Payments Training Hub
Customer of Deutsche Bank in Frankfurt 1 Customer of Deutsche Bank in Frankfurt NOW 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system A German car maker, a customer of Deutsche Bank in Frankfurt, instructs a EUR 10 million payment to an Italian supplier, a customer of UniCredit in Milan. Step 1 of 6 Customer of Deutsche Bank in Frankfurt 1 NOW Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system A German car maker, a customer of Deutsche Bank in Frankfurt, instructs a EUR 10 million payment to an Italian supplier, a customer of UniCredit in Milan. Step 1 of 6
T2 RTGS 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS NOW 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system T2 RTGS receives the pacs.008, validates the sender, the message and the account, and checks the Deutsche Bank RTGS Dedicated Cash Account. Step 2 of 6 T2 RTGS 1 Customer of Deutsche Bank in Frankfurt 2 NOW T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system T2 RTGS receives the pacs.008, validates the sender, the message and the account, and checks the Deutsche Bank RTGS Dedicated Cash Account. Step 2 of 6
EUR 5,000 from Paris 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris NOW 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system Later the same day, a retail customer of BNP Paribas in Paris sends EUR 5,000 to a friend who banks with Intesa Sanpaolo in Milan, using an instant payment on a mobile app. Step 3 of 6 EUR 5,000 from Paris 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 NOW EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system Later the same day, a retail customer of BNP Paribas in Paris sends EUR 5,000 to a friend who banks with Intesa Sanpaolo in Milan, using an instant payment on a mobile app. Step 3 of 6
pacs.002 confirmation receipt 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt NOW 5 One payment 6 No other euro system Both banks receive a pacs.002 confirmation, and the friend sees EUR 5,000 in the account before the sender puts the phone away. Step 4 of 6 pacs.002 confirmation receipt 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 NOW Pacs.002 confirmation receipt 5 One payment 6 No other euro system Both banks receive a pacs.002 confirmation, and the friend sees EUR 5,000 in the account before the sender puts the phone away. Step 4 of 6
One payment would fail 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment NOW 6 No other euro system One payment would fail in the wrong service, because T2 does not run at midnight and TIPS is not built for EUR 10 million commercial flows. Step 5 of 6 One payment would fail 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 NOW One payment 6 No other euro system One payment would fail in the wrong service, because T2 does not run at midnight and TIPS is not built for EUR 10 million commercial flows. Step 5 of 6
No other euro system carries that volume 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 No other euro system NOW No other euro system carries that volume, that value and that range of business, which is why TARGET is treated as critical infrastructure for Europe. Step 6 of 6 No other euro system carries that volume 1 Customer of Deutsche Bank in Frankfurt 2 T2 RTGS 3 EUR 5,000 from Paris 4 Pacs.002 confirmation receipt 5 One payment 6 NOW No other euro system No other euro system carries that volume, that value and that range of business, which is why TARGET is treated as critical infrastructure for Europe. Step 6 of 6

Steps of this lesson, in order.

0:00 / 3:40 Step 1 of 6

Worked Example: A EUR 10 Million Payment Through T2 and a EUR 5,000 Instant Payment Through TIPS, traced step by step, and why TARGET is one of the largest payment systems in the world

TARGET Services: T2, T2S and TIPS, Lesson 7 of 7, Narration 3:40, D05 Domestic payment systems

Liquidity transferValue dateSettlement

What you will learn

Your objective. By the end of this lesson, you will be able to explain worked example: a EUR 10 million payment through T2 and a EUR 5,000 instant payment through TIPS, traced step by step. A German car maker, a customer of Deutsche Bank in Frankfurt, instructs a EUR 10 million payment to an Italian supplier, a customer of UniCredit in Milan.

Why it matters. This matters because the rail decides how fast the money moves, what it costs, when it settles and what can go wrong. Choosing the wrong rail is a product and an operations failure.

