The Zahav (RTGS) System

The Zahav system (a Hebrew acronym for Real Time Credits and Transfers), which was launched in Israel at the end of July 2007, is an RTGS (Real Time Gross Settlement) system that operates in most of the world's countries (both the developed and the developing countries).
The Zahav system is an advanced system for the real-time, final, efficient and reliable settlement of shekel payment​s in Israel. The system operates in parallel with the regular settlement method, in which the transactions that are transferred via the clearing house are not final in the course of the business day. Payment instructions transferred in the Zahav system however, are carried out immediately, and are final once they are carried out. The system guarantees those using it a rapid and secure discharge of payments at any given moment: The settlement operation is carried out within just a few minutes, cannot be canceled, and the recipient of the payment can use it immediately, without being exposed to risks.​

​Immediacy: The payment is conducted immediately. The recipient of the payment is able to use the money within minutes from the time when the payment is conducted (excluding exceptional cases).

Finality: The payment is final and irrivocable.

 

​Apart from the commercial banks and the foreign banks operating in Israel, which transfer all their inter-bank activity via the Zahav system, the new system provides rapid, efficient and secure settlement services for numerous additional users-the finance managers and comptrollers of all organizations and companies that transfer and receive important and urgent payment instructions daily: institutional investors (pension funds, provident funds and insurance companies), large and medium-sized companies and enterprises, investment houses and brokers. Those engaged in shekel-foreign-currency conversions are also likely to benefit from the great advantage of using the new system, since they can now settle the shekel leg of their activity in a secure maner. The Zahav system, usage of which is not dependent on a minimum amount, also provides maximum protection and security for households conducting transactions that involve the transfer of goods against payment, such as the purchase and sale of apartments and vehicles. 

It should be noted, that the execution of instruction in the system usually lasts for just a few minutes and immediately on completion, the user know that the payment is final and irrevocable. This feature offers a major advantage for payment recipients, because it enables them to use the money immediately, like cash.​

In order to transfer a payment in the Zahav system, you must act as follows:  

1. Obtain from the beneficiary his Zahav number (IBAN). The IBAN is an international code that is used for identifying bank accounts. It is comprised, inter alia, of the bank code, the branch number and the customer's account number. Part of the banks present the Zahav number in the account printouts that are sent to the customer and also enable the customer to obtain this number by the Internet, by phone or by ATM.

2. Contact the bank in which your shekel account is managed. Ask to carry out a transfer in the Zahav system (This is usually also available as an online service).

The operation involves a commission fee, which is determined by each bank. For information on the commission fee, contact the bank from which the transfer is to be made.

1. What is the Zahav system?​
The Zahav system is an advanced Real Time Gross Settlement (RTGS) type system for the efficient and reliable settlement of shekel payments. The system makes it possible to send funds from bank to bank, and from account to account rapidly and securely. Funds transfer is carried out within the day, and is final as soon as it is completed. The transaction is irrevocable, and the beneficiary can use the money immediately.

2. 
Why is the Bank of Israel the system operator, rather than the commercial banks?
The Bank of Israel is "the banker of the banks", meaning that the banks manage their accounts at it. The Bank of Israel's interest as a central bank is to maintain financial stability and to minimize risks in the payment and settlement system. There for, a critical system as Zahav - should be operated by the central bank. This is accepted practice in other countries as well. The Bank of Israel initiated the process, which brought Israel into line with the developed countries in the area of payment and settlement.

3.For whom is it worthwhile to use the Zahav system?
 Those who are able to gain the most benefit from use of the Zahav system are the finance managers and comptrollers of all the organization's and companies that transfer and receive important and urgent payment instructions daily: financial institutions, large and medium-sized companies and enterprises, investment houses, private brokers, and those engaged in shekel-foreign-currency conversions alongside their shekel activity. Also settled in the Zahav system are the instructions of the commercial banks and foreign banks operating in Israel, and the net instructions of the clearing houses (TASE, Masav and the Paper-Based Clearing House). The Zahav system also enables households to conduct transactions involving the transfer of goods against payment, such as the purchase and sale of apartments and vehicles. ​

