What is TARGET Instant Payment Settlement (TIPS)?
TARGET Instant Payment Settlement (TIPS) is a market infrastructure service launched by the Eurosystem in November 2018. It enables payment service providers to offer fund transfers to their customers in real time and around the clock, every day of the year. This means that thanks to TIPS, individuals and firms can transfer money between each other within seconds, irrespective of the opening hours of their local bank.
TIPS was developed as an extension of TARGET2 and settles payments in central bank money. TIPS currently only settles payment transfers in euro. However, the central banks of Sweden, Denmark and Norway have shown interest in joining TIPS and settle instant payments in their national currencies.
As a response to the growing consumer demand for instant payments, a number of national solutions have been developed, or are under development, across the EU. A challenge for the Eurosystem is to ensure that these national solutions do not (re)introduce fragmentation into the European retail payments market. TIPS aims to minimise this risk by offering a service that can help ensure that any bank account holder in Europe can be reached.
There are two features of TIPS that will help it achieve reachability across the whole of Europe. First, TIPS is based on the SEPA Instant Credit Transfer (SCT Inst) – a scheme for pan-European instant payments, expected to be used by a large number of payment service providers across Europe. Second, TIPS was developed as an extension of TARGET2, now replaced by T2, which already has an extensive network of participants across Europe.
How does it work?
TIPS offers final and irrevocable settlement of instant payments in euro, at any time of day and on any day of the year. Participating payment service providers can set aside part of their liquidity on a dedicated account opened with their respective central bank, from which instant payments can be settled. It is only possible to add funds to TIPS accounts during T2 opening hours.
As settlement in TIPS takes place in central bank money, participation in TIPS depends on being eligible to access central bank money. For this reason, in order to open an account in TIPS in euro, an institution needs to fulfil the same eligibility criteria as for participation in T2.
- A participant sends an SCT Inst payment transaction message to TIPS.
- TIPS validates and reserves the amount to be transferred.
- TIPS forwards the payment transaction for acceptance to the receiving participant.
- The receiving participant sends a positive reply to TIPS.
- TIPS performs settlement.
- TIPS confirms settlement to the sending participant.
- TIPS confirms settlement to the receiving participant.
TIPS is built on a modern and advanced technical solution that was developed specifically for the purpose of settling instant payments. The new technical solution is designed to:
- secure an end-to-end processing time of 10 seconds or less
- support the expected large volumes of transactions and meet scalability requirements
- secure availability around the clock without maintenance windows
- enable a deployment process with no interruption in the service.
TIPS adheres to the same participation rules as are valid for T2.
There are three ways to access TIPS:
- participant - eligible to open one or more accounts in TIPS
- reachable party - able to access a participant’s TIPS account by entering into a contractual agreement with that participant
- instructing party - enters into a contractual agreement with one or more participant/reachable party to instruct on their behalf
To ensure the full deployment of instant payments across the euro area by the end of 2021, the ECB required:
- all payment service providers that adhere to the SCT Inst scheme and are reachable in TARGET2 to become reachable in a TIPS central bank money liquidity account, either as a participant or as reachable party;
- all automated clearing houses offering instant payment services to migrate their technical accounts from TARGET2 to TIPS.
TIPS operates on a full cost-recovery and not-for-profit basis.
There are no entry or account maintenance fees.
The price per instant payment transaction is fixed at 0.20 cent (€0.002). This settlement price will also apply for instant payments settled on the technical accounts of automated clearing houses (ACHs) after the migration of these accounts to TIPS. This migration was concluded early 2022.
Another fee will apply for ACHs that have their technical accounts in TIPS (as applicable today for ACHs with technical accounts in T2). This fee will be proportional to the volume of instant payment transactions settled internally in the respective ACH and will be calculated as the number of transactions times 0.05 cent (€0.0005).
The prices will apply until at least November 2023.