South African Multiple Option Settlement (SAMOS): How South Africa’s RTGS System Works

When we look at the history of payment systems in South Africa, we notice a gradual but efficient evolution. From slow and uncertain payment processing to fully automated, real-time settlements backed by the central bank itself, the country’s payment system has come a long way.

The evolution, no doubt, was driven by the need for a faster, safer and more reliable settlement infrastructure to accommodate the demands of a growing economy and complex financial markets.

SAMOS, launched in 1998 by SARB, the central bank of South Africa, has played a great role in this shift. Here, we’ll explore SAMOS and how it helps South Africa’s payment infrastructure.

South African Multiple Option Settlement (SAMOS) is South Africa’s real-time gross settlement (RTGS) system. It’s owned and operated by the South African Reserve Bank and is mainly used to process high-value payments between banks in real-time or at certain intervals.

SAMOS connects various banks, clearing systems, and operators in South Africa and is the main system that keeps money moving safely between banks in the country. Here’s what the system usually helps with:

1. Settles interbank obligations: SAMOS provides the facilities for banks to settle their obligations on a real-time basis. It is linked to the various participant banks, the designated settlement system, the clearing systems and operators.

2. Handles three main types of transactions: The SAMOS system supports the settlement of domestic individual high-value payment transactions, retail transaction batches, and bond and equity market settlement obligations.

3. Offers multiple settlement options: There are various settlement options, namely immediate settlement of a single transaction, bilateral and multilateral net settlement through netting arrangements and settlements done at pre-determined times.

4. Reduces settlement risk: SAMOS offers solutions for interbank payments to be settled in real-time, finally and irrevocably across the books of the SARB. Settlement risk is thus significantly reduced.

5. Supports monetary policy: Because SAMOS settles payments in real-time, decisions made by the SARB quickly flow through to banks and the broader financial system. This allows banks to respond faster and keeps the interbank and money markets active and efficient.

Here’s a step-by-step workflow of how SAMOS works:

Step 1: Payment initiation

The paying bank submits a payment instruction to the SAMOS directly or through clearing houses like BankservAfrica or central security depositories. The instruction is sent via SWIFT/ISO 20022 messaging.

Step 2: SAMOS’ validation and liquidity check

Each participating bank is supposed to have an account with the SARB from which interbank settlement obligations are settled. So, in this step, necessary checks are done to ensure that the bank has enough funds in the account. Also, the messaging format and participants’ eligibility are verified.

Step 3: Settlement

If enough funds are available, settlement happens immediately. Settlement is executed in real-time, finally and irrevocably across the SARB's books.

SAMOS primarily settles transactions individually and in full (gross). Each payment is processed separately without being combined with others. 

However, for certain payment streams like retail batches, transactions may be grouped together, and only the net difference is settled at pre-determined times.

Step 4: Queue management

In case sufficient funds are not available, an intraday loan is granted. What happens is that the central bank provides the participant access to the automatic intraday loan facility of SAMOS against acceptable collateral.

But if neither funds nor collateral are there, the settlement will be rejected. It will happen only when sufficient funds or collateral become available.

Note: When a transaction is settled via SAMOS, it is final. That means the payment is officially complete and cannot be questioned or disputed. It is also irrevocable, which means it cannot be reversed, cancelled, or taken back under any circumstances.

The goal of SAMOS is to have in place a payment system that enables safe, efficient, and reliable settlement of high-value interbank transactions. The following features support that objective:

1. Real-time gross settlement: SAMOS processes high-value interbank payments individually and in real time. Every transaction is settled separately instead of being bundled with others. This reduces settlement risk and leads to speed and precision in every payment.

2. Intraday liquidity management: If a bank runs low on funds during the day, SAMOS allows the SARB to automatically grant a short-term loan against collateral, so there’s no interruption in the payment process.

3. Central bank money settlement: All settlements happen directly across the books of the SARB. This is the most trusted and risk-free form of money in South Africa’s financial system. This prevents the risk of one bank defaulting on another.

4. Final and irrevocable payments: As discussed earlier, once a payment is settled in SAMOS, it cannot be reversed or disputed. This gives all participating banks complete certainty and confidence in every transaction.

5. ISO-aligned messaging standards: SAMOS uses modern payment messaging standards aligned with ISO frameworks, including ISO 20022, in recent system upgrades. This makes it compatible with global payment systems. Plus, it increases the quality of payment data.

EFT, or Electronic Funds Transfer, allows electronic payment transfers between bank accounts. It usually happens via Automated Clearing House, SWIFT, or Fedwire.  Unlike SAMOS, not all EFTs are instant and may take 1-2 business days for settlement.

Retail systems, as is evident from the name itself, are everyday payment methods used by ordinary people and businesses. These can include card payments, mobile payments, or ATM transactions.

To understand how they vary from SAMOS, let’s have a look at this table:

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a messaging network that banks use to communicate payment instructions to each other across different countries. SWIFT does not actually move money; it simply sends secure messages between banks telling them what to do.

SAMOS and SWIFT are quite different in their workings:

We’ve seen how well SAMOS serves the financial payment landscape of South Africa. But its scope is not limited to the country, it also plays a critical part in the broader regional payment environment in Southern Africa.