4.​ How does the Zahav system operate?
Settlement in the Zahav system is carried out throughout the working day in real time. Each payment instruction entering the system is settled separately, without offset between the sender bank's debit and credit movements. When the instruction from the customer is received, the branch of his bank sends a payment instruction to the bank's center, from where it is sent directly to the Zahav system which is located in the Bank of Israel's premises in Jerusalem. If the sender bank has an adequate balance in its account at the Bank of Israel, the settlement operation is carried out immediately: The system debits the account of the sender bank, and credits the account of the recipient bank. Once the transaction is complete, confirmation messages are sent to both banks, and the recipient bank credits the beneficiary's account.

5. How does the Zahav system differ from the regular settlement systems? 
The Zahav system's mode of operation is quite different from that of the regular payment and settlement systems. In the Paper-Based Clearing House for example, which continues to operate alongside the Zahav system, the check recipient's account is credited only conditionally at the time of payment: The bank from which the check is drawn is entitled not to honor the payment instruction, and in such a case the check is usually returned on the day following its deposit. The finality of payment under this method is thereby determined with a lag. Under the Supervisor of Banks' directives, the check can be returned within three days from the time when it was presented, and even later in special cases. With the Zahav system however, settlement is carried out in real time throughout all of the system's operating hours, and is not conditional on a waiting period between the execution of the payment instruction and its final approval. The instruction is executed within a short time and as soon as it is completed, the Zahav system user knows that the payment which he received is final and irrevocable, just like payment in cash.

6. I sold a car and the buyer sent the payment via the Zahav system. How much time elapses from the moment when he issued the payment instruction until the money enters my account?
When the buyer of the car issues the instruction, the payment instruction is sent from the branch of his bank to the bank's center, and from there to the Zahav system at the Bank of Israel. If there are no special problems (such as an inadequate balance in the account at the Bank of Israel of the bank at which the buyer manages his account), the system sends the money immediately from the buyer's bank to your bank, from where it is sent directly to your account. The entire process lasts for just a few minutes.

7. And what happens when the car-buyer's bank does not have an adequate balance in its account at the Bank of Israel?
In the event that the car-buyer's bank temporarily lacks an adequate balance for crediting its account at the Bank of Israel, the payment instruction issued by the buyer of your car is queued. Each bank participating in the settlement process in the Zahav system has its own queue, in which the payment instructions are classified by the order of priorities which it determines. The system enables it to manage the queue efficiently, by, for example, changing the order of priorities or canceling certain payment instructions. If necessary, the bank can utilize the intraday credit which it received from the Bank of Israel, and can do so throughout all of the system's operating hours.

8. Can the buyer change his mind and cancel the cash transfer after issuing the payment instruction in the Zahav system?
The answer is clear-cut: no. As soon as the cash transfer is made in the Zahav system, the payment which you received becomes final. Like a cash payment, the payment cannot be canceled.

9. Does the car-buyer ,who issued the payment instruction, receive a notification of the execution of the funds transfer as well?
Once the instruction is executed, the Zahav system informs the payer's bank of the discharge of the payment. The buyer can ascertain with the bank that the transaction has been settled, and that it is final.

10. Is use of the Zahav system dependent on a minimum amount?
Although the Zahav system is intended mainly for the transfer of large and urgent payments, its usage is not dependent on any minimum amount, and payments at any amount can be sent via the system.

11. What are the system's operating hours?
The Zahav system operates continuously throughout all the operating hours in the banking business day: On weekdays 07:45-18:30 and on Fridays and holiday eves between 07:45-14:00.

12. Is use of the Zahav system secure?
The Zahav system contains very advanced components that guarantee users a high level of security. The system and the principal participants - the commercial banks and TASE clearing houses-are interfaced via the SWIFT system, which is the accepted international standard for transferring funds securely in many countries of the world. The numbers of the banks' accounts in the system are in a uniform structure, which makes it possible to send the payment to the beneficiary's account directly, without human intervention. The Zahav system is accessed by means of the International Bank Account Number (IBAN), which is the international standard for identifying bank accounts. Each bank account is assigned a one-one value, which leads to a considerable reduction in the number of mistaken instructions that are sent in the system.

