Clearing: A Crucial Component in the Banking System

Last updated on June 7th, 2024 at 04:48 pm

Clearing is an essential part of the banking system, facilitating the exchange of information and the settlement of transactions between banks. This article will discuss the definition, benefits, types, and how clearing works in the context of the banking system.

Understanding Kliring

Clearing is the exchange of financial data between clearing participants, with calculations completed at a specific time. The clearing process involves the electronic exchange of financial data or documents such as checks between participants or on behalf of their customers.

The primary role of clearing is to ensure smooth financial transactions within the financial system. According to the Indonesian Dictionary (KBBI), clearing refers to the process of settlement and payment between banks through the transfer of balances to the entitled parties. This method involves transferring funds between accounts, which may take several business days before the funds are received by the rightful party.

How Does Clearing Work?

According to Bank Indonesia, the clearing process involves several steps, including the collection of transaction data, submission to the clearing institution, data matching, transaction calculation, financial settlement, result reporting, and final settlement.
Bank Indonesia plays an oversight and regulatory role in the clearing process to ensure the smooth operation and integrity of the financial system.

Benefits of Clearing

Clearing offers key benefits in the financial system by speeding up and automating the settlement of interbank transactions. It reduces the risk of errors and increases efficiency in managing funds, which are positive outcomes of implementing clearing.

Clearing simplifies payments, makes it easier to monitor financial transactions, and provides certainty regarding funds to participants after the process is completed. The clearing system helps integrate participants into a larger financial ecosystem.

Additional benefits of clearing include the reduction of operational and administrative costs, as well as support for regulatory oversight, which helps maintain stability and efficiency within the financial system.

Types of Clearing

Clearing has several types that differentiate the way it is carried out, including general clearing, local clearing, and inter-branch clearing:

General Clearing

General clearing is a mechanism for calculating banking documents, monitored by the central office of Bank Indonesia. Here, the clearing system and rules are strictly supervised by Bank Indonesia.

Local Clearing

Local clearing, like general clearing, is also used for the calculation of documents between banks. However, local clearing is not directly supervised by Bank Indonesia. Instead, the applicable rules and regulations are managed by specific regions or territories.

Inter-branch Clearing

Inter-branch clearing is used for the calculation of banking documents within a specific region, similar to local clearing. However, inter-branch clearing centralizes the calculations at specific branch offices, facilitating the clearing process within a region.

Each of these types of clearing plays a specific role in ensuring the smooth transaction of financial activities at different levels and locations.

Is Clearing the Same as Transfer?

Clearing and transfers are two distinct concepts in banking and finance. Clearing involves the exchange of transaction information between banks or clearing participants, often used for settling mass payments like checks and giro transfers. 

Clearing typically takes several business days before the funds are made available to the recipient. On the other hand, a transfer refers to the direct movement of funds from one account to another without involving the exchange of physical transaction information between banks. 

The funds in a transfer are usually available immediately after the transfer is made. Transfers are commonly used for individual payments or transfers between users. 

So, while both involve the movement of funds, clearing and transfers differ in how the transaction information is processed and the time required for the funds to be made available.

The Clearing Process at Bank Indonesia

The clearing process at Bank Indonesia involves gathering financial transactions from various banks, such as checks, giro, and interbank transfers. Transaction details are sent to the Bank Indonesia clearing system, where data is matched, and account availability is verified. 

After data matching, the transaction is settled by transferring funds from the source account to the recipient’s account. This process ensures accurate and efficient transaction settlement between banks, reducing the risk of payment errors and ensuring the smooth flow of funds.

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National Bank Clearing System (SKBNI)

The National Bank Clearing System (SKBNI) is the system used by Bank Negara Indonesia (BNI) to carry out the clearing process in various forms, including Debit Clearing and Credit Clearing. Below is a brief explanation of both:

Debit Clearing

Debit clearing allows banks to settle payment transactions by debiting a customer’s account. This is commonly used to credit a third party’s account or another bank’s account for a transaction. 

For example, when you make a purchase using your debit card at a store, debit clearing enables funds to be transferred from your account to the store’s or the third party’s account.

Credit Clearing

Credit clearing is the reverse process, where funds are credited to a customer’s account. This is used when you receive funds or payments from another source into your bank account. 

For example, if someone transfers money to your account, credit clearing will credit your account with the appropriate amount.

Clearing Mechanism

The clearing mechanism includes three main aspects: Delivery Clearing, Return Clearing, and the Clearing System. The clearing system has evolved from manual to automated processes, with key differences in automation levels and efficiency. Here is a brief explanation:

Delivery Clearing

Delivery clearing is part of the clearing mechanism that involves the physical submission or transfer of funds between parties as part of settling a financial transaction. This can take the form of checks, giro, or other financial instruments that must be physically submitted.

Return Clearing

Return clearing allows a transaction that is incorrect or invalid to be returned or canceled. This may occur if there is an issue with the transaction, such as a rejected check or problematic giro.

Clearing System 

The clearing system encompasses various levels of automation in the transaction settlement process. It includes:

Manual System

A clearing process that is carried out manually, with human involvement in the exchange of information and transaction settlement.

Semi-automated System

Most of the process is carried out automatically, but human intervention is still required at certain stages.

Electronic Clearing System

A fully automated clearing process using electronic technology, such as computer systems and specialized software.

Automated System

A clearing process that is entirely automated, with no human involvement in transaction settlement.

The transition from manual to automated systems has greatly enhanced the efficiency and speed of financial transaction settlements, which is crucial in modern banking and finance.

Examples of Clearing

Examples of clearing involve the use of various financial instruments, such as:

Bills of Exchange

A financial instrument used in the clearing process, which is a written order directing the bank to pay a specified amount of money to the designated recipient. 

Checks

Commonly used financial instruments in the clearing process. 

Giro Cheques

A financial instrument allowing the owner to instruct the bank to pay a specified amount to a designated third party. This is also used in the clearing process.

Debit Notes

A financial instrument used to debit someone’s account for a certain amount. It can be used in the clearing process to facilitate interbank payments.

Read Also: How to Transfer Money Abroad

Other Instruments Approved by Bank Indonesia

Bank Indonesia has specific requirements and guidelines regarding which financial instruments can be used in the clearing process. In addition to the instruments mentioned above, there are other financial instruments that can be used if approved by Bank Indonesia.

Differences Between Clearing and RTGS

Clearing is the process of exchanging information and settling transactions between banks, involving the settlement of funds over several business days. It is used for mass transactions such as checks, giro, and interbank transfers. 

In contrast, RTGS (Real Time Gross Settlement) enables real-time or near-instantaneous settlement of transactions, with funds available immediately after the transaction is made. RTGS is more suitable for individual transactions or those requiring immediate settlement, although it often comes with higher fees. 

While clearing is slower, it remains an economical option for mass transaction settlements.

As a fundamental component of the banking system, Clearing plays a vital role in ensuring the efficient and accurate settlement of transactions between banks. I hope this explanation of clearing, its types, and how it works has provided a clearer understanding of this key element in the banking world and how it supports our daily financial activities.