TARGET2 is the successor to TARGET, a 1999-launched system to help support monetary policy operations, and strengthen the newly developed Euro currency and its users.
Now over two decades on, TARGET2 is one of the largest payment systems in use around the world, processing around a value close to the entire euro area GDP every five days.
Not just any other international payment system.
So what actually is TARGET2, who uses it, and what can it achieve? Here’s your introduction.
New to TARGET2? Let us explain the fundamentals.
In simple terms, TARGET2 is a payment system owned and operated by the Eurosystem, the monetary authority of the Eurozone.
The system is used by a vast number of banks to process (normally) large payments – we’ll talk a little bit more about who uses the system later – and achieves a few central objectives, according to the European Central Bank.
For one, it minimises systemic risk in the payments market, strengthening it . TARGET2 also keeps payments smooth and safe across borders, and helps keep the Euro stable and functioning.
In essence: TARGET2 safeguards financial stability across Europe and helps minimise risk of a domino-effect in the global market. And, it helps keep your business payments secure.
For any payments involving the Eurosystem, it’s mandatory to participate in TARGET2.
At time of writing, more than 1,000 banks use the system to initiate transactions in Euro, and this can be either on their own behalf (direct) or on their customers’ behalf (indirect).
The core difference here is that direct participants hold a real-time gross settlement (RTGS) account, and are responsible for all payments sent from or received on their accounts. This means they’re also responsible for payments made by indirect participants operating through them.
All TARGET2 participants (including account branches and subsidiaries) are published on the European Central Bank website for security and transparency, amounting to over 50,000 banks worldwide.
If you’re curious, the list is available here.
Unless you’re extremely well-versed in financial management – or at least its lingo – this is where payment systems can feel convoluted.
TARGET2 shares essentially the same goal as SEPA (Single Euro Payments Area) and SWIFT (Society for Worldwide Interbank Financial Telecommunications): they all provide a smoother, easier, and more secure method of transferring funds across borders.
However, it’s important to remember that all of these have different uses and parameters.
SEPA enables customers to make cross-border money transfers in Euro currency as simply and easily as making a domestic payment. In this way, it facilitates a single market across the EU, and funds are usually received by the recipient in one business day or so.
SWIFT has similar capabilities, but on a more global scope (currently around 200 countries and territories). While SEPA transfers funds itself, SWIFT works by sending payment orders between institutions’ accounts. It can take longer to process payments with SWIFT.
TARGET2 processes mostly large-value payments, and is used by central and commercial banks for monetary policy transactions, interbank payments, and commercial payments. TARGET2 is also one of the largest payment systems in the entire world.
Bottom line: TARGET2 enables your business payments through the Eurozone to be sent safely, securely, and compliantly.
The system has a range of features that can be hugely beneficial for your business if you’re operating with or in the Eurozone, such as payment priorities and timed transactions, limits, liquidity pooling and more.
If you’re looking for a payment service provider for your business, you’ve come to the right place. Find out more on our website, or contact a member of our team today.
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