In the world of payment systems, a transaction can be made at any merchant or ATM using a credit card or ATM card issued by any bank. When the bank operating the ATM/POS differs from the card-issuing bank, this transaction becomes subject to clearing:
So what does netting mean in the clearing system?
Netting:
Netting is the process of offsetting the receivable and payable amounts arising from the transactions a participant has sent and received, converting them into a single receivable or payable.
For example, suppose a total of 1,000 TL in transactions is made with Bank B's card at Bank A's POS terminals. On the same day, suppose 400 TL in transactions is made with Bank A's card at Bank B's POS terminals.
Instead of Bank A paying Bank B 1,000 TL and Bank B paying Bank A 400 TL, netting is applied and settlement is carried out with Bank A paying Bank B 600 TL.
An example of netting
If Bank A owes Bank B 1,000 TL and Bank B owes Bank A 700 TL, only a single obligation remains after netting: Bank A pays 300 TL. When hundreds of banks are involved, this method greatly reduces the flow of money.
This reduces the liquidity banks need for settlement and makes the payment system run more efficiently. The result of daily netting is closed out through central bank accounts.
Because errors in netting can lead to major reconciliation discrepancies, the accuracy of the records is critical.
