TIPS is the Eurosystem TARGET service for settling instant payments in accounts opened at the central bank. TIPS allows payment orders to be sent and received between instant payment systems so that SEPA instant payments are available throughout the euro area. It brings together the best features of net and gross settlement systems as it allows large numbers of retail payments to be settled one by one in only a few seconds. The service started in November 2018 when service providers in three countries joined it. The banks operating in Estonia can use TIPS through the TARGET2-Eesti component system managed by Eesti Pank, but no Estonian bank has so far joined the service.
The cost of each transaction in TIPS is fixed at 0.2 cents until at least November 2020. As TIPS is a TARGET service there are no membership fees and no management fee for accounts opened in TIPS.
TIPS is very similar to other instant payment systems. Payments are settled in instant payment systems immediately at any time of day or night and throughout the year. All instant payments use the SEPA Instant Credit Transfer (SCT Inst) scheme and are pre-funded, meaning payments can only be settled if there is sufficient money on the account to cover them. If there is not enough money, the payment is immediately refused.
Unlike other instant payment systems, TIPS payments are settled using accounts opened at the central bank. The balance of the dedicated TIPS cash account opened for each participant is accounted for at the end of the TARGET2 day together with the mandatory reserve of the bank and its use of the standing lending facility. Other instant payment systems open accounts for participants in clearing houses or the local central bank and use these to finance settlement of instant payments. The balances on these accounts do not reflect the mandatory reserve or the use of the lending facility.
Payment service providers can participate in TIPS in various ways. A TIPS participant is a payment service provider in whose name one or more dedicated TIPS cash accounts have been opened at the central bank for settling payment instructions sent to the system. As the dedicated TIPS cash accounts are legally TARGET2 accounts, a payment service provider applying to be a TIPS participant must meet the conditions for accessing TARGET2.
A TIPS participant can sign contracts to provide third-party payment service providers with instant payment services if they cannot or do not want to open a dedicated TIPS account. Such parties are called reachable parties in TIPS.
Every TIPS participant and reachable party can be connected to TIPS for sending and receiving messages by taking on the role of instructing party, but this is not compulsory as TIPS participants and reachable parties can use a service provided by a third party for sending and receiving payment messages. Such third parties can also be other instant payment service operators like RT1. The instructing party is not a TIPS participant, but it may have contracts with several TIPS participants for issuing instructions.
Liquidity management is the job of those banks that have an account in the TARGET2 payment system. An important point in the provision of TIPS services is whether the TIPS service provider is a TARGET2 account holder or not, as only TARGET2 account holders can transfer liquidity to the dedicated cash accounts of TIPS. If a TIPS participant wants to become a payment service provider without its own TARGET2 account, it needs to sign a contract with a TARGET2 participant to manage liquidity in its dedicated TIPS cash account.
Liquidity transfers between TARGET2 and TIPS can be made when TARGET2 is open, so TIPS participants need to leave larger liquidity buffers on their dedicated TIPS cash accounts on holidays. Liquidity transfers from TARGET2 to TIPS can only be initiated in TARGET2. Liquidity transfers from TIPS to TARGET2 can be initiated in either TIPS or TARGET2.
SWIFT and SIA offer connections with TIPS. Network services can be provided by companies that have been proposed by TIPS participants and whose compliance with Eurosystem requirements has been confirmed. Since the launch of TIPS, participants have been able to choose between two service providers, SWIFT and SIA.