Money – as a payment mean

Payments instruments

Payments are made either in cash (banknotes and coins) or by cashless payment instruments. While the relative importance of cash payments is decreasing, the absolute value of the outstanding stock of cash is expected to continue to grow.

The transfer of funds can be made by payment service providers (credit institutions, payment institutions and other institutions), based on a payment instruction sent via payment instruments. Payment instruments allow the end-users of payment systems to transfer funds between accounts at banks or other financial institutions.

Payment instruments are an essential part of payment systems, and they can be:1. credit transfer; 2. direct debit;3. payment card;4. cheque;5. bill of exchange;6. promissory note.

Based on the instrument type, the payment instruction may be initiated by: the debtor (e.g. in the case of the credit transfer); the beneficiary (e.g. in the case of direct debiting).The most frequently used cashless payment instruments in the euro area are:

- credit transfers;- direct debits;- payment cards;- cheques.

Usage of the first three instruments is increasing, while that of cheques is declining. E-money payments have remained of marginal importance. National preferences vary widely as regards the use of the various instruments in cashless retail payments

1. Credit transfers

Credit transfers are instructions sent by a payer to its bank requesting that a defined amount of funds be transferred to the account of a payee. A credit transfer is a payment initiated by the payer. The payer sends a payment instruction to his/her payment service provider (PSP), e.g. a bank. The payer’s PSP moves the funds to the payee’s PSP. This can be carried out via several intermediaries.

Around one-third of all non-cash payments are effected as credit transfers.

2. Direct debits

Direct debits are pre-authorised payments (debits) on the payer’s bank account that are initiated by the beneficiary/payee, under which an account holder authorizes its bank to pay variable amounts of money (such as bills or invoices) directly to the supplier or utility company, at regular (usually monthly) intervals. So, they are often used for recurrent payments (such as utility payments, utility bills).

Around one-third of all non-cash payments are effected as direct debits.

3. Payment cardsA payment card is a card backed by an account holding funds belonging to the

cardholder, or offering credit to the cardholder. It can be used by a cardholder to:- make payments to merchants that accept cards or payments of some other

obligations;- withdraw money from ATM (Automated Teller Machine)1;- to transfer funds between accounts.

Payment cards (debit or credit cards) are cards issued by a credit institution or card company. They indicate that the holder of the card may charge its account at the bank (debit card) or draw on a line of credit up to an authorised limit (credit card).

Debit cards allow the cardholder to charge purchases directly to its bank account. Credit cards provide the cardholder with a certain credit limit, within which he/she can make purchases. The credit card holder must pay off the balance in full by the end of a specified period. Alternatively, he/she can pay off part of the balance. The remaining balance is taken as extended credit on which the cardholder must pay interest.

Card payments have been supported by the existence of cheap and efficient national card schemes, complemented by international card schemes. Acceptance of national cards for transactions outside the home country is typically achieved by means of co-branding with one of the international card schemes.

Cards account for more than one-third of non-cash euro payments.There are many types of cards, which can be classified depending on some criteria:

a. Depending on their functions: Credit card – allows drawing of funds up to an approved credit limit; there are

two main types of credit card: Charge card – is a means of obtaining a very short term (usually around 1

month) loan; it is similar to a credit card, except that the contract with the card issuer requires that the cardholder must each month pay charges made to it in full – there is no “minimum payment” other than the full balance.

Credit card – is a revolving credit instrument which does not need to be paid off in full each month; credit card can have a grace period, when the customer has to pay only the interest.

Debit card – allows drawing of funds up to the available balance in cardholder’s account; if the available funds are insufficient, the transaction is not completed.

Debit card with an overdraft – can allow an overdraft, which occurs when withdrawals from a card account exceed the available balance (which gives the account a negative balance).

Cash card – allows the customer only to draw money from Automated Teller Machines (ATMs or cash machines).

Card for cheque guarantee – is used to back up any cheque writen by customer, usually up to a specified value.

1 ATM is a computer terminal activated by a magnetically encoded bank card, allowing consumers to make deposits, obtain cash from checking or savings accounts, pay bills, transfer money between accounts, and do other routine transactions as they would at a bank teller window.

Multifunctional (combined) card – is a cash, debit and cheque guarantee card rolled into one.

b. Depending on the issuer: Bank card – is issued by the banks and other financial institutions; banks were the

first issuers of payment card. Store card – is issued by the merchants and other retailers usually offering to the

clients a discount on shopping, but shoppers often end up paying extra through high interest charges; despite the discounts and convenience they offer, store cards usually have a higher interest rate than the credit cards; but nowadays the “buy now, pay later” mentality is widespread and considered acceptable.

