Payments Academy
Indirect participation PAYMENT OPERATIONS STARTED LIVE 01 Indirect participation - registered as a participation type ACTIVE 02 Four participation types in the RTGS - Direct (05) QUEUED 03 Settlement service it - receives is only as good as the direct QUEUED 04 Euro still - same RTGS DCA either way. QUEUED 05 Practical lesson - simple, and it prevents a common design QUEUED Indirect participation is registered as a participation type in the RTGS Directory Step 1 of 5 Indirect participation STARTED Indirect participation registered as a participation type ACTIVE Four participation types in the RTGS Direct (05) QUEUED Settlement service it receives is only as good as the direct QUEUED Euro still same RTGS DCA either way. QUEUED Practical lesson simple, and it prevents a common design QUEUED Indirect participation is registered as a participation type in the RTGS Directory
Four participation types in the RTGS Directory PAYMENT OPERATIONS IN PROGRESS LIVE 01 Indirect participation - registered as a participation type DONE 02 Four participation types in the RTGS - Direct (05) ACTIVE 03 Settlement service it - receives is only as good as the direct QUEUED 04 Euro still - same RTGS DCA either way. QUEUED 05 Practical lesson - simple, and it prevents a common design QUEUED The four participation types in the RTGS Directory are Direct (05) Step 2 of 5 Four participation types in the RTGS Directory IN PROGRESS Indirect participation registered as a participation type DONE Four participation types in the RTGS Direct (05) ACTIVE Settlement service it receives is only as good as the direct QUEUED Euro still same RTGS DCA either way. QUEUED Practical lesson simple, and it prevents a common design QUEUED The four participation types in the RTGS Directory are Direct (05)
Settlement service it PAYMENT OPERATIONS IN PROGRESS LIVE 01 Indirect participation - registered as a participation type DONE 02 Four participation types in the RTGS - Direct (05) DONE 03 Settlement service it - receives is only as good as the direct ACTIVE 04 Euro still - same RTGS DCA either way. QUEUED 05 Practical lesson - simple, and it prevents a common design QUEUED The settlement service it receives is only as good as the direct participant service behind it. Step 3 of 5 Settlement service it IN PROGRESS Indirect participation registered as a participation type DONE Four participation types in the RTGS Direct (05) DONE Settlement service it receives is only as good as the direct ACTIVE Euro still same RTGS DCA either way. QUEUED Practical lesson simple, and it prevents a common design QUEUED The settlement service it receives is only as good as the direct participant service behind it.
Euro still settles PAYMENT OPERATIONS IN PROGRESS LIVE 01 Indirect participation - registered as a participation type DONE 02 Four participation types in the RTGS - Direct (05) DONE 03 Settlement service it - receives is only as good as the direct DONE 04 Euro still - same RTGS DCA either way. ACTIVE 05 Practical lesson - simple, and it prevents a common design QUEUED The euro still settles on the same RTGS DCA either way. Step 4 of 5 Euro still settles IN PROGRESS Indirect participation registered as a participation type DONE Four participation types in the RTGS Direct (05) DONE Settlement service it receives is only as good as the direct DONE Euro still same RTGS DCA either way. ACTIVE Practical lesson simple, and it prevents a common design QUEUED The euro still settles on the same RTGS DCA either way.
Practical lesson for a business analyst PAYMENT OPERATIONS COMPLETE LIVE 01 Indirect participation - registered as a participation type DONE 02 Four participation types in the RTGS - Direct (05) DONE 03 Settlement service it - receives is only as good as the direct DONE 04 Euro still - same RTGS DCA either way. DONE 05 Practical lesson - simple, and it prevents a common design ACTIVE The practical lesson for a business analyst is simple, and it prevents a common design error. Step 5 of 5 Practical lesson for a business analyst COMPLETE Indirect participation registered as a participation type DONE Four participation types in the RTGS Direct (05) DONE Settlement service it receives is only as good as the direct DONE Euro still same RTGS DCA either way. DONE Practical lesson simple, and it prevents a common design ACTIVE The practical lesson for a business analyst is simple, and it prevents a common design error.

Key points of this lesson, in order.

0:00 / 3:33 Step 1 of 5

Why Indirect Participation Plays No Direct Role in EUR Settlement

Addressing Payments in T2, Lesson 4 of 7, Narration 3:33, D05 Domestic payment systems

Indirect participantDirect participantMulti-addressee

What you will learn

Your objective. By the end of this lesson, you will be able to explain indirect participation plays no direct role in EUR settlement. Indirect participation is registered as a participation type in the RTGS Directory, but it plays no direct role in euro settlement, because no euro settlement is ever booked on an indirect participant account.

Why it matters. The practical lesson for a business analyst is simple, and it prevents a common design error.

Chapter objective: Learner explains addressing in T2, distinguishes Direct, Indirect, Multi-addressee and Addressable BIC participation, and describes how the BAH and the instructed agent differ in routing. Learner uses real BIC examples and payment amounts to show how addressing works in practice.

Key learning points

  • Indirect participation
  • Four participation types in the RTGS Directory
  • Settlement service it
  • Euro still settles
  • Practical lesson for a business analyst

Key terms

Indirect participant: A bank or institution that uses a payment system through a direct participant, without holding its own settlement account.

Direct participant: A bank or institution that holds an account in a payment system and sends and receives payments directly.

Multi-addressee: A payment system arrangement where one participant, usually a bank, acts as the addressee for payments to several other institutions, such as its branches or subsidiaries.