The Southern African Development Community (SADC) is a regional bloc in Southern Africa of 16 member states. One of its many roles is to ensure economic cooperation and financial integration among its members. Because SAMOS ensures that all domestic interbank obligations are settled efficiently, it allows South African banks to confidently engage in cross-border payments and trade with other SADC member countries.

South Africa is a major trading partner for many SADC countries, meaning that a significant portion of regional trade payments involves South African financial institutions.

Since SAMOS provides a reliable settlement environment for participating banks, it indirectly supports the payment flows associated with trade, investment, and financial cooperation within the region.

Given its wide scope and critical role in major financial operations of the country, SAMOS is used by a wide variety of stakeholders. These include

• Commercial banks: South African banks are the primary direct users of SAMOS. They use the system to settle interbank payments and obligations arising from clearing processes.
• Financial institutions: Other authorized financial institutions may also participate in the system, either directly or through settlement banks.
• Government entities: Government departments and public institutions rely on banks that use SAMOS to process large-value payments related to public finance and state operations.
• Corporate treasury departments: Large corporations with active treasury functions often initiate high-value payments through their banks, which are then settled through SAMOS.
• Indirect users: While not direct participants, many entities benefit from the system through their banking relationships. These include large enterprises and companies involved in international trade, such as importers and exporters.

SAMOS mainly supports banks and other financial institutions, but its impact can extend to businesses as well that rely on banks for large or time-sensitive financial transactions. Here’s how:

• Money arrives immediately, with no waiting period or uncertainty.
• Get the speed, safety, and reliability that ordinary payment systems cannot guarantee.
• Transactions related to mergers, acquisitions, or large asset purchases have the assurance that the payments are completed with finality.
• Real-time processing helps corporate treasury teams manage cash positions more effectively and forecast liquidity with more accuracy.
• Final and irrevocable settlement means no party can default or reverse a payment, providing businesses a lot more confidence in transactions.

Liquidity refers to the availability of funds that banks need to settle their payment obligations. And risk control here simply means having mechanisms to prevent payment failures and systemic disruptions. As per the Bank for International Settlements (BIS), both are important for financial stability. BIS also sets the global standard for how settlement systems should manage liquidity and risk. SAMOS has several safeguards that work in alignment with these principles:

• Central bank settlement accounts: Participant banks must have an account at the South African Reserve Bank from which settlement will be processed. Because settlement happens in central bank money, credit risk between banks is minimized. 
• Intraday credit facilities: If a bank has low funds in its account, the SARB can automatically grant it a short-term loan against collateral. This temporary liquidity supports payment processing even if funds are insufficient. 
• Real-time monitoring: SAMOS operates in real-time. That way, SARB can watch every transaction as it happens. Any unusual activity, funds unavailability or other such risks can be spotted and dealt with immediately.
• Systemic risk mitigation: Systemic risk occurs if one bank's failure causes a chain reaction that brings down other banks and the broader financial system. SAMOS reduces such risks by making settlements final and irrevocable and offering intraday liquidity facilities.

The safety of SAMOS is guaranteed through several factors. First, it is operated by the SARB, the country's central bank, which means the whole system runs purely in the interest of financial stability, with no commercial agenda. This also means it always operates under the regulatory oversight of SARB.

Second, all settlements take place in central bank money, which is the safest form because, unlike commercial banks, the SARB cannot go bankrupt or default on its obligations.

Finally, every transaction settled in SAMOS carries immediate finality. The moment settlement occurs, it is permanent and irrevocable. This removes any lingering uncertainty and gives all participants complete confidence in every transaction.

As far as the future of South Africa’s wholesale payments is concerned, we’re seeing developments across the following domains:

Payment modernization initiatives

The SARB has already launched the Payments Ecosystem Modernization (PEM) Program. It’s a program that aims to facilitate fast, simple, inclusive and safe digital payments across South Africa. SARB has also established the National Payment Utility (NPU) to provide the needed infrastructure for promoting innovation and uniting payment systems.

ISO 20022 migration

Innovation can also be seen in SAMOS’ successful transition to ISO 20022 messaging format, which is a modern way to structure and communicate payment information between financial institutions. This move to ISO 20022 is a major step to ensure richer payment data to detect fraud more quickly, as data can be more accurately screened when presented in this format.

Cross-border African interoperability

Efforts are currently underway to make South Africa's payment systems more compatible with those of neighbouring countries. For instance, through the SADC-RTGS system, cross-border payments have become faster, cheaper, and more secure.

Potential CBDC developments

The SARB is currently exploring the development of a wholesale Central Bank Digital Currency (CBDC). It’s a digital form of the ZAR that would be used exclusively between banks and financial institutions, rather than the general public.

By now, it’s evidently clear that SAMOS is one of the core pillars of South Africa's financial infrastructure. From the moment a payment instruction is submitted to the second it is settled across the books of the SARB, SAMOS keeps the financial system stable, predictable and trustworthy.

While SAMOS handles the domestic back-end, businesses operating globally still need reliable tools to collect and bring international payments into the banking system in the first place. Platforms like Xflow serve exactly this purpose.

Xflow helps businesses receive cross-border payments efficiently and compliantly. Not just that, transactions settle within 1 business day, you get to operate in multiple currencies through multi-currency accounts, and there’s zero FX markup with clear, transparent pricing.

To learn more about Xflow and how it simplifies international payments, visit its website now!