Co-branded card – is issued by a bank in partnership with a merchant; usually, it offer to client discounts on shopping to the merchant; the bank and the merchant can agree to divide the income coming from their partnership.

c. Depending on the technology: Card with a magnetic stripe – is the first type of card issued by financial

institutions. Smart card – is a card with embedded microprocessor chip, that stores and

transact data: a smart card contains more information than a magnetic stripe card and it

can be programmed for different applications; this type of card is replacing today more and more the usual card with

magnetic stripe; first introduced in Europe nearly three decades ago, smart cards debuted as

a stored value tool for payphones to reduce theft; as smart cards and other chip-based cards advanced, people found new

ways to use them, including charge cards for credit purchases and for record keeping in place of paper;

is used in fields like banking, healthcare, entertainment, and transportation;

is much more popular in Europe than in the United States. Dual card – is a card incorporating both magnetic stripe and microprocessor chip.

d. Depending on the settlement date: “Pay now” system – is applied to debit cards. “Pay before” system – refers to the prepaid cards:

the card-holder spends money which has been “stored” via a prior deposit by the card-holder;

can be a pre-paid phone card, a prepaid gift card or a prepaid sim card allowing users to ‘top up’ the card with cash from another account.

“Pay later” system– is applied to credit cards.e. Depending on the circulation area

Domestic card – is issued in domestic currency and used only in the domestic territory.

International cards – can be used everywhere in the world no matter in which currency it is issued.

4. Cheques

A cheque is a written order from one party (the drawer) to another (the drawee, normally a bank), requiring the drawee to pay the indicated sum on demand to the drawer or to a third party specified by the drawer.

Cheques are still common in a few countries but usage is diminishing. In most euro area countries cheques are practically non-existent.

Graph nr. 1 - Non-cash payment instruments in the euro area (millions of transactions)

Source: ECB

Graph no. 2 – Growth in payment instruments per capita per year in the EU

Source: ECB

5. Bill of exchangeBill of exchange is the document through which a person, the drawer or the issuer, gives

an order to another person, the drawee, to pay at maturity, an amount of money to a third person, the payee, or upon his order.

6. Promissory notePromissory note is a document through which the issuer undertakes to pay to the payee,

or upon his order, an amount of money, at maturity, in a certain place; thus, the promissory note intervenes between two and not three persons, as is the case of the bill of exchange; it does not contain the payment order addressed to another person, but only the recognition of issuer’s own payment obligation.

7. Electronic moneyElectronic money (e-money) is a monetary value (claim on the issuer) which is stored in

an electronic device (e.g. a card or computer) and accepted as means of payment by undertakings other than the issuer.

Payment methods

Payment methods refer to the assurance in advance or not of the necessary funds for payment settlement. There are two main methods of payment use in both domestic and international transactions:

1. Methods which assure necessary funds for payment, most important being: Letter of credit Bank letter of guarantee

2. Acceptance It does not assure the payment in advance. It requires the consent of the payer regarding the payment given either through the

acceptance of some payment instruments issued by the beneficiary or through the issuing from its own initiative of the payment instruments.

The first methods are preponderant in international commercial transactions and the second in the domestic transactions.

a) Letter of creditA letter of credit is a contractual agreement between a bank, known as the issuing bank,

on behalf of one of its customers, authorizing another bank, known as the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. It makes a commitment to honor drawings made under the credit. It’s liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. The beneficiary is normally the provider of goods and/or services, being entitled to payment as long as he can provide the documentary evidence required by the letter of credit. An advising bank, usually a foreign correspondent bank of the issuing bank, will advise the beneficiary. The confirming bank (the correspondent bank) may confirm the letter of credit for the beneficiary.

Letter of credit is defined by the following elements: A payment undertaking given by a bank (issuing bank)

On behalf of a buyer (applicant) To pay a seller (beneficiary) for a given amount of money On presentation of specified documents representing the supply of goods Within specified time limits. Documents must conform to terms and conditions set out in the letter of credit. Documents to be presented at a specified place.

b) Bank letter of guaranteeA bank letter of guarantee is a guarantee made by a bank on behalf of a customer (usually

an established corporate customer), should the customer fail to deliver the payment, essentially making the bank a co-signer for one of its customer’s purchases. Should the bank accept that its customer has sufficient funds or credit to authorize the guarantee, it will approve it. A guarantee is a written contract stating that in the event of the borrower being unable or unwilling to pay the debt with a merchant, the bank will act as a guarantor and pay its client’s debt to the merchant. The initial claim is still settled primarily against the bank’s client, and not the bank itself. Should the client default, then the bank agrees in the bank guarantee to pay for its client’s debts. This is a type of contingent guarantee.

