Steps of this lesson, in order.
Worked Example: A EUR 2,000 Instant Payment and a EUR 500,000 Inbound Liquidity Transfer, traced step by step
What you will learn
Your objective. By the end of this lesson, you will be able to explain worked example: a EUR 2,000 instant payment and a EUR 500,000 inbound liquidity transfer, traced. The instant payment starts with a customer in Lyon, a freelance designer called Claire Moreau, who owes EUR 2,000 to a supplier in Berlin called Weber Studio.
Why it matters. This matters because the rail decides how fast the money moves, what it costs, when it settles and what can go wrong. Choosing the wrong rail is a product and an operations failure.
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
- Instant payment
- TIPS: first intermediary status
- Deutsche Bank
- Liquidity transfer starts earlier
- Euro transit account flow
- TIPS DCA now holds EUR 800,000
Key terms
Liquidity transfer: A movement of funds between accounts held by the same participant to manage liquidity, for example from a main cash account to a dedicated cash account.
Transit account: An internal account used to hold funds temporarily while they move between systems or accounts. Transit accounts record the movement of money during settlement, currency conversion or internal...
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.
Payment flow diagram showing Worked Example: A EUR 2,000 Instant Payment and a EUR 500,000 Inbound Liquidity Transfer, traced step by step.
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
Which of the following best describes worked example: a EUR 2,000 instant payment and a EUR 500,000 inbound liquidity transfer, traced?
Takeaway and next step
What to remember
The TIPS DCA now holds EUR 800,000, which is EUR 300,000 plus EUR 500,000, and BNP Paribas has enough liquidity for the day, including the EUR 2,000 payment to Weber Studio that follows.
Settle a payment like the one in this lesson and watch the liquidity and finality behaviour.
Builds on "Inbound and Outbound Liquidity Transfers via Transit Accounts".
Transcript and full text
Show transcript
The instant payment starts with a customer in Lyon, a freelance designer called Claire Moreau, who owes EUR 2,000 to a supplier in Berlin called Weber Studio. Claire instructs her bank, BNP Paribas in Paris, to send EUR 2,000 by instant payment, and BNP Paribas debits her account for EUR 2,000. BNP Paribas creates a pacs.008.001.08 for EUR 2,000, with Claire Moreau as the debtor, Weber Studio as the creditor, and the creditor agent named as Deutsche Bank in Berlin, and it sends that message to TIPS. At this point the payment is in flight, and the ten second SCT Inst deadline has started to run. TIPS receives the pacs.008.001.08 and records the status as Received, which is the first intermediary status. It then validates the message, checking the format, the references, the participant details, and the currency, and when everything passes, the status becomes Validated. TIPS then checks the BNP Paribas TIPS DCA, confirms that it holds at least EUR 2,000, and reserves EUR 2,000 on that account. The status becomes Reserved, and TIPS forwards the payment to Deutsche Bank in Berlin. The EUR 2,000 is now set aside on the BNP Paribas account, it cannot be used for another payment, and Deutsche Bank has a few seconds to decide. Deutsche Bank receives the payment, checks the Weber Studio account, confirms that the account is open and that the name matches, and decides to accept. It sends a pacs.002.001.10 back to TIPS with an acceptance, and TIPS settles the payment at once. The settlement debits EUR 2,000 from the BNP Paribas TIPS DCA, using the reserved funds, and credits EUR 2,000 to the Deutsche Bank TIPS DCA. The status becomes Settled, which is the final successful status, and TIPS sends a pacs.002.001.10 with status Settled to BNP Paribas. Deutsche Bank credits EUR 2,000 to the Weber Studio account, and the supplier sees the money within seconds of Claire sending it. The liquidity transfer starts earlier in the day, before the instant payment, because BNP Paribas needs to fund its TIPS DCA. In the morning, BNP Paribas holds EUR 300,000 in its TIPS DCA, but it expects EUR 800,000 of instant payment outflows during the day, so it decides to move EUR 500,000 from its TARGET main cash account into TIPS. It instructs an Inbound Liquidity Transfer, and that instruction can only be triggered in RTGS, because the source account is a TARGET main cash account. BNP Paribas sends the instruction through RTGS, using a camt.050, with the source as its main cash account and the destination as its TIPS DCA. The inbound transfer moves through the euro transit account, which belongs to the ECB, and it does so as two separate transactions. The first transaction debits EUR 500,000 from the BNP Paribas TARGET main cash account and credits EUR 500,000 to the euro transit account. The second transaction debits EUR 500,000 from the euro transit account and credits EUR 500,000 to the BNP Paribas TIPS DCA. Both transactions settle immediately, because a liquidity transfer has no reservation and is settled or rejected at once. TIPS sends a camt.025 receipt confirming the settlement, and camt.054 notifications confirm the debit to the main cash account and the credit to the TIPS DCA. The TIPS DCA now holds EUR 800,000, which is EUR 300,000 plus EUR 500,000, and BNP Paribas has enough liquidity for the day, including the EUR 2,000 payment to Weber Studio that follows.