13. Are all branches of the banks in Israel connected to the Zahav system?
All branches of the banks in Israel, including branches of the Postal Bank, can send payment instructions to the Zahav system.
 
14. What impact has the Zahav system had on the economy as a whole?
The operation of the Zahav system is greatly increasing the security of the entire payment system in the economy. As stated, the existing settlement systems make it possible to return payments, which accrue to very large amounts every year. In 2008 for example, 7.5 million checks and other payment instructions at an overall amount of NIS 26 billion were returned to the Paper-Based Clearing House and Masav.
 Returned debits create uncertainty over the performance of payment instruction. With the Zahav system however, the intraday and final settlement process effectively prevents the uncertainty existing in the Paper-Based Clearing House and Masav.

15. Does the Zahav system conduct settlement transactions in foreign currency as well?
The Zahav system settles only shekel payments. However, the actual operation of the system opens up new opportunities for Israel in the international arena as well. The most important opportunity in this respect was the inclusion of the Israeli currency in 2008 to the CLS (Continuous Linked Settlement), which conditions such inclusion on the existence of an RTGS system in its member's country.
 The CLS system, which was established at the beginning of the 2000s by the world's largest banks, operates as an international clearing house for currency conversion transactions. Although activity in this system is similar to that in an RTGS system, instead of carrying out settlement activity in a single currency, it simultaneously carries out settlement and conversion activity from currency to currency.
 The inclusion of the Israeli currency in the global settlement system significantly reduces the conversion risks involved in the activity of business entities in Israel with entities abroad and increases their stability. The inclusion of the shekel among the world's 17 most important currencies that are currently settled in the CLS system strengthened the Israeli currency and transformed it into a convertible currency.

16. What is the legal basis for the Zahav system's activity?
In order to minimize the legal risks involved in the settlement process in the Zahav system, the Bank of Israel had to create a sound legal basis for the system's activity.
 The Payment Systems Law, 5768-2008, which the Bank of Israel initiated, regulates the issue of payments' finality and guarantees that once the sender bank's account is debited, the recipient's bank account is credited irrevocably. Apart from enactment of the law, the Bank of Israel signed agreements regulating the network of relationships with Zahav system participants. These included agreements with the commercial banks, the Paper-Based Clearing House, Masav and the stock exchange clearing houses. A series of rules and procedures for the operation of the Zahav system were also determined.

17. What volume of activity is expected in the Zahav system?
Because of the costs of using the Zahav system, it is used mainly for making payments at large amounts and urgent payments. The Paper-Based Clearing House and Masav continue to settle payments at low values. Although relatively few payments are transferred daily in the Zahav system, their overall amount accounts for a substantial proportion of the payments in the economy. It should be noted that in most countries in which RTGS systems operate, these systems settles over 90 percent of all payments value.
 

 

 

 

 

 

 

 

 


 

 

 


 


 


 


 


 


 
 


  

 
 

​The Zahav system contains advanced components that guarantee the user a high level of security. The system and the principal participants - the commercial banks and TASE - are interfaced via the SWIFT system, which is the accepted international standard for transferring funds securely in many countries of the world. The Zahav system also conforms to the strict requirements of the National Information Security Authority in Israel. The system's technological devices include command and control systems over all of the system's infrastructures and applications. Advanced backup devices make it possible to overcome malfunctions by shifting to a remote site. 