Bank letter of guarantee vs. bank letter of creditLetters of credit ensure that a transaction proceeds as planned, while bank guarantees

reduce the loss if the transaction doesn't go as planned.A letter of credit is an obligation taken on by a bank to make a payment once certain

criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. A bank guarantee guarantees a sum of money to a beneficiary, that is only paid if the opposing party does not fulfill the stipulated obligations under the contract.

For example a letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bank. A bank guarantee might be used when a buyer obtains goods from a seller then runs into financial difficulties and can't pay the seller. The bank guarantee would pay an agreed-upon sum to the seller.

Payment systemA payment system is a set of instruments, procedures and rules for the transfer of funds

among participants in the system (credit institutions or financial institutions). The system relies on an agreement between the participants in the system and the system operator, and the funds transfer is performed via an agreed upon technical infrastructure2.

Payment and settlement systems have been growing in importance over the past two decades in the majority of the countries. This is a result of an increase in both the volume and the value of transactions resulted from money and foreign exchange markets and from financial markets in general.

A payment system usually comprises the following components:

2 Bank for International Settlements, the CPSS report titled Core Principles for Systemically Important Payment Systems, January 2001

Real Time Gross Settlement (RTGS) system settles the large-value payments on one to one basis: RTGS system is a funds transfer mechanism where transfer of money takes place

from one bank to another on a “real time” and “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” means payment transaction is not subjected to any

waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without

bunching with any other transaction. The RTGS system is primarily for large-value transactions and minimum amount

stipulation varies from country to country. Automated Clearing House (ACH) settles low-value and large volume (retail)

payments through clearing system on a net basis: Netting avoids the gross settlement and, thus, allows reducing of the transfer of

funds between subsidiaries to a net amount. The choice of netting can vary considerably:

Bilateral: - Two banks, one centre, one currency- Two banks, one centre, more than one currency- Two banks, one currency, more than one centre

Multilateral: clearing house Rather than physically make hundreds of payments to each other every day, the

net position (funds receivable against funds payable) is calculated for each bank with each other member and each bank would then either receive or make only payment to every other member of the clearing.

Each country has its own local payment clearing system and its own rules and regulations devised to ensure fair and efficient running.

In the USA the clearing system is called Clearing House Interbank Payment System (CHIPS).

In the UK the clearing system is called Clearing House Automated Payment System (CHAPS).

Securities settlement system (SSS) settles transactions with securities: Securities settlement system is a system which permits the holding and transfer of

securities, either free of payment or against payment (delivery versus payment) or against another asset (delivery versus delivery).

It comprises all the institutional and technical arrangements required for the settlement of securities trades and the safekeeping of securities.

The system can operate on a real-time gross settlement, gross settlement or net settlement basis.

A settlement system allows for the calculation (clearing) of the obligations of participants.

The Central Bank also uses the settlement system in its own transactions with securities, which makes it an important tool in monetary policy implementation.

The securities settlement system plays a key role for the domestic securities market, financial system and financial stability.

Payment systems in euro zone

The euro area needs a financial market infrastructure which enables the safe and efficient flow of payments and financial instruments. The Eurosystem has unique responsibilities with regard to the market infrastructure for the euro. The Eurosystem’s keen interest in a safe and efficient infrastructure is closely interlinked with its responsibilities in the fields of monetary policy and financial stability.

Financial integration, globalisation and the launch of the euro in 1999 have led to a reshaping and harmonisation of the infrastructure for euro payments and for the trading, clearing and settlement of financial instruments. The greatest progression in terms of reshaping and consolidating the infrastructure has been in large-value payments, whereas post-trading services for financial instruments and retail payment services are still largely fragmented. Projects are, however, underway with a view to further enhancing integration in the latter two segments.

Payment systems are classified into two main categories, depending on the types of payments they transmit and settle:

- large-value payment systems- retail payment systems

II. Large-value payment systems

Large-value payment systems typically process a relatively small number of high-value and time-critical payments.

These systems are essential to the proper functioning of the financial system. A failure could trigger disruptions in the markets or transmit shocks, both at the local and at the cross-border level. Therefore, large-value payment systems in the euro area are always classified as systemically important.

1. TARGET2TARGET2 is the real-time gross settlement (RTGS) system owned and operated by the

Eurosystem. TARGET stands for Trans-European Automated Real-time Gross settlement Express Transfer system. It is the second generation of TARGET, replacing in 2007 the TARGET1 (which was launched on 4th January 1999, at the same time as the start of Monetary Union).

TARGET2 has a decentralised structure, linking together the participants’ national RTGS systems and the ECB payment mechanism (EPM).

