STEP2 is a pan-European automated clearing house. It started operating in April 2003 and was the first, and so far only, such system. The system owner and operator is EBA Clearing, a company owned by the banks that provides pan-European payment infrastructure.
STEP2 is a multilateral designated-time net settlement system that runs to a fixed schedule. The system processes both credit transfers and direct debits. System participants can send payment orders into the system 24 hours a day and 7 days a week, but the processing and settlement of payment orders is carried out in five cycles during the day and two at night. The system allows payments to be made from payer to payee within one or two hours on working days. Once a bank submits a payment order, the system checks that the order is technically correct. STEP2 calculates the net positions of the participants multilaterally and sends them to the banks, which check that they have sufficient funds to settle their liabilities. The reciprocal claims and liabilities created in STEP2 are settled in central bank money in the TARGET2 real-time settlement system managed by the central banks. This is done in payment cycles during the day at 8.30, 10.45, 13.15, 15.45 and 17.20 (EET) and at night in payment cycles at 22.10 and 2.30 (EET). After settlement, STEP2 sends the participants an information file on the payments that have been settled (see Figure below).
STEP2 has multi-level participation, which means banks can join the system directly or indirectly through a direct participant. Direct participants need to have an account opened in TARGET2, and the payment orders of indirect participants are sent into the system by direct participants. Participation in STEP2 is available to all financial institutions that are based in or have branches in the European Economic Area.
The majority of payments between Estonian banks are made in the STEP2 system. Most of the Estonian banks participate indirectly in the system through their parent banks or a partner bank, while SEB Pank and LHV Pank participate directly (see Figure below). The Estonian banks only process and settle credit transfers in STEP2 and only use the daytime payment cycles to do so except in individual cases where a direct participant allows the night-time cycles to be used.
Financial institutions operating in Estonia that settle ordinary payments using the SEPA Clearer clearing house operated by the German central bank are Eesti Pank and Coop Pank. SEPA Clearer can offer pan-European settlement as it is connected to the other settlement houses that provide clearing services for SEPA payments, including STEP2.