The numbers of the banks accounts in the system were defined in a uniform structure, which makes it possible to send the payment to the beneficiary's account directly, without human intervention. The Zahav system is accessed by means of the International Bank Account Number (IBAN), which is the international standard for identifying bank accounts. The IBAN number is comprised of a string of characters, which represent the number of the bank's account, the bank and branch numbers, the country sign, and two control digits, as detailed below: 

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Each bank account is thereby assigned a one-one value, which guarantees a considerable reduction in the number of mistaken instructions that are sent in the system.​

The ​IBAN Simulator page is currently under construction

The operation of the Zahav system in July 2007 greatly enhanced the functioning of the financial system in Israel, placing it in line with the world's developed countries. The Zahav system operates quite differently from the regular payment and settlement systems. As an example, at the Paper-Based Clearing House (BCH), which continues to operate alongside the Zahav system, the check recipient's account is credited only conditionally at the time of payment. The bank from which the check is drawn is entitled not to honor the payment instruction, and in such a case the check is usually returned on the day following its deposit. Under this method therefore, the finality of the payment is determined with a lag. The lapse of time between the execution of the payment instruction by check and its final approval exposes the recipient of the payment to a series of risks. These risks could develop into overall systemic risk, in which the inability of one of the participants in the payment system to fulfill his obligations harms the payment ability of the other participants in the system. 

The Zahav system - which allows settlement in real time, without a delay between payment's execution and confirmation - introduces a new dimension to settlement activity in Israel, and provides an effective solution for the problems involved with the other payment methods. Those using the Zahav system know that as soon as the financial transfer is made, the payment which they receive is final and irrevocable, like payment in cash. The system enables individuals and business entities in the economy to make financial transfers rapidly and reliably, and thereby removes the element of uncertainty characteristic of the regular payment system. Payment instructions are executed efficiently and in real time, the execution of each instruction lasts for just a few minutes and once it is complete, is final and irrevocable as stated. 

In this way the new settlement system not only increases the security of the single customer, but also considerably enhances the level of security in the settlement system and in all the payment systems that are connected to it. As stated, the existing settlement systems make it possible to returned payments, which accrue to very large amounts every year. In 2008 for example, 7.5 million checks and other payment instructions at an overall amount of NIS 26 billion were returned in the Paper-Based Clearing House and Masav. Return payments could lead to a chain reaction, which will harm other settlement participants and create major uncertainty regarding the entire payment system in the economy. The Zahav system provides a solution for this problem. Activity in the new system is a safe substitute for the use of checks, and thereby greatly increases the security in the entire payment system. Apart from bilateral customer to customer and bank to bank settlement, the Zahav system also serves as a "clearing house of clearing houses". This is because the Bank of Israel acts as final settler for interbank settlement. The system is connected directly to the payment systems in the economy (the Paper-Based Clearing House, Masav and the TASE Clearing Houses) and to the Bank of Israel's internal systems. The clearing houses broadcast multilateral payment instructions (debit of a number of banks against credit of a number of other banks) at predefined time windows. These payment instructions are settled in the Zahav on the basis of net recording, which calculates the difference between total receipts and total payments for each participant. 

Participants in the system are all banking corporations in Israel the Postal Bank, the CLS Bank, the clearing houses (Masav, the stock exchange clearing houses, checks, Bank of Israel divisions).​

​The Zahav system's operating hours for the banks' customers: 

  •  On regular business days-07:45-18:30 
  •  On Fridays and holiday eves-07:45-14:00​

​Settlement in the Zahav system is carried out throughout the working day in real time. Every payment instruction received in the system is settled separately, with no offset between debits and credits from the bank sending the instructions. On receipt of the instruction from a bank's customer, the branch sends a payment instruction to its head office, from there it is transferred directly to the Zahav system in the Bank of Israel in Jerusalem. If the sender bank has an adequate balance in its account at the Bank of Israel, the settlement operation is carried out immediately: the system debits the sender's bank account and credits the account of the receiving bank. The debit and credit transactions are final and irrevocable. On completion of the transaction, confirmation notifications are sent to both banks. The receiving bank credits the beneficiary's account, and he can make immediate use of the money received, without being exposed to the risks deriving from the possibility that the credit transaction will be returned because of lack of coverage in the sender's account, or the technical reasons.