Chapter objective: Learner explains TARGET Services, distinguishes T2, T2S and TIPS, and describes the MCA, ESMIG access, and multi currency operation after TARGET2 closed on 20 March 2023. Learner uses real amounts, banks and message names to show how the services work in practice.

Key learning points

  • Customer of Deutsche Bank in Frankfurt
  • T2 RTGS
  • EUR 5,000 from Paris
  • pacs.002 confirmation receipt
  • One payment would fail
  • No other euro system carries that volume

Key terms

Liquidity transfer: A movement of funds between accounts held by the same participant to manage liquidity, for example from a main cash account to a dedicated cash account.

Value date: The date on which funds become available to the beneficiary and on which interest starts to accrue. It is the date used for settlement and for nostro posting.

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

Payment flow diagram showing Worked Example: A EUR 10 Million Payment Through T2 and a EUR 5,000 Instant Payment Through TIPS, traced step by step, and why TARGET is one of the largest payment systems in the world.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

Which of the following best describes worked example: a EUR 10 million payment through T2 and a EUR 5,000 instant payment through TIPS, traced step by step?

Takeaway and next step

What to remember

No other euro system carries that volume, that value and that range of business, which is why TARGET is treated as critical infrastructure for Europe.

Follow EUR 10 through every stage, from instruction to beneficiary credit, and note where it can stop.

Open the Payment Lifecycle Simulator →

Builds on "ESMIG, Multi-Currency Support and the Legal Framework (Guideline (EU) of the ECB on TARGET, repealing Guideline ECB/2012/27)".

Transcript and full text

Show transcript

A German car maker, a customer of Deutsche Bank in Frankfurt, instructs a EUR 10 million payment to an Italian supplier, a customer of UniCredit in Milan. Deutsche Bank, BIC DEUTDEFFXXX, checks the instruction, debits the car maker account for EUR 10 million, and builds a pacs.008 customer credit transfer. The pacs.008 names the car maker as debtor, the Italian supplier as creditor, UniCredit, BIC UNCRITMMXXX, as instructed agent, and the value date as today. Deutsche Bank sends the pacs.008 through ESMIG, with a Business Application Header that names T2 RTGS as the destination service. T2 RTGS receives the pacs.008, validates the sender, the message and the account, and checks the Deutsche Bank RTGS Dedicated Cash Account. The account holds EUR 18 million, moved that morning from the Deutsche Bank Main Cash Account with a camt.050 liquidity transfer, so the EUR 10 million payment can settle at once. RTGS debits the Deutsche Bank RTGS DCA by EUR 10 million and credits the UniCredit RTGS DCA by EUR 10 million, in central bank money, with immediate finality. Both banks receive a pacs.002 status report and a camt.054 notification, and UniCredit credits the Italian supplier account for EUR 10 million. Later the same day, a retail customer of BNP Paribas in Paris sends EUR 5,000 to a friend who banks with Intesa Sanpaolo in Milan, using an instant payment on a mobile app. BNP Paribas, BIC BNPAFRPPXXX, builds a pacs.008 instant payment, sends it through ESMIG to TIPS, and TIPS checks the BNP Paribas TIPS Dedicated Cash Account at once. The account holds EUR 800,000, prefunded from the BNP Paribas Main Cash Account, so TIPS debits EUR 5,000 from BNP Paribas and credits EUR 5,000 to the Intesa Sanpaolo TIPS account, BIC BCITITMMXXX, within seconds. Both banks receive a pacs.002 confirmation, and the friend sees EUR 5,000 in the account before the sender puts the phone away. The two payments show why TARGET needs two services for two different jobs. The EUR 10 million payment is large, time critical and tied to a commercial contract, so it needs RTGS gross settlement in central bank money during the T2 operating day, with queues and priorities if liquidity is short. The EUR 5,000 payment is small, urgent for the customer and sent outside business hours, so it needs TIPS, with instant settlement, no cut off and no waiting for the next business day. One payment would fail in the wrong service, because T2 does not run at midnight and TIPS is not built for EUR 10 million commercial flows. TARGET is one of the largest payment systems in the world because it settles the euro, the second most used currency in global payments, for the whole euro area. Every business day it settles hundreds of thousands of payments worth trillions of euro, including interbank loans, securities settlements, monetary policy operations, commercial payments and instant retail payments. A single day can include a EUR 500 million interbank loan, a EUR 50 million bond settlement in T2S, and millions of small instant payments in TIPS. No other euro system carries that volume, that value and that range of business, which is why TARGET is treated as critical infrastructure for Europe.

