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European Central Bank launches instant payments service

The European Central Bank says it will launch the first pan-eurozone instant payments service, with the primary aim of recouping some lost ground to US and Asian tech giants.

The TIPS system will allow consumers and businesses across the 19-nation euro area to send and receive money in seconds, without the usual lag associated with online and real-world transactions.

The service will be a direct challenge to the digital wallets provided by Apple, Google, Amazon and China’s Alibaba which offer contactless, instant payments and have exploded in popularity.

“Banks in the eurozone are under pressure from tech rivals,” says 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.”

Local banks across Europe have already responded to demand by creating their own instant payment services that do not however travel across borders, leading to fractured payment systems market.

How TIPS instant payments service works

  1. participant sends an SCTinst payment transaction message to TIPS. (The participant may also be an instructing party acting on behalf of the participant, or a reachable party.)
  2. TIPS validates and reserves the amount to be transferred (conditional settlement).
  3. TIPS forwards the payment transaction for acceptance to a receiving participant.
  4. The receiving participant sends a positive reply message to TIPS.
  5. TIPS settles the payment.
  6. TIPS confirms the settlement to the sending participant.
  7. TIPS confirms the settlement to the receiving participant.

The ECB hopes to solve that and the US dominance of payments systems, by offering a single, borderless solution available on smartphones, PCs and at in-store payment points.

The Frankfurt institution said 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.

TIPS’ speedy delivery is down to being directly linked to central bank funds, avoiding the need for sometimes time-consuming checks between commercial banks that even the “digital wallets” have to contend with.

“It means it’s equivalent to cash and there is no credit risk for the recipient of the payment,” said Bayle de Jesse.

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.

But the ECB said the convenience of TIPS and the expected high demand will convince banks to sign up.

Spain’s CaixaBank and one of French bank Natixis, are the first to trial the system the ECB said.

Spain’s BBVA is the only banking giant to have joined so far. The other participants are Spain’s Abanca Corporación Bancaria, Banco de Crédito Social Cooperativo and Caja Laboral Popular Cooperativa de Crédito, and Germany’s Berlin Hyp and Teambank.

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