New interbank settlement system TARGET2-Eesti started operating

Today, May 19, a new cross-border settlement system TARGET2-Eesti started operating which enables banks and their clients linked to the system settle fast and safe euro payments in the European Union. TARGET2 of which TARGET2-Eesti forms a part is a continuation of TARGET1, the Trans-European Automated Real-Time Gross Settlement Express Transfer system.

As of today, in addition to Eesti Pank, the new settlement system is being used by Hansapank, SEB Pank, Sampo Pank, Nordea Pank, Eesti Krediidipank, SBM Pank and Tallinna Äripank.

According to Mihkel Nõmmela, the Head of the Clearing and Settlement Department of Eesti Pank, the launch of TARGET2 has been a big step for the European System of Central Banks (including Eesti Pank) towards a single integrated financial infrastructure in Europe. "While TARGET1 was composed of the RTGS (real-time gross settlement) systems of the Eurosystem NCBs and a network linking them, then TARGET2 is a settlement system, which is based on a single platform and provides harmonised settlement through a central IT-platform. The decentralised nature of the system has been maintained legally and operationally. TARGET2-Eesti provides its clients - credit institutions - an efficient, fast and safe infrastructure for settling cross-border payments in euro," said Nõmmela.

"An important improvement for participating banks in migrating from TARGET1 to TARGET2 has been modern means for liquidity management, incl. group-based liquidity management, payment orders management and possibility to reserve liquidity," added Nõmmela.

Since most of the banks in Estonia joined the new settlement system, a large number of bank clients now have an alternative for settling express payments in euro. "A TARGET2 payment is fast and safe; it is settled in central bank money. Moreover, TARGET2 provides commercial banks an opportunity to lower cross-border express euro payment rates," brought out Nõmmela when describing the benefits of the new settlement system for bank clients.

In 2008, the cross-border retail payment market has also gone through some important developments. Led by the European Payment Council, the banks in Estonia have made preparations to migrate towards the SEPA, the Single Euro Payments Area in the European Union. The future aim of the SEPA is to harmonise both national and trans-European euro payments and guarantee an easy settlement. This will contribute to more convenient procedures with money, strengthen the European domestic market and make competition more effective and increase efficiency. As of 28 January 2008, several commercial banks in Estonia provide a trans-European retail payment service in line with the SEPA standards.

In the field of domestic retail payments most of the banks participating in the Estonian market offer increasingly more interbank direct debit facilities, which enable clients to use domestic direct debit service even if the settlement accounts of the payer and the receiver are not in the same bank. By today, the amount of interbank direct debit orders have exceeded the level of 12 000 per month.

Eesti Pank manages three interbank settlement systems – the Settlement System of Ordinary Payments (ESTA) (for domestic payments), the Real-Time Gross Settlement System (EP RTGS) and TARGET2-Eesti, the settlement system of cross-border euro payments.