What is TARGET Instant Payments (TIPS) and How it Helps Businesses in Europe

Instant payments are dramatically transforming the payments landscape across the world. They are fast, secure, and easy, making them a great choice for both domestic and international payments. In Europe, which sees a fair amount of cross-border trade, they can be the perfect answer. The coming of ISO 20022, open banking rails, and new regulations make a strong case for their widespread adoption. In fact, experts say real-time payments in Europe will double over 2022. To address this fast-growing demand, the Eurosystem launched the TARGET Instant Payment Settlement (TIPS) to standardize and improve the instant payments ecosystem within the region.
Read on to know more about what it is and how it helps you to settle payments quickly and securely.

What is TIPS?

TIPS (TARGET Instant Payment Settlement) is a real-time payment service launched by the Eurosystem. It enables instant fund transfers – round the clock, 365 days a year. This means businesses and individuals can transfer money between each other, anywhere in the EU, within seconds.
TIPS aims to achieve a standardized and harmonized pan-European instant payments framework. It currently only settles payment transfers in euro, but will soon support other currencies as well. As of May 2022, TIPS allows instant payments in Swedish krona (SEK).

How does TIPS help payments in Europe?

TIPS improves market reach and interoperability across the EU in two ways:

• First, it is based on the SEPA Instant Credit Transfer (SCT Inst) a pan-European scheme that allows real-time payments of up to €100,000 at a time.
• Second, it is an extension of TARGET2, which means it can access a wide network of participants across Europe.

TIPS is based on a modern payment system architecture. It can rapidly process a large volume of payments at a lower cost. It offers 100% protection against settlement risk for all payments in central bank currency. It also confirms with the Eurosystem’s strict oversight requirements and with CPMI-IOSCO guidance on cyber-resilience for financial market infrastructures. Thus, it meets all requirements for a pan-European instant payment solution, as laid down by the European Payments Council (EPC).

How does TIPS help your business payments?

TIPS allows parties to make instant payments in euros anywhere in the EU. Customers don’t need to open a separate TIPS account. Instead, participating banks and payment service providers offer this service to them.
The main ways TIPS helps your business payments are:

1. Allows you to settle large volumes of payment within seconds with full safety
2. High reachability and a competitive price scheme makes TIPS ideal for settling high-volume payments
3. Improved cashflow owing to real-time settlements. No more worries about late payments
4. Track and reconcile payments with more clarity and speed
5. Improves collaboration between businesses, consumers, banks and payment service providers, leading to better products and services

What Should Merchants in Europe do next?

TIPS follows the same participation rules as TARGET 2. Since, participating banks and payments service providers already have TIPS accounts, a merchant need not have an account of their own. Instead, they enter an agreement with the service provider to use the latter’s account. Instructing parties send settlement instructions to TIPS on behalf of a participant or reachable party. Speak to your PSP to know more about how to use TIPS.

How can Novalnet Help?

As a global payment service provider, we have extensive experience in helping Europe’s leading brands to process payments. Our technology helps you to accept payments globally in 125+ currencies in 150+ automated country-specific payment methods. Set up your payments within minutes with minimal coding using our instant payment plug-ins. Or use our AI-based risk management solutions and advanced analytics to design the best payment experiences for your customers, all in a fully secure environment.
If you are looking to know more about how TIPS can help your business, reach out to us.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.