Payment system

TIPS: Europe finally gets its own payment system

The European Central Bank is offering a payment system to compete with digital services and credit card companies. European start-ups could benefit from it.

The European Central Bank (ECB) launched the “Target Instant Payment Settlement service”, or TIPS, last November. This payment infrastructure enables consumers and companies in the eurozone to transfer money between bank accounts around the clock and in just a few seconds. Traditional money transfers take at least one day to complete, or a few days when requested over the weekend.

All you have to do is enter the IBAN or phone number of the recipient on the website or application of the bank where the account is domiciled. “As long as the sender has funds in their account, it’s as good as carrying cash”, says Marc Bayle de Jessé, Director General, Market Infrastructure & Payments at the ECB.

The ECB charges affiliated banks € 0.20 for the service. The banks choose whether to offer its customers the service for free or not. As a reminder, exchange fees charged to vendors for card payments are capped at 0.30% for credit cards and 0.20% for debit cards. According to a study conducted by the ECB, instant payments in Europe could reach 10 million transactions a day five years from now. By contrast, PayPal recorded over 20 million transactions a day in 2017 (7.6 billion in total). Eight banks in France, Spain and Germany have incorporated the ECB’s service.

This infrastructure meets the demand in Europe for e-commerce payment systems. The two leading payment card companies are American heavyweights Visa and Mastercard, and there are a number of new digital service providers such as Apple Pay or Google Wallet.

Payments only in euros

“The launch of the European payment system is a positive sign for all innovative companies,” said Laurent Oberholzer, co-founder of Monito, a Swiss transfer services comparison site. Additionally, the European Commission is expected to revise the relevant legislation in order to accelerate the growth of TIPS. “For all innovative companies, this demonstrates that they now have support from Europe,” added Oberholzer.

TIPS will also be beneficial to financial tech start-ups, in particular the ones developing payment systems. “Currently, all systems – such an electronic wallet like PayPal or a telephone operator’s payment system – at some point go through their own separate money transfer system based on the bank they are associated with. With a standardised system across all banks like TIPS, fintech start-ups will benefit from faster and less expensive transfers. These developments will be a decisive factor for business models.”

The only issues: TIPS only supports payments in euros for the time being. PayPal offers its services in 25 currencies. It also offers services to protect consumers and vendors which banks do not.

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