A German car maker, a customer of Deutsche Bank in Frankfurt, instructs a EUR 10 million payment to an Italian supplier, a customer of UniCredit in Milan. Deutsche Bank, BIC DEUTDEFFXXX, checks the instruction, debits the car maker account for EUR 10 million, and builds a pacs.008 customer credit transfer. The pacs.008 names the car maker as debtor, the Italian supplier as creditor, UniCredit, BIC UNCRITMMXXX, as instructed agent, and the value date as today. Deutsche Bank sends the pacs.008 through ESMIG, with a Business Application Header that names T2 RTGS as the destination service.

T2 RTGS receives the pacs.008, validates the sender, the message and the account, and checks the Deutsche Bank RTGS Dedicated Cash Account. The account holds EUR 18 million, moved that morning from the Deutsche Bank Main Cash Account with a camt.050 liquidity transfer, so the EUR 10 million payment can settle at once. RTGS debits the Deutsche Bank RTGS DCA by EUR 10 million and credits the UniCredit RTGS DCA by EUR 10 million, in central bank money, with immediate finality. Both banks receive a pacs.002 status report and a camt.054 notification, and UniCredit credits the Italian supplier account for EUR 10 million.

Later the same day, a retail customer of BNP Paribas in Paris sends EUR 5,000 to a friend who banks with Intesa Sanpaolo in Milan, using an instant payment on a mobile app. BNP Paribas, BIC BNPAFRPPXXX, builds a pacs.008 instant payment, sends it through ESMIG to TIPS, and TIPS checks the BNP Paribas TIPS Dedicated Cash Account at once. The account holds EUR 800,000, prefunded from the BNP Paribas Main Cash Account, so TIPS debits EUR 5,000 from BNP Paribas and credits EUR 5,000 to the Intesa Sanpaolo TIPS account, BIC BCITITMMXXX, within seconds. Both banks receive a pacs.002 confirmation, and the friend sees EUR 5,000 in the account before the sender puts the phone away.

The two payments show why TARGET needs two services for two different jobs. The EUR 10 million payment is large, time critical and tied to a commercial contract, so it needs RTGS gross settlement in central bank money during the T2 operating day, with queues and priorities if liquidity is short. The EUR 5,000 payment is small, urgent for the customer and sent outside business hours, so it needs TIPS, with instant settlement, no cut off and no waiting for the next business day. One payment would fail in the wrong service, because T2 does not run at midnight and TIPS is not built for EUR 10 million commercial flows.

TARGET is one of the largest payment systems in the world because it settles the euro, the second most used currency in global payments, for the whole euro area. Every business day it settles hundreds of thousands of payments worth trillions of euro, including interbank loans, securities settlements, monetary policy operations, commercial payments and instant retail payments. A single day can include a EUR 500 million interbank loan, a EUR 50 million bond settlement in T2S, and millions of small instant payments in TIPS. No other euro system carries that volume, that value and that range of business, which is why TARGET is treated as critical infrastructure for Europe.

Full lesson text (all scenes)

Completing a lesson updates your progress dashboard on the homepage.

Scene timestamps are estimated by allocating the narration text proportionally across the real audio length. The audio playback position is the source of truth: pause freezes the visual, seeking restores the correct scene, replay restarts the scene animation.