Target2

Target2 Payment System Explained

Target2 is a payment system that enables banks (commercial and central) to transfer money to each other in real-time. It is owned and operated by the Eurosystem, the monetary authority of the euro area. The Eurosystem comprises the European Central Bank and the national central banks of the Member States whose currency is the euro. 

As a real-time gross settlement (RTGS) system, Target2 allows banks to send payment orders in euros for settlement into central bank money. This is money that is in an account held by a central bank. The system is based on the Single Shared Platform (SSP), which is an integrated central technical infrastructure operated by 3 central banks: France (Banque de France), Germany (Deutsche Bundesbank), and Italy (Banca d’Italia).

Target2 Users

While this RTGS system was developed for the Eurozone, other countries can also use the target payment system. 

Target2 Participants

There are two major Target2 payment participants: direct and indirect. Participants who have real-time gross settlement accounts and have access to real-time information are called Direct Participants. Indirect Participants, on the other hand, do not have a legal and direct relationship with the central bank and therefore need to utilize Direct Participants to send or receive payment orders. 

Target2 Payment Types

For direct participants, Target2 allows payments in:

  • Credit transfers (MT 103, MT 103+, MT 202)
  • Direct debits (MT 204)

Target2 for Faster Payments

“Target” is an acronym for the Trans-European Automated Real-time Gross Settlement Express Transfer system. This system is connected to thousands of banks and their customers worldwide. Utilizing this network of connections, you can help fast-track your transactions and money transfers. 

Frequently Asked Questions (FAQ) on Target2

What is TARGET2, and how does it relate to cross-border payments?

TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is a real-time gross settlement (RTGS) system used for processing cross-border euro payments within the European Union (EU) and the European Economic Area (EEA). It plays a vital role in facilitating secure and efficient cross-border euro transactions among banks and financial institutions.

Why is TARGET2 important for cross-border payments within the EU and EEA?

TARGET2 is crucial for cross-border payments because it offers real-time settlement, ensuring immediate and irrevocable finality of transactions. This eliminates settlement risk, enhances certainty, and supports economic integration across participating countries.

How does TARGET2 settle cross-border payments in real-time?

TARGET2 settles cross-border payments by debiting the payer’s account at their central bank and crediting the payee’s account at their respective central bank instantaneously. This real-time settlement minimizes delays and risks associated with cross-border transactions.

Is TARGET2 limited to eurozone countries for cross-border payments?

While TARGET2 primarily deals with euro-denominated transactions, it includes participation from both eurozone and some non-eurozone EU and EEA countries. This reflects its role in supporting the broader European integration of cross-border payments.

Are there fees associated with using TARGET2?

Fees for using TARGET2 may vary depending on the specific agreements and pricing structures established by individual central banks and participating institutions. It’s advisable to check with your central bank or service provider for details on applicable fees.

This page was last updated on October 3, 2023.

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