What is TARGET Instant Payment Settlement (TIPS)?

The service works year-round and around the clock, so both businesses and individuals can send and receive money regardless of whether local banks are open. The service was developed as an extension of TARGET2, the real-time payments system owned and operated by the Eurosystem.

While TIPS currently only settles transactions in euros, the central banks of countries like Denmark, Sweden, and Norway have shown interest in joining the system but settling payments in their respective national currencies.

What does TARGET Instant Payment Settlement (TIPS) do?

Many countries have developed national solutions for instant payments as consumer demand grows, especially in the European Union (EU). With the possibility that multiple proprietary, national, or closed-loop systems that don’t work well together might be developed, TIPS unifies instant payments by offering instant payment settlement to any bank account holder in Europe.

Since TIPS is an extension of TARGET2, which has a robust and established network across Europe, its reach is fairly broad. TIPS is also formulated off of the SEPA Instant Credit Transfer (SCT Inst). The SCT Inst scheme was developed by the European Payments Council (EPC) under mandate by the Euro Retail Payments Board (ERPB) to facilitate unified instant pan-European credit transfers and is expected to have a large and growing number of European users.

How TARGET Instant Payment Settlement (TIPS) Work?

TARGET Instant Payment Settlement increases the speed of payments in the EU. Before TIPS, it could take up to a full business day for payments to reach the recipient. With TIPS, funds are available right away, no matter the day or time.

Participating banks and payment providers have a dedicated account with their central bank. Part of the liquidity of this account can be set aside for settling instant payments. However, banks and payment providers can only add funds to their TIPS account during TARGET2 operating hours. Since these entities are required to have a minimum reserve, the balance on these accounts will be counted toward that amount.

Institutions must be eligible to access central bank money since that is how TIPS settlement occurs. Opening a TIPS account in euros requires institutions to meet the same eligibility requirements called for in TARGET2. A member can then transact through TIPS:

1. The sending participant initiates an SCT Inst payment transaction message to TIPS.
2. TIPS validates the message and reserves the transfer amount.
3. TIPS pushes the transaction to the recipient for acceptance.
4. The recipient sends an acceptance reply to TIPS.
5. TIPS settles the transaction.
6. TIPS confirms settlement to the sender.
7. TIPS confirms settlement to the recipient.

TARGET Instant Payment Settlement (TIPS) will allow for transactions to settle in 10 seconds or less and support large volumes of transactions. No maintenance windows and around-the-clock availability mean that businesses and individuals can enjoy instant transactions on any day and at any time, without interruption.