ESAS and the financial system

How ESAS fits in the payments system

ESAS is the system where transactions between financial organisations are ultimately settled. 

Moving money electronically takes a series of complex steps and checks. First there’s an instruction that a payment should be made. Then there’s an authorisation process to confirm the payer has the funds available and there are no holds or other reasons the payment could be stopped. If the payment is authorised, it can be cleared. 

Clearing is the process of confirming the payment information is correct and passing it on for final settlement. During clearing, the payment message is checked to ensure it follows clearly defined rules so that the payment instruction is standardised and easily recognised.

Settlement of the transaction, which occurs in ESAS, is the last step and happens when the funds are exchanged. Final settlement means the payment has been completed and cannot be reversed. 

There are specialised clearing systems, rules and security measures at each stage of the electronic payment process, to make sure transactions are handled safely and correctly. This is essential because the soundness of our financial system depends on accurate and reliable transactions.

ESAS processes around $25 billion-worth of transactions daily. To keep ESAS safe, all payments to ESAS are submitted through secure interfaces. These interfaces keep transactions safe in transit, and make sure that the right steps and checks have occurred before funds move across ESAS to be settled. This is vital because settlement in ESAS is instant (real time) and final. 

The image below shows the systems and processes involved in electronic transactions before they get to ESAS for settlement.

Get a detailed view of the New Zealand payments landscape: New Zealand’s Payment Landscape: A Primer

Benefits of real-time gross settlement and ESAS

Real-time gross settlement (RTGS) provides final and irrevocable settlement of transactions in real time by the simultaneous crediting and debiting of exchange settlement accounts held at the Reserve Bank. This reduces the settlement risk posed by deferred, high-value payments between banks and other approved financial organisations.

ESAS makes it easier for financial organisations to achieve RTGS and operate efficiently by providing:

• account maintenance, transaction and ancillary services
• an electronic interface to banks, payment systems or financial organisations (as required)
• functionality for queuing, processing and rejecting transactions.

Improving the stability of the financial system

RTGS allows large payments to be completed transaction-by-transaction throughout the day and be irreversibly posted to exchange settlement accounts at the Reserve Bank before value is credited/debited to customers.

Before RTGS, banks would total their inter-bank obligations at the end of each day and then settle net amounts with each other through their accounts at the Reserve Bank. With RTGS, individual settlement requests between banks and other financial organisations are settled electronically as the settlement requests happen.

RTGS makes the financial system more robust. Previously, if a bank collapsed during the working day, other banks could have been owed very large sums of money from incomplete settlement requests with the failed bank. This could potentially put these other banks and other approved financial organisations at risk, or result in these banks trying to reverse payments, which would create financial chaos.

Moving to the new global payments messaging standard

The New Zealand banking industry is moving to ISO 20022, the new emerging global standard for payments messaging creating a common language for payments data shared across the globe.

Find out more about ISO 20022

We have adopted a coexistence strategy supporting both the existing FIN (MT) and new ISO 20022 (MX) messaging formats in ESAS.

NZClear does not have any changes for securities messaging and transfers at this time.

Ultimately, adopting ISO 20022 will provide richer data at the transactional level within the payments ecosystem enabling faster processing and future innovation. Already used by payment systems in over 70 countries, in the coming years ISO 20022 will be the de facto standard for high-value payment systems of all reserve currencies.

Within New Zealand, banks and other financial institutions are switching to sending ISO 20022/MX messages at different times.

At the request of the SWIFT community, and with support of the SWIFT board, SWIFT have placed a higher priority on migrating CBPR+ payment instructions to ISO 20022 by November 2025. For domestic payments sent to ESAS, the migration from MT to ISO 20022 also remains as November 2025, and RBNZ requires ESAS Account Holders to have completed testing by 31 August 25 to prove capability to initiate and on send payment messages in MX format in readiness for this deadline.

Post November 2025, both SWIFT and ESAS will continue to support MT and MX statement and enquiry messages. This will be reviewed once SWIFT have announced a deadline for the MT statement and enquiry message types.