In global payment systems, money transfer between banks goes through precise stages, but two specific phases form the financial system's foundation: Clearance and Settlement.
Clearance
Clearance involves no actual money movement. It is a verification and matching process to ensure every transaction is valid before funds move. This role is often played by the system operator to ensure balance and safety before the next step.
Settlement
Settlement is the phase where actual funds move between banks, usually via the Central Bank. Here, real value is transferred, and the transaction is financially closed.
Why not one step?
Because Clearance is the safety valve. If every bank transfer settled instantly, banks would need massive ready liquidity, which is risky in a system with thousands of transactions per second.
Clearance calculates "Netting" (net obligations) for each bank first. The result: less frozen money, lower risk, and higher efficiency.
This concept exists everywhere, from RTGS and ACH to modern systems like UPI in India and PIX in Brazil. Clearance for safety, Settlement for finality.
"With this delicate balance, payment systems build their robust structure, allowing every Riyal to move with confidence and without error, even with millions of transactions per second."