Payment flow diagram showing Why Indirect Participation Plays No Direct Role in EUR Settlement.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

Which of the following best describes indirect participation plays no direct role in EUR settlement?

Takeaway and next step

What to remember

The practical lesson for a business analyst is simple, and it prevents a common design error.

Follow EUR 100,000 through every stage, from instruction to beneficiary credit, and note where it can stop.

Open the Payment Lifecycle Simulator →

Builds on "Participation Types: Direct, Indirect, Multi-Addressee and Addressable BIC (05, 06, 07, 08)".

Transcript and full text

Show transcript

Indirect participation is registered as a participation type in the RTGS Directory, but it plays no direct role in euro settlement, because no euro settlement is ever booked on an indirect participant account. An indirect participant, code 06, holds no RTGS Dedicated Cash Account, so T2 has no account to debit or credit in its name. A EUR 100,000 payment to an indirect participant settles on the direct participant RTGS DCA, and the direct participant then moves the funds to the indirect participant in its own internal books. From the point of view of T2 settlement, the indirect participant is invisible, and only the direct participant balance changes. The four participation types in the RTGS Directory are Direct (05), Indirect (06), Multi-addressee (07) and Addressable BIC (08), and this treatment follows the TARGET Guideline (EU) 2022/912. The direct participant carries the liquidity, the risk and the operational duty for every indirect payment. It must hold enough funds on its RTGS DCA to settle a EUR 5 million payment for its indirect participant, it must manage the queue if funds are short, and it must credit the indirect participant promptly after settlement. The indirect participant cannot speed up the payment, cannot change its priority in the RTGS queue, and cannot draw intraday credit from its national central bank, because it has no account and no direct connection. The settlement service it receives is only as good as the direct participant service behind it. Indirect participation also adds no new reach for euro payments, because the same payment can be addressed through the direct participant in any case. A bank that wants to pay a small savings bank in Germany can address the pacs.008 to the direct participant that settles for that savings bank, and the funds will reach the savings bank through the direct participant books. Listing the savings bank as an indirect participant makes the addressing clearer, but it does not create a new settlement path, a new account or a new source of liquidity. The euro still settles on the same RTGS DCA either way. Banks that move euro payments in volume therefore do not rely on indirect participation. A bank that sends EUR 20 million a day, or that needs to control its own payment timing, becomes a direct participant, code 05, and holds its own RTGS DCA. A bank group that wants its branches to send payments without opening a new account for each branch uses multi-addressee access, code 07, so each branch can submit payments directly while settlement stays on the head office account. Indirect participation remains useful for a small bank with very low volumes, but it is not a model for active euro settlement. The practical lesson for a business analyst is simple, and it prevents a common design error. Do not design a euro settlement flow around an indirect participant as if it were a settlement account holder. Design the flow around the direct participant RTGS DCA, name the direct participant as the instructed agent in the pacs.008, and treat the indirect participant BIC as the creditor agent or the final beneficiary for addressing only. A design that names the indirect participant as the instructed agent will be rejected by RTGS, because RTGS cannot settle on an account that does not exist, and the customer payment will be delayed while the error is corrected.

Indirect participation is registered as a participation type in the RTGS Directory, but it plays no direct role in euro settlement, because no euro settlement is ever booked on an indirect participant account. An indirect participant, code 06, holds no RTGS Dedicated Cash Account, so T2 has no account to debit or credit in its name. A EUR 100,000 payment to an indirect participant settles on the direct participant RTGS DCA, and the direct participant then moves the funds to the indirect participant in its own internal books. From the point of view of T2 settlement, the indirect participant is invisible, and only the direct participant balance changes. The four participation types in the RTGS Directory are Direct (05), Indirect (06), Multi-addressee (07) and Addressable BIC (08), and this treatment follows the TARGET Guideline (EU) 2022/912.

The direct participant carries the liquidity, the risk and the operational duty for every indirect payment. It must hold enough funds on its RTGS DCA to settle a EUR 5 million payment for its indirect participant, it must manage the queue if funds are short, and it must credit the indirect participant promptly after settlement. The indirect participant cannot speed up the payment, cannot change its priority in the RTGS queue, and cannot draw intraday credit from its national central bank, because it has no account and no direct connection. The settlement service it receives is only as good as the direct participant service behind it.

Indirect participation also adds no new reach for euro payments, because the same payment can be addressed through the direct participant in any case. A bank that wants to pay a small savings bank in Germany can address the pacs.008 to the direct participant that settles for that savings bank, and the funds will reach the savings bank through the direct participant books. Listing the savings bank as an indirect participant makes the addressing clearer, but it does not create a new settlement path, a new account or a new source of liquidity. The euro still settles on the same RTGS DCA either way.

Banks that move euro payments in volume therefore do not rely on indirect participation. A bank that sends EUR 20 million a day, or that needs to control its own payment timing, becomes a direct participant, code 05, and holds its own RTGS DCA. A bank group that wants its branches to send payments without opening a new account for each branch uses multi-addressee access, code 07, so each branch can submit payments directly while settlement stays on the head office account. Indirect participation remains useful for a small bank with very low volumes, but it is not a model for active euro settlement.

The practical lesson for a business analyst is simple, and it prevents a common design error. Do not design a euro settlement flow around an indirect participant as if it were a settlement account holder. Design the flow around the direct participant RTGS DCA, name the direct participant as the instructed agent in the pacs.008, and treat the indirect participant BIC as the creditor agent or the final beneficiary for addressing only. A design that names the indirect participant as the instructed agent will be rejected by RTGS, because RTGS cannot settle on an account that does not exist, and the customer payment will be delayed while the error is corrected.

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