What is TARGET Instant Payment Settlement (TIPS)?
TARGET Instant Payment Settlement (TIPS) is a new market infrastructure service launched by the ECB 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, in case of demand other currencies could be supported as well.
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, 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 TARGET2 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 TARGET2.
- 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 TARGET2.
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
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 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.
The TIPS project got underway in October 2016. The drafting of the user requirements document (URD) took place during the investigation phase. A special task force, consisting of central banks and market participants, assisted in drafting the user requirements. Two market consultations ran at the beginning of 2017 to consult on the TIPS user requirements and to assess the market’s interest and the expected future usage of TIPS, respectively. In June 2017 the Governing Council of the ECB approved the TIPS project, which then entered its development phase.
The Market Infrastructure Board (MIB) established a contact group that is providing input to the TIPS project during the realisation phase. The members of the contact group come from banks active in retail payments, automated clearing houses and euro area national central banks. They provide the MIB with advice in the areas of planning, user testing and change and release management activities.
Acceptance testing started in the second quarter of 2018. It was followed by pilot testing with selected future users. TIPS went live on 30 November 2018.