TIPS

The architecture for instant payments in the European Union includes payment systems that work on the SEPA Instant Credit Transfer (SCT Inst) scheme of the Single Euro Payments Area (SEPA). SCT Inst was launched in November 2017 by the European Payments Council.

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 different 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 the first three countries joined it.

The Governing Council of the European Central Bank (ECB) decided that in order to develop and expand instant payment services across Europe, all payment service providers participating in the SEPA Instant Credit Transfer (SCT Inst) scheme had to be reachable via TIPS (TARGET Instant Payment Settlement) by November 2021. In Estonia, the banks offering instant payment services joined TIPS in 2021. Through their accounts in TIPS, banks can submit instructions from private sector instant payment systems and transfer liquidity between their TIPS account and instant payment systems 24/7.

You can read more about TIPS on the European Central Bank’s website (in English).

TIPS is very similar to other instant payment systems. In these systems, payments are settled immediately, around the clock and throughout the year. European instant payment systems are based on the SEPA Instant Credit Transfer scheme (SCT Inst) and rely on prefunding, meaning that a payment is only settled if there are sufficient funds in the account. If not, the payment is instantly rejected.

Unlike other systems, payments in TIPS are settled on accounts held at central banks. The balance of a participant's dedicated TIPS account is included in the calculation of their minimum reserve requirements and standing facility usage at the end of the TARGET day. In other instant payment systems, participant accounts are typically held at a clearing house or national central bank, and those balances are not counted towards minimum reserve or standing facility calculations.

A TIPS participant is a payment service provider that holds one or more dedicated TIPS accounts at a central bank, used to settle payment instructions sent to the system. Since TIPS accounts are legally TARGET accounts, any provider seeking participant status in TIPS must meet the TARGET access criteria.

A TIPS participant can also offer instant payment settlement services to other payment service providers who do not want or are unable to open their own TIPS account. These providers are called reachable parties in TIPS.

Both TIPS participants and reachable parties can be directly connected to TIPS for sending and receiving payment messages, acting as an instructing party, although this is not required. Alternatively, message transmission can be handled by a third-party service provider, such as another instant payment system operator (e.g., RT1). An instructing party is not necessarily a TIPS participant but may have an agreement to submit instructions on behalf of one.

Liquidity management is the responsibility of banks that hold TARGET accounts. Whether a TIPS service provider owns a TARGET account plays a crucial role, as only TARGET account holders can transfer liquidity to TIPS dedicated accounts. If a payment service provider wishing to join TIPS does not hold a TARGET account, they must enter into an agreement with an existing TARGET participant to manage liquidity on their behalf.

Liquidity transfers between TARGET and TIPS can only be made while TARGET is open. Therefore, TIPS participants typically maintain a higher liquidity buffer in their TIPS account to cover settlement needs on non-business days. Liquidity transfers from TARGET to TIPS can only be initiated from TARGET. However, transfers from TIPS to TARGET can be initiated from either system.