ECB consults on EU - wide settlement service for instant payments

Background

In the past few years the foundations were laid for pan-European innovative payment solutions. In the scheme layer, the European Payments Council (EPC) finalised the framework for pan-European instant payment solutions. The instant payment scheme is the basis for the Europe-wide implementation of instant credit transfers, as well as the launch pad for other innovative payment solutions, such as person-to-person mobile payments. Fostered by the Euro Retail Payments Board (ERPB), work is under way not only on instant payments and mobile payments, but also payment initiation services and e-invoicing, among other things.

The European payment system is underpinned by a real-time gross settlement payment infrastructure, the Trans-European Automated Real-Time Gross Settlement Express Transfer system (TARGET). This has been complemented by the TARGET2 infrastructure - a central platform for payments settlement that links national payment systems across Europe.

Instant payments solutions serve payment originators and beneficiaries holding accounts in Euro for transactions in Euros throughout the Single Euro Payments Area (SEPA).

In the clearing layer, (some) automated clearing houses (ACHs) agreed and committed to a pan-European approach for clearing instant payments in euro. This approach consists of :

i) harmonised risk management
ii) a uniform settlement procedure in TARGET2, and
iii) fair and open access policies to facilitate interoperability.

Previously the ERPB had expressed the need for at least one pan-European instant payment solution for euro open to any payment service provider (PSP) in the European Union, and had invited the supply side to make an assessment of the issues related to the delivery of any such solution.

An instant payment task force of infrastructure service users from all over Europe was asked to create a 2015 - 2018 roadmap for the delivery of an inter-PSP infrastructure solution at a pan European level, and to elaborate a blueprint setting out the high-level requirements.

New payment platforms will host an instant payment service for euro transactions complying with the SCT Inst Scheme, which is currently being created by the EPC. The instant payment service will be open to any PSP adhering to the EPC SCT Inst Scheme.

In the settlement layer, the Eurosystem launched an investigation into providing a pan-European instant payment settlement service in central bank money.

Project scope

On 10 January 2017, the ECB published a consultation document setting out the user requirements for a TARGET Instant Payments Settlement (TIPS) service.

The ECB explains that TIPS is a service for the settlement of instant payments. It will offer instant settlement services to its participants when an originator instructs the transfer of funds to a beneficiary. The primary aim of the service is to offer the settlement of instant payments in euro, although it could also support settlement in non-euro central bank money in the future, if deemed necessary.

TIPS will support participants' compliance with the SEPA instant credit transfer scheme (SCT Inst), which the EPC has launched for instant euro payments, following the same process flows and liquidity transfers. It will follow the participation criteria of TARGET2. Participants that are eligible to open TARGET2 accounts will also be eligible to open TIPS accounts, even if they do not have TARGET2 accounts.

TIPS is intended as a harmonised and standardised pan-European service with common functionality across different countries and jurisdictions. The nature of the service is intended to promote efficiency in the settlement of instant payments. Common functionalities across jurisdictions and the intention to support compliance of the SCT Inst scheme will ensure harmonisation of practices and further market integration in the settlement of instant payments.

TIPS Principles

TIPS will be based on the following principles:

Principle 1: TARGET Instant Payments Settlement (TIPS) shall serve as a technical solution for providing instant payments settlement services to Participants without the provision of clearing services.
Clarification: The settlement services offered in TIPS will include validation of payment transaction (eg checks for message format compliance, availability of accounts, or authorisation to instruct) as well as the confirmation of the settlement results to the Participants.

Principle 2: The primary objective of TIPS is to provide efficient settlement services in euro; however the service shall be technically capable of settling currencies other than the euro.
Clarification: The technical implementation of TIPS shall be currency agnostic in order to provide flexibility in the design, ie potential settlement in non-euro central bank money. Currency conversion is not in scope.

Principle 3: TIPS shall settle exclusively in Central Bank money.

Principle 4: The settlements performed by TIPS shall be final and irrevocable.

Principle 5: TIPS shall allow operations on a 24/7/365 basis.
Clarification: The technical design of TIPS shall allow around-the-clock operation of the service.

Principle 6: TIPS shall be a lean, harmonised and standardised pan-European service with common functionality across different countries and jurisdictions.

Principle 7: For the settlement of instant payments in euro, TIPS shall follow the participation criteria of TARGET2. For other currencies, participation criteria shall be defined by the Central Banks responsible for the RTGS.
Clarification: TIPS accounts in euro shall legally be opened in the TARGET2 component of the responsible Central Bank and shall be dedicated to the settlement of instant payments on TIPS.

Principle 8: Participation in TIPS shall not be made mandatory by the Eurosystem.

Principle 9: All eligible Participants shall have non-discriminatory access conditions to TIPS.
Clarification: From a technical point of view access for all Participants of TIPS shall be non-discriminatory. TARGET2 rules will govern the access conditions for the settlement of instant payments in euro.

Principle 10: TIPS shall be based on the ISO 20022 message standard for instant payments settlement and shall support Participants to be compliant with the SCT Inst scheme for instant payments in euro.
Clarification: Succeeding ISO standards are not excluded and might be adopted in the future, if deemed necessary. TIPS messages shall be in line with SCT Inst, if applicable, insofar as to allow easy translation; all payment messages shall use the same format. However, other schemes in other currencies are not excluded and might be supported in the future, if deemed necessary. 

Principle 11: The Eurosystem shall take on the responsibility of developing and operating TIPS by assuming full ownership.

Principle 12: TIPS shall operate on a full cost-recovery and not-for-profit basis.

User requirements in the consultation

• High level process description and architecture
• Settlement of instant payment transactions, identifying requirements for core payments process and exception handling
• Liquidity management and the transfers between TIPS and the RTGS
• Management of accounts and reference data
• Reports and queries that will be provided and available respectively
• Interfaces - the technical communications with the different TIPS actors
• Other functions eg billing
• Non-functional requirements

Next steps

The consultation closes on 24 February 2017. The ECB will decide in June 2017 whether to develop the service. If it does decide to proceed, it expects that TIPS will be operational in November 2018.