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Settlement in the Zahav system is carried out throughout the working day in real time. Every payment instruction received in the system is settled separately, with no offset between debits and credits from the bank sending the instructions. On receipt of the instruction from a bank's customer, the branch sends a payment instruction to its head office, from there it is transferred directly to the Zahav system in the Bank of Israel in Jerusalem. If the sender bank has an adequate balance in its account at the Bank of Israel, the settlement operation is carried out immediately: the system debits the sender's bank account and credits the account of the receiving bank. The debit and credit transactions are final and irrevocable. On completion of the transaction, confirmation notifications are sent to both banks. The receiving bank credits the beneficiary's account, and he can make immediate use of the money received immediately, without being exposed to the risks deriving from the possibility that the credit transaction will be returned because of lack of coverage in the sender's account, or the technical reasons. The Zahav system manages the payment instructions reaching it by the order in which they arrived, on the FIFO (First In First Out) principle. However, the system enables the participant to determine an order of priorities for its payment instructions, according to their importance and urgency. If the balance in the sending bank's account with the Bank of Israel is insufficient to cover a debit, the payment instruction is put into a queue, until a suitable balance is supplied. Transactions waiting in the queue are registered according to the order of priorities determined by the participant. Each participant in the settlement process has his own queue. The system provides participants with a number of tools for managing the queue efficiently, such as the opportunity for changing the order of priorities, holding a money reserve for certain purposes, the possibility of cancelling a payment instruction, and receiving intraday credit from the Bank of Israel. At the end of the day, every payment instruction waiting in the queue is cancelled, and notification of this is sent to the party that issued the instruction.​

​In the past, prior the introduction of the Zahav system, when the settlement of funds was carried out in the Paper-Based Clearing House and in MASAV (Automatic Clearing House) alone, the latter accounted for 87 percent of the total amounts settled, and the former accounted for 13 percent. In 2009, most of the large inter-bank sums were settled directly in the Zahav system. During that year, 65 percent of the entire relevant amount for comparison1 which was settled in all the payments systems was settled in the Zahav system. MASAV settled 24 percent of the total amount, and the Paper-Based Clearing House settled 11 percent. 

The following diagram presents the amounts that were settled in the clearing houses in Israel during the years 2006 to 2009: 

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This compares with the distribution of the number of movements between the systems: MASAV settled 44 percent of the movements, the Paper-Based Clearing House settled 56 percent, and Zahav settled only 0.08 percent. 

The following diagram presents the rates of settlement in the payments systems of selected countries in 2008. 

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​Apart from the reliability, security and efficiency typical of the new settlement method in the Zahav system, the system provides the banks with another advantage: The immediacy and finality of payment instruction execution enables to know at any point in time the funds level in their accounts, and each bank can decide on immediate measures for improving its shekel liquidity position. Concurrently, the new settlement method requires the banks to act more responsibly in the management of their liquidity. The bank's liquidity must be adequate for processing all the payments reaching the system throughout the entire working day. A temporary shortage of liquidity could harm settlement activity, from causing delays in the processing of single payments, to blocking an entire group of payment instructions. In order to prevent situations such as this, and permit smooth functioning of the Zahav system, the Bank of Israel extends intraday credit to the banks participating in Zahav, which they can utilize in accordance with their liquidity needs throughout all of the system's operating hours. 

The credit is granted to the banks interest-free, against full collateral, for the activity day only, and the banks must repay it by the closing time of the Zahav system. The collateral required against intraday credit consists of government bonds and banks' deposits (shekel and foreign-currency) in Bank of Israel. The banks have to deposit the shekel bonds which they use as collateral for credit in a special account at TASE, where a sub-account is allocated for each participant's collateral. TASE has developed for the Bank of Israel a special system - Intraday Credit System (ICS), for management of the collateral which are taken against intraday credit. System participants can thereby change immediately in the course of the day the amount of intraday credit that is injected to their account. The system carries out a calculation of the amount of intraday credit, in accordance with the amount and type of collateral deposited by the participant. 

The necessity for maintaining intraday liquidity obligates the banks to manage their funds in a highly accurate manner. However, intraday liquidity management also provides them with cost-saving opportunities, as well as additional business opportunities and new financial instruments. The Zahav system provides the banks' managers with a picture of the situation in real time, and enables those responsible for liquidity and business management to make immediate decisions, and to control the flow of shekel transactions more efficiently. ​