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T2 (TARGET2) / TIPS

European banks settle SEPA payments (euro payments) between themselves via the T2 and TIPS settlement systems at the European Central Bank (ECB).

T2 – Heart of European payments

All euro payments between European banks are settled (cleared, settled, processed) via T2 (formerly TARGET2). T2 is the ECB’s administration system in which the liquidity accounts of banks and other payment service providers at national central banks (such as DNB ) are maintained. Each payment service provider holds a large amount of central bank money (‘liquidity’) in such an account, sufficient to meet all its payment obligations to other banks for a certain period of time.

In T2, large payments in euros between banks are recorded via a so-called Real-Time Gross Settlement system (RTGS). The actual execution of these interbank payments takes place via the Eurosystem of national central banks, between the liquidity accounts of payment service providers. Each transaction is settled immediately and irrevocably in central bank money in T2.

T2 and the liquidity accounts of payment service providers limit systemic risks and ensure a high level of reliability in euro payments.

Read more at the ECB: What is T2?(opens in new window)

Key functions of T2

  1. Support for monetary policy
  2. T2 facilitates the implementation of the ECB’s monetary policy by efficiently processing payments arising from transactions by and for payment institutions.
  3. Interbank payments
  4. The system processes large interbank payments and commercial transactions. Hundreds of thousands of transactions worth trillions of euros are processed every day.
  5. Liquidity management
  6. The introduction of Central Liquidity Management (CLM) makes it possible to centrally manage the liquidity of each bank for different types of settlement transactions. This increases efficiency and flexibility for banks.
  7. Cross-border payments
  8. T2 enables the free movement of money within the eurozone and is directly accessible to more than 1,000 banks and indirectly to more than 50,000 financial institutions worldwide.

Technical features

  • Uses the ISO 20022 message standards for orders and reports
  • Supports liquidity pooling, payment prioritization, and optimization procedures, among other things
  • Opening hours: business days from 7:00 a.m. to 6:00 p.m. CET
  • Possible extension of opening hours to better align with global markets

TIPS – Heart of Instant Payments

TIPS (TARGET Instant Payment Settlement) is a settlement service of the Eurosystem, launched in November 2018. The system enables instant peer-to-peer payments between payment service providers, within seconds, 24 hours a day, 365 days a year. TIPS processes payments in euros, Swedish kronor, and Danish kroner.

TIPS was developed for the EPC’s SEPA Instant Credit Transfer (SCT Inst) and has a pan-European reach. It is an extension of T2 and offers a direct link to payment service providers’ liquidity accounts at national central banks. Payment service providers can move liquidity between T2 and TIPS to execute instant payments.

Read more at the ECB: What is TIPS?(opens in new window)

Technical features

  • Always available, 24 hours a day, 365 days a year
  • Maximum processing time: 10 seconds
  • Modern, scalable, and secure IT architecture
  • Designed for interoperability, even outside the euro area

TIPS contributes to the further harmonization of European payments and supports the European Commission’s objective of making instant payments widely available.

Liquidity management

The settlement of SEPA payments between banks is carried out by the European Central Bank (ECB) via the Eurosystem. Banks maintain liquidity in T2 for groups of payments (batches) and in TIPS for individual instant payments.

How banks manage their liquidity

Banks manage their liquidity in T2 and TIPS in order to meet their payment obligations. T2 is for large interbank payments and therefore also plays an important role in the ECB’s monetary policy. Via Central Liquidity Management(opens in new window) (CLM), banks can manage their liquidity centrally across all TARGET services: T2, T2S (for securities) and TIPS.

TIPS is specifically designed for instant payments and requires banks to maintain sufficient balances on their TIPS accounts. Liquidity in TIPS is fed from T2.

Because TIPS is available around the clock and T2 is not, banks must reserve sufficient funds for the periods when T2 is closed. If there is insufficient liquidity in TIPS, instant payments may not be executed.

Payment institutions receive (partial) interest on T2 balances, but not on TIPS balances. Banks must therefore constantly choose between maximum liquidity availability for smooth processing and generating interest on their T2 balance. The ECB is therefore investigating whether extending T2 opening hours could reduce these frictions. Equalization of interest conditions is also a topic of ongoing discussion between payment institutions and the ECB.

In summary, effective liquidity management in T2 and TIPS means finding a balance between operational continuity, risk management, and return. Further harmonization and expansion of T2 operations are important to continue to ensure the stability and efficiency of European payments.se betalingsverkeer te blijven waarborgen.