting. This is validated by applying an original computational model to simulate the settlement processing of the ever-increasing volume of retail transaction data of mostly small amounts. Our simulations show enhanced settlement performance and reduced delays, helping us to better understand data heterogeneity and liquidity needs that should be aligned with various participating banks. The combination of value-based queuing and netting is found to be able to effectively speed up cash flow and prevent financial risk propagation, despite liquidity and other practical constraints.