Key points of this lesson, in order.
What TIPS Is and How It Fits TARGET Services
What you will learn
Your objective. By the end of this lesson, you will be able to explain TIPS. TIPS stands for TARGET Instant Payment Settlement, and it is a service of the Eurosystem that settles instant payments in central bank money, around the clock, every day of the year.
Why it matters. Under the SCT Inst scheme, the maximum execution time for an instant payment is ten seconds from the moment the payer bank receives the instruction until the payee bank must have the funds available.
Chapter objective: Learner explains TIPS instant payments and liquidity transfers, describes SCT Inst, Non-Euro and SIP flows, and distinguishes TIPS DCA, AS Technical Account and Transit Accounts. Learner uses real amounts, banks and message names to show how instant payments and liquidity transfers work.
Key learning points
- TIPS: service of Eurosystem
- TIPS in the TARGET Services family
- Key feature of TIPS
- Central bank money settlement
- Participants in TIPS
Key terms
Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.
Liquidity: Cash or assets that a bank can use immediately to meet payment obligations. Banks manage liquidity by forecasting inflows and outflows, funding nostro and settlement accounts, and using central bank...
SCT Inst: SEPA Instant Credit Transfer, a scheme for euro payments that settle within ten seconds at any time of day.
Payment flow diagram showing What TIPS Is and How It Fits TARGET Services.
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.
- 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
A bank wants to offer instant euro payments around the clock, including weekends. Which TARGET service settles them?
Takeaway and next step
What to remember
The key feature of TIPS is settlement in central bank money, which means the funds move between accounts held at a central bank, not between commercial bank accounts.
Follow EUR 500 through every stage, from instruction to beneficiary credit, and note where it can stop.
Open the Payment Lifecycle Simulator →
Builds on "Exercise: Decide Reject or Return".
Transcript and full text
Show transcript
TIPS stands for TARGET Instant Payment Settlement, and it is a service of the Eurosystem that settles instant payments in central bank money, around the clock, every day of the year. When a customer in France sends EUR 500 to a friend in Germany through an instant payment, the two banks involved settle that payment in TIPS, and the settlement is final within seconds. TIPS does not hold customer accounts, and it does not deal with the customer directly. It holds accounts for banks and other participants, and it moves central bank money between those accounts to settle the payments their customers have instructed. TIPS is one of the TARGET Services, which is the family of market infrastructure services operated by the Eurosystem. The best known member is TARGET, formerly called TARGET2, which settles large value payments in real time gross settlement. Another member is TARGET2-Securities, known as T2S, which settles securities transactions. A third is the Eurosystem Collateral Management System, known as ECMS, which manages collateral. TIPS sits alongside those services, and it shares their common components for access, billing, and reference data, but it has its own settlement engine, built for speed and for very high volumes of small payments. The key feature of TIPS is settlement in central bank money, which means the funds move between accounts held at a central bank, not between commercial bank accounts. When Bank A in Italy pays Bank B in Spain through TIPS, the TIPS account of Bank A is debited and the TIPS account of Bank B is credited, and both accounts are central bank money. That makes the settlement final and risk free in the sense that the receiving bank does not carry credit risk on the sending bank for that payment. Commercial bank money, by contrast, is a claim on a commercial bank, and it carries the risk that the bank might fail. Central bank money settlement is the safest form of settlement available. TIPS is designed for instant payments, which are payments that must be completed within seconds, not hours or days. Under the SCT Inst scheme, the maximum execution time for an instant payment is ten seconds from the moment the payer bank receives the instruction until the payee bank must have the funds available. TIPS is built to meet that deadline, with processing times measured in milliseconds for most payments. It operates twenty four hours a day, seven days a week, including weekends and public holidays, because instant payments do not stop for the weekend, and neither can the settlement service that supports them. The participants in TIPS are mainly banks, but the service also supports other payment service providers, ancillary systems, and central banks. A bank that wants to offer instant payments to its customers can open a TIPS Dedicated Cash Account, known as a TIPS DCA, and hold the liquidity it needs for instant payments in that account. A bank that does not want to connect directly can use an instructing party, which sends and receives messages on its behalf. That flexibility means small banks can offer instant payments without building a direct connection, while large banks can connect directly and control their own liquidity in real time.
TIPS stands for TARGET Instant Payment Settlement, and it is a service of the Eurosystem that settles instant payments in central bank money, around the clock, every day of the year. When a customer in France sends EUR 500 to a friend in Germany through an instant payment, the two banks involved settle that payment in TIPS, and the settlement is final within seconds. TIPS does not hold customer accounts, and it does not deal with the customer directly. It holds accounts for banks and other participants, and it moves central bank money between those accounts to settle the payments their customers have instructed.
TIPS is one of the TARGET Services, which is the family of market infrastructure services operated by the Eurosystem. The best known member is TARGET, formerly called TARGET2, which settles large value payments in real time gross settlement. Another member is TARGET2-Securities, known as T2S, which settles securities transactions. A third is the Eurosystem Collateral Management System, known as ECMS, which manages collateral. TIPS sits alongside those services, and it shares their common components for access, billing, and reference data, but it has its own settlement engine, built for speed and for very high volumes of small payments.
The key feature of TIPS is settlement in central bank money, which means the funds move between accounts held at a central bank, not between commercial bank accounts. When Bank A in Italy pays Bank B in Spain through TIPS, the TIPS account of Bank A is debited and the TIPS account of Bank B is credited, and both accounts are central bank money. That makes the settlement final and risk free in the sense that the receiving bank does not carry credit risk on the sending bank for that payment. Commercial bank money, by contrast, is a claim on a commercial bank, and it carries the risk that the bank might fail. Central bank money settlement is the safest form of settlement available.
TIPS is designed for instant payments, which are payments that must be completed within seconds, not hours or days. Under the SCT Inst scheme, the maximum execution time for an instant payment is ten seconds from the moment the payer bank receives the instruction until the payee bank must have the funds available. TIPS is built to meet that deadline, with processing times measured in milliseconds for most payments. It operates twenty four hours a day, seven days a week, including weekends and public holidays, because instant payments do not stop for the weekend, and neither can the settlement service that supports them.
The participants in TIPS are mainly banks, but the service also supports other payment service providers, ancillary systems, and central banks. A bank that wants to offer instant payments to its customers can open a TIPS Dedicated Cash Account, known as a TIPS DCA, and hold the liquidity it needs for instant payments in that account. A bank that does not want to connect directly can use an instructing party, which sends and receives messages on its behalf. That flexibility means small banks can offer instant payments without building a direct connection, while large banks can connect directly and control their own liquidity in real time.
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