The instant payment starts with a customer in Lyon, a freelance designer called Claire Moreau, who owes EUR 2,000 to a supplier in Berlin called Weber Studio. Claire instructs her bank, BNP Paribas in Paris, to send EUR 2,000 by instant payment, and BNP Paribas debits her account for EUR 2,000. BNP Paribas creates a pacs.008.001.08 for EUR 2,000, with Claire Moreau as the debtor, Weber Studio as the creditor, and the creditor agent named as Deutsche Bank in Berlin, and it sends that message to TIPS. At this point the payment is in flight, and the ten second SCT Inst deadline has started to run.
TIPS receives the pacs.008.001.08 and records the status as Received, which is the first intermediary status. It then validates the message, checking the format, the references, the participant details, and the currency, and when everything passes, the status becomes Validated. TIPS then checks the BNP Paribas TIPS DCA, confirms that it holds at least EUR 2,000, and reserves EUR 2,000 on that account. The status becomes Reserved, and TIPS forwards the payment to Deutsche Bank in Berlin. The EUR 2,000 is now set aside on the BNP Paribas account, it cannot be used for another payment, and Deutsche Bank has a few seconds to decide.
Deutsche Bank receives the payment, checks the Weber Studio account, confirms that the account is open and that the name matches, and decides to accept. It sends a pacs.002.001.10 back to TIPS with an acceptance, and TIPS settles the payment at once. The settlement debits EUR 2,000 from the BNP Paribas TIPS DCA, using the reserved funds, and credits EUR 2,000 to the Deutsche Bank TIPS DCA. The status becomes Settled, which is the final successful status, and TIPS sends a pacs.002.001.10 with status Settled to BNP Paribas. Deutsche Bank credits EUR 2,000 to the Weber Studio account, and the supplier sees the money within seconds of Claire sending it.
The liquidity transfer starts earlier in the day, before the instant payment, because BNP Paribas needs to fund its TIPS DCA. In the morning, BNP Paribas holds EUR 300,000 in its TIPS DCA, but it expects EUR 800,000 of instant payment outflows during the day, so it decides to move EUR 500,000 from its TARGET main cash account into TIPS. It instructs an Inbound Liquidity Transfer, and that instruction can only be triggered in RTGS, because the source account is a TARGET main cash account. BNP Paribas sends the instruction through RTGS, using a camt.050, with the source as its main cash account and the destination as its TIPS DCA.
The inbound transfer moves through the euro transit account, which belongs to the ECB, and it does so as two separate transactions. The first transaction debits EUR 500,000 from the BNP Paribas TARGET main cash account and credits EUR 500,000 to the euro transit account. The second transaction debits EUR 500,000 from the euro transit account and credits EUR 500,000 to the BNP Paribas TIPS DCA. Both transactions settle immediately, because a liquidity transfer has no reservation and is settled or rejected at once. TIPS sends a camt.025 receipt confirming the settlement, and camt.054 notifications confirm the debit to the main cash account and the credit to the TIPS DCA. The TIPS DCA now holds EUR 800,000, which is EUR 300,000 plus EUR 500,000, and BNP Paribas has enough liquidity for the day, including the EUR 2,000 payment to Weber Studio that follows.
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