The settlement of transactions (one of the behind-the-scenes processes that enables the transfer of funds from one payment service provider ( ) to another) is a key factor for the success of Instant Credit Transfer ( ) transactions. With only a few weeks before the scheme is operational, we were curious to know more about the much talked about Eurosystem’s TIPS (TARGET Instant Payment Settlement) service. Marc Bayle, Director General Market Infrastructure and Payments at the European Central Bank, sheds some light on the key characteristics of TIPS, its complementarity with other clearing and settlement services, and the next steps to make it operational in November next year.
Q. Could you please describe the main features of the Eurosystem TIPS service and how it differs from clearing and settlement services offered by other Clearing and Settlement Mechanisms ( )?
The aim of TARGET Instant Payment Settlement, or TIPS, is to provide a pan-European instant payment settlement service in central bank money. In this way, it will support compliance with the scheme for and serve to promote efficiency and market integration in the settlement of instant payments across Europe. Its main features include:
• settlement in central bank money extended to 24/7/365
• payment transactions settled instantly, eliminating credit risk for participants
• balances on TIPS accounts included in minimum reserve calculations
• service providers reachable without opening a TIPS account (by being a reachable party)
• maximum price of 0.20 eurocent per payment for at least the first two years of operation
• targets efficient settlement in euro, but technically capable of settling other currencies
The main difference with the service provided by automated clearing houses (ACH) is that TIPS only provides the service in the settlement of instant payments, whereas ACHs play an important role in the clearing layer. Any participant in an ACH necessarily has to have another account in the settlement layer – in its own name or facilitated by a participant in the settlement layer – to discharge its responsibilities (see graphic below).
Q. Why did the Eurosystem decide to develop TIPS and how will it contribute to the successful deployment of ?
The Eurosystem decided to develop TIPS for two main reasons:
- First, it has long-standing experience in the development and management of TARGET2, the real-time gross settlement (RTGS) of the euro. Given the proximity of the RTGS service and the instant payment service, the Eurosystem is well placed to provide the settlement of instant payments as a harmonised pan-European service.
- Second, this initiative matches the Eurosystem’s objectives of promoting innovation and fostering integration within the euro area. Indeed, TIPS is optimally placed to facilitate pan-European reachability thanks to the extensive network of participants and addressable Business Identifier Code (BICs) in TARGET2. The network is already in place so to speak; the payment service providers just have to join.
More generally, the roll-out of instant payments depends not only on the payment service providers, but also on the availability of a safe and efficient underlying market infrastructure that can process instant payments across Europe.
In this way, TIPS complements and supports its successful deployment: by providing TIPS, the Eurosystem will make sure that the demand for instant payments is met at European level and will further facilitate integration in the euro area.
Q. Who will be entitled to participate in TIPS? or also ?
TIPS differentiates between three major actors: participants, reachable parties and instructing parties. Participants should be eligible to access central bank money, and the same participation criteria apply as in TARGET2. The following types of entities are eligible for direct participation in TARGET2:
• credit institutions established in the European Economic Area (
);
• credit institutions established outside the
, provided that they act through a branch established in the
; and
• national central banks of European Union Member States and the ECB.
In addition, automated clearing houses can assume an important role in achieving instant settlement, as they can become instructing parties. This will allow them to have access to participants' accounts and to instruct on behalf of participants without having direct ownership of the accounts. This way, participants in one ACH become reachable for participants in another ACH without any need to establish links between the ACHs. The precondition for this is that ACH participants are either participants or reachable parties in TIPS.
Q. What are the next steps to make TIPS live in November 2018? Will that date not have an impact on the schedule for implementation of by across Europe?
The project is now in its development phase. The User Detailed Functional Specifications are scheduled to be finalised and made available in April 2018. Shortly afterwards, details of how users interact with TIPS’ Graphical User Interface will be finalised, and the software will be completed in July.
Once the application has been tested by the Eurosystem, users will have the possibility to have end-to-end tests performed as from September. Then, finally, we have the go-live on 30 November 2018.
We believe that this date will mark an important milestone for the implementation of the scheme in Europe.
The user requirements for TIPS have been designed in compliance with the scheme defined by the
, and given the reachability of TIPS (even its pricing scheme has been defined to ensure the maximum reachability), use of the scheme will be a reality at pan-European level.
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Marc Bayle de Jessé
Marc leads the Directorate General Market Infrastructure and Payments at the European Central Bank. Previously he managed the T2S Programme as T2S Programme Manager and, before that managed dossiers related to the promotion of market integration and the definition of the Eurosystem’s operational framework, focusing in particular on payment systems and market infrastructure. He is an active member and chairman of European and international working groups and frequently speaks at international conferences.