TARGET2, The new payment platform for Europe.

TARGET stands for Trans European Automated Real TimeGross Settlement Express Transfer. All TARGET payments are processed straight through by the national banks within the EU through the local Real Time Gross Settlement systems.

TARGET2, in contrast, uses a direct payment platform (the SSP) without intervention of any local RTGS. This article describes the elements within TARGET2 by comparing the current TARGET system. 

In order to send your payment order through TARGET, you need to have access to the Real Time Gross Settlement (RTGS) system of the country you are sending your payment order from. These RTGS’s are maintained by the Central Banks.

As an example for RTGS: If you are sending your orders from Holland, you use TOP, from Belgium you use the ELLIPS system, and if you want to pay your newly bought design Porsche, the RTGS+ system will come into picture when sending 250.000 EUR from your country to Porsche A.G. in Germany. More information on the RTGS systems per country can be found here.

The currently used TARGET system provides an interlink between all the decentralized domestic payment systems (RTGS’s) within the EU and processes as follows:

1. The credit institution (your local bank) receives the payment order from the client
2. The payment order is sent to the central bank’s RTGS by the credit institution by means of SWIFT or other domestic payment format (such as ICH in Belgium or DTA in Germany)
3. The Central Bank debits the account of the credit institution and credits the mirror account of the receiving Central Bank
4. The payment is sent via the TARGET network by using the interlinking format to the receiving central bank
5. The receiving central bank, in turn, books the payment amount from the mirror account of the sending Central Bank and credit the account of the receiving credit institution
6. The payment order is sent to the receiving credit institution by means of SWIFT or other domestic payment format

The following picture shows, as an example, a payment process from DHB-Bank in the Netherlands to Fortis Banque in Belgium through TARGET.

As it can be seen from the picture, two different linked local RTGS systems are used. Well, isn’t it a bit odd to use different decentralized interlinked local RTGS systems? 

Why not, instead, create a single (technical) shared platform (SSP) providing:

• Harmonization (more harmonized, transparent operational procedures)
• Faster transfers (no conversions and delays)
• Cheaper costs (one platform, instead of multi-RTGS’s)
• International Competitiveness
• Simplification of the non-cash payment structure
• Replacement of the domestic and the cross-border payments with a single solution
• Consistent Levels of Service
• Single Price Structure (same platform, no difference between domestic and cross-border)
• Standardization and Consolidation (settlement of all participants from a single RTGS account)
• More reliability?

This has triggered the governing council of the ECB to re-think and on 24^th of October 2002 to create a new single shared platform (SSP): TARGET2. The latest progress report published by the 3CB (Banque de France, Deutsche Bundesbank and Banca d'Italia), can be found here.

What will change with respect to the current situation? 

What will change with respect to the current situation?

Payment orders will be sent directly to the TARGET2 participants (instead of being processed via the decentralized RTGS’s) and the bookings will be handled centrally by TARGET2.

The following picture shows the same payment from DHB-Bank to Fortis Banque through the TARGET2 platform.

1. The credit institution (your local bank) receives the payment order from the client
2. The payment order is sent directly to TARGET2 through SWIFT
3. During transfer, the bookings are settled
4. The payment order is received by the credit institution

Next time we will focus more in detail in the settlement process and cash management.

Note:

We are currently seeking for authors and / or editors @ target2.net.

For more information on how to become an editor or an author @ target2.net, please register and leave your personal details through the contact us section.

Be first to comment this article

Only registered users can write comments.
Please login or register.

Powered by AkoComment Tweaked Special Edition v.1.4.6
AkoComment © Copyright 2004 by Arthur Konze - www.mamboportal.com
All right reserved