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European Central Bank launches instant payments system

The European Central Bank (ECB) has launched a pan-eurozone instant payments system, following growing consumer demand for this kind of service.

What does this mean?

The new service, called Target Instant Payments Settlement (TIPS), is available to consumers and businesses across the 19 states in the eurozone and will offer near real-time payments via smartphones, PCs and in-store payment points.

“In launching TIPS, the Eurosystem is acknowledging the changing reality that digitalisation is erasing the borders between wholesale and retail. TIPS offers final and irrevocable settlement of instant payments in euro, at any time of day and on any day of the year,” said Yves Mersch, Member of the Executive Board of the ECB at the launch event in Rome on 30 November.

Many banks have launched instant payment services for domestic use but there is currently no such services for cross-border transactions.

The ECB hopes that TIPS will solve this by offering a single, borderless solution, which is connected to central bank funds and therefore avoiding some of the settlement processes that can inhibit instant payments.

“Banks in the eurozone are under pressure” from tech rivals, said Marc Bayle de Jesse, head of market infrastructure and payments at the ECB.

“TIPS is a way for them to not give up the game to these digital players,” he added.

TIPS will initially be open to any person, bank or business in the eurozone but could in future be expanded to other countries and currencies.

To take part and be able to offer the service to customers, commercial banks will have to open a dedicated TIPS account with their national central bank.

Participating banks will also have to forgo the benefits of having the liquidity from an in-progress money transfer on their books, as well as losing out on sometimes hefty customer fees depending on the type of transaction.

So far, eight banks are participating in the project, but the ECB said the convenience of the service and the expected high demand will convince other banks to sign up.

The ECB plans to charge banks a transaction fee of €0.0020 until at least November 2020 and the first 10 million payments made by each TIPS participant before the end of 2019 are free of charge.

TIPS operates on a full cost-recovery and not-for-profit basis and there are no entry or account maintenance fees.