What is payment system risk?

• A. The risk that a payment instruction fails to settle or settles incorrectly
• B. The risk that a payment instruction settles too quickly
• C. The risk that interest rates rise during a payment
• D. The risk of price slippage in trades

Answer: (A)

Payment system risk is the risk that a payment instruction does not settle as intended, meaning the transfer of funds either does not complete or is settled incorrectly. This can happen if the payment system or a participant encounters a technical failure, processing error, or insolvency, leaving the sender or recipient exposed until the issue is resolved. In real-time, large-value systems, settlement finality and prompt handling of outages are designed to minimize this risk, but it can still occur if the instruction never settles or is credited/debited for the wrong amount or to the wrong account. The other options describe different kinds of risk not related to the actual settlement of a payment: settling too quickly isn’t a risk by itself, while changes in interest rates or price slippage relate to funding cost risk and market risk, respectively.