Functional description

Payment types

Payments handled in this system are:

• national or cross-border
• interbank or customer

National payments are exchanged between participants in LIPS-Gross.

Cross-border payments are exchanged between a LIPS-Gross participant and a participant in any of the other RTGS systems connected to TARGET. Cross-border payments are possible thanks to TARGET, which connects the EU central banks RTGS systems and the EPM (European Payment Mechanism) via the Interlinking Network. Over 40 000 institutions can be reached through this network. All the TARGET systems operate at the same time. Payments are accepted from 7 a.m. to 6 p.m. (5 p.m. for customer payments).

For each payment transaction, participants may act

• for their own account, it is an interbank payment;
• for the account of another credit institution (an indirect participant, it is also an interbank payment;
• for the account of a customer, it is customer payment.

Like the other TARGET RTGS systems, LIPS-Gross is intended for large-value payments. Hence, it offers a high level of security. However, there is neither an upper nor a lower limit for payments’ value.

Real-time gross settlement in central bank money

TARGET only accepts credit transfers in euro. They are handled one by one (they are not offset against other payments) for the amount specified in the payment order (the gross amount). Payments are settled with the same day value date. The settlement occurs in central bank money, as the funds transferred are deposited on the participants’ account with the central bank.

Payments are processed in real-time, as they are entered in the system. Because the systems are highly automated, a payment is processed within seconds.

Payments routing and flows

When a participant sends a payment (whatever the type) to LIPS-Gross, order and confirmation messages are transmitted over the S.W.I.F.T. communication network (more precisely, the S.W.I.F.T. FIN Copy).

The settlement process in LIPS-Gross is the same for interbank payments and for customer payments. Due to the involvement of a foreign institution (i.e. one of the parties is a participant in another RTGS system than LIPS-Gross), a cross-border payment (be it interbank or customer) is handled differently than a national payment.

For a national payment (figure 1), the BCL debits the account of participant A (the sender) provided that he has sufficient funds. The BCL then credits the account of participant B (the beneficiary) and informs him with the payment message. Participant B is sure that his account is irrevocably credited.

Fig. 1 National payment

When participant X in the Luxembourg (country X in figure 2) RTGS system sends a cross-border payment (1), the BCL debits the sender’s (X) account (provided he has sufficient funds) and credits the account of the central bank of the beneficiary’s country (2). It then provides the central bank Y with a copy of the payment message (3). The central bank Y credits the account of his participant Y (4) and sends him the payment message (5). When participant Y is informed of the payment, he is sure that his account is irrevocably credited. Next, the central bank Y confirms the payment to the sender’s central bank (6), BCL in our example, which also confirms the payment to his participant (7).

Conversely, a participant in Luxembourg can also be the beneficiary of a cross-border payment. The settlement takes place according to the same procedure.

At the end of each TARGET working day, national central banks provide the ECB with information on all the cross-border payments. The ECB has the responsibility to reconcile the central banks’ accounts bilaterally.

Fig. 2 Cross-border payment

In case a participant does not have sufficient funds to allow a settlement, he may decide to keep it on hold (for incoming payments for instance) or to collateralise securities in exchange for liquidity.