The banks are moving to an updated payment system
At present, the European Central Bank is implementing one of the most ambitious projects for updating of the main European payment system – TARGET2 system consolidation. TARGET2 is a real-time gross settlement system operating in Europe that processes even 90 percent of all euro payments across the world. This system is used by central and commercial banks and other financial institutions for payments between them.
The financial experts call this transfer to updated TARGET2 payment system a “positive revolution” that will transfer all the participants of the system simultaneously to the technologically more advanced and more qualitative payment infrastructure in euro area.
The complexity of the project is also manifested by the fact that the transfer to the updated system will be performed according to bing bang principle, i.e., more than 1 000 European banks will have to transfer to the new system at the same time, from the 17th until the 20th of March.
Updating of TARGET2 system is controlled by the European Central Bank. The Bank of Lithuania is also an active participant of this process, while the consolidation process started already in 2017.
In the beginning of the project in 2017, the Council of the European Central Bank planned to finish consolidation until November 2021; however, Covid-19 pandemic and postponed transfer to message usage as per ISO 20022 resulted in the decision to extend the project’s term.
Updating of TARGET2 has the purpose to expand the scope of provided services, to unify and start using messages more widely in accordance with standard ISO 20022, to optimize liquidity management, and to harmonise connection interfaces. Strengthening of IT safety and cyber resistance receives big attention as their importance has been growing in the recent years.
“We have been participating in TARGET2 system directly for several years already – we attempt to provide the opportunity to our customers and partners, as well as to other financial institutions (such as electronic money or payment entities) to perform fast international payments in euro not only in Europe, but also beyond, – tells Mr Dainius Burneika, Head of the Product Development Unit of Mano Bank. – As we are getting ready for migration to the updated TARGET2 system, we have invested into software updating to meet the latest requirements of the system. At the same time, we have updated submission of data for payment orders and their illustration. We have also focused ion automation of internal processes.”
According to D. Burneika, transfer to the consolidated and updated payment system will guarantee continued integration of the bank to the payment system of euro area, and will grant more opportunities to the customers to expand business relations abroad. The bank’s customers will not need to undertake additional actions because of migration to the updated system TARGET2 – all the preparation works will be performed by Mano Bank.
“Use of the updated software will enable the customers to submit and receive more detailed information about SWIFT payments – it is especially important for the entities making correspondent payments,” – explains D. Burneika.
Transfer to the updated system is also welcomed by fintech company association.
“TARGET2 is one of the biggest payment systems in the world that is also actively used by fintech companies. The representatives of fintech sector have been preparing thoroughly for the approaching changes in the system. I hope that the majority of fintech companies will be able to make use of TARGET2 advantages soon, meaning not only specialised banks, but also electronic money and payment institutions. According to the data of the Bank of Lithuania, the number of people using services of the Lithuanian financial institutions has been growing in the European Union every year. The opportunity of more fintech companies to access TARGET2 would enable this sector to grow faster and to provide more services to the users,” – says Ms Asta Grigaitytė, Chair of the Board of Association “Fintech Hub LT“.