The European Central Bank (ECB) has launched the TARGET instant payment settlement (TIPS) system, an innovative pan-European service for settling electronic payments in euros instantly between eurozone countries. TIPS, which went live on Friday, uses central bank money to settle payments individually in less than 10 seconds. It means consumers and businesses can now make retail payments across the eurozone instantly, around the clock.

The first banks to join TIPS are Natixis, CaixaBank, Abanca Corporación Bancaria, Banco Bilbao Vizcaya Argentaria, Banco de Crédito Social Cooperativo, Berlin Hyp, Caja Laboral Popular Cooperativa de Crédito and Teambank. And the first transaction to take place through TIPS was a payment from a CaixaBank client to a client of French bank Natixis.

Response to digital reality

At a launch event in Rome on Friday, the ECB's executive board member Yves Mersch said: “In launching TIPS, the Eurosystem is acknowledging the changing reality that digitalisation is erasing the borders between wholesale and retail. TIPS enables payment service providers to allow their customers to transfer funds across Europe in real time and around the clock, every day of the year.”

Mersch went on to say that with TIPS, together with the SEPA instant credit transfer scheme and the second Payment Services Directive (PSD2), Europe now has three solid building blocks for retail payments innovation, with each pillar providing state-of-the-art market infrastructure, standardised and harmonised business rules, as well as a sound legal basis, respectively.

He added: “With the launch of TIPS, the Eurosystem has laid the groundwork for innovative, customer-friendly retail payment solutions for the benefit of European citizens. European payment service providers must make use of the opportunities offered by Europe’s state-of-the-art market infrastructure rather than leaving the field to international players.”

Pressure from tech giants

According to the ECB, banks across Europe can now follow the lead of France, Germany and Spain, which have already connected to TIPS, by linking to the platform and developing user-friendly solutions that support the take-up of instant payments by appealing to both retailers and consumers. Although the system only supports euro payments at the moment, other currencies could be supported in future.

As Mersch alluded, the launch of TIPS is the ECB's response to the popularity of instant payment services from global tech giants such as Apple, Amazon and Alibaba. The bank's head of market infrastructure and payments, Marc Bayle de Jesse, said: “Banks in the eurozone are under pressure from tech rivals. TIPS is a way for them to not give up the game to these digital players.”

What is TIPS?

Here are some key facts about TIPS and how it works:

• TIPS offers final and irrevocable settlement of instant payments in euro, at any time of day and on any day of the year.
• TIPS is based on the SEPA Instant Credit Transfer (SCT Inst) – a scheme launched a year ago offering pan-European instant payments.
• TIPS was developed as an extension of TARGET2, which already has an extensive network of participants across Europe.
• To participate, banks need to set aside part of their liquidity on a dedicated account opened with their respective central bank, from which instant payments can be settled. Funds can only be added to TIPS accounts during TARGET2 opening hours.
• The system is designed to complete end-to-end processing in 10 seconds or less.
• It is also designed to deal with the expected large volumes of transactions, be available continuously without maintenance windows and be deployed without interruption to service.
• TIPS operates on a full cost-recovery and not-for-profit basis, with no entry or account maintenance fees.
• The price per instant payment transaction is fixed at 0.20 eurocent (€0.002) until at least November 2020.
• The first 10 million payments made by each TIPS participant before the end of 2019 are free of charge.

SWIFT message service for TIPS

SWIFT also announced the implementation of its messaging service for TIPS. SWIFT’s solution for TIPS is designed as a key building block for access to the future Eurosystem Single Market Infrastructure Gateway (ESMIG). The next major milestone for ESMIG will be the technical consolidation of TARGET2 and Target2-Securities in 2021. Adapting their systems and processes to access this single European gateway will be one of the most crucial tasks facing European financial institutions in the coming years. By implementing SWIFTNet Instant, customers will be adopting a future-proof solution that will facilitate their migration to ESMIG.