Payment transactions in TARGET2 are settled one by one on a continuous basis, in central bank money with immediate finality. There is no upper or lower limit on the value of payments. TARGET2 settles payments related to:

- monetary policy operations (central bank operations), - interbank transfers - other large-value or urgent euro payments- other financial market infrastructures handling the euro (such as securities settlement

systems or central counterparties).

TARGET2 is operated on a single technical platform. Business relationships are established between the TARGET2 users and the respective central bank. In terms of the value processed, TARGET2 is one of the largest payment systems in the world.

TARGET2 is an essential vehicle for the implementation of the monetary policy of the Eurosystem and the functioning of the euro money market.

Table no. 2 TARGET2 facts in 2014

Source: ECB

2. EURO1

The EURO1 Service of EBA CLEARING3 is a privately owned and operated EU-wide multilateral net settlement payment system for large-value euro payments. EURO1 processes interbank payments by means of both credit transfers and direct debits. EURO1 balances are settled once a day in TARGET2 via a settlement account held with the European Central Bank.

EURO1 is the only private sector large-value payment system for single, same-day euro transactions at a pan-European level. The EURO1 system processes transactions of high priority and urgency, and primarily of large amount, both at a domestic and at a cross-border level. EURO1 is a unique RTGS-equivalent net settlement system, fully compliant with regulatory and oversight requirements.

3 EBA CLEARING is the leading pan-European provider of euro payment infrastructure services. It was established in 1998 by 52 major European and international banks with the mission to own and operate EURO1, the only privately owned RTGS-equivalent large-value payment system on a multilateral net basis. Since 2000, EBA CLEARING has been running the STEP1 single payment system on the EURO1 platform, which is geared at medium-size and small banks. EBA CLEARING also owns and operates STEP2, a Pan-European Automated Clearing House for processing retail payments. Today EBA CLEARING counts 53 shareholder banks and, through its EURO1, STEP1 and STEP2 systems, offers both high-value and low-value clearing and settlement services to a wide community of banks in the European Union.

EURO1 was launched in 1998 and was developed to provide an efficient, secure and cost-effective net settlement infrastructure, but with immediate finality for all processed payments, for large-value payments in the single currency environment. Today, the system counts 53 participant banks and processes on average over 200,000 payments per day with an average total value of about EUR 200 billion. The service counts more than 8,000 participant BICs with over 16,000 additional BICs (bank identification code) reachable via the EURO1/STEP1 Participants.

The system settles the final positions of its participants via TARGET2 at the end of the day.

3. CLS

Large-value euro payments related to foreign exchange transactions are being settled in the Continuous Linked Settlement (CLS) system. The system settles payment instructions related to foreign exchange transactions on a payment-versus-payment (PvP) basis in the books of a privately owned single-purpose bank (CLS Bank). The PvP mechanism ensures the synchronous settlement of the two legs of a foreign exchange trade.

CLS plays a fundamental role in the foreign exchange (FX) market – it operates the largest multicurrency cash settlement system to mitigate settlement risk for the FX transactions of its members and their customers. Settlement of FX transactions requires the exchange of principal in two currencies. Settlement risk is the risk that one party pays the currency it sold but does not receive the currency it bought, resulting in a loss of principal.

Launched in 2002 and owned by the world’s leading FX banks, CLS settles payment instructions relating to underlying FX transactions in 18 currencies and certain other transactions that result in one-way payments in a subset of those currencies.

CLS mitigates settlement risk through the provision of its unique payment versus payment settlement service which has direct links to the real time gross settlement (RTGS) systems of the currencies it settles. In addition to mitigating settlement risk, CLS also streamlines and standardizes FX operations, reducing costs.

FX settlement includes potentially large cash funding values. These values are materially reduced in CLS through the multilateral netting of the obligations between Member banks to deliver best in class liquidity management. As regulatory requirements for larger liquidity buffers increase, the benefits from multilateral netting at an industry level are increasingly important.

The financial crisis proved a defining moment for CLS. Following the collapse of Lehman Brothers in September 2008, market sentiment deteriorated rapidly and money and capital markets were brought to a virtual standstill. The FX market continued to function, without disruption, throughout the market turmoil that followed. Many have attributed this stability to the role played by CLS in mitigating settlement risk.

The ECB acts as the settlement agent for CLS Bank’s euro payments. All euro funding payments to and from CLS are settled via TARGET2. The euro is the most important currency settled by CLS after the US dollar. It accounts for about one-quarter of all settlements.

I. Retail payment systems

Retail payment systems are used for the bulk of mostly low-value payments to and from individuals, and between individuals, companies and public authorities. Although most of them may not be ‘systemically important’, they contribute to both the stability and efficiency of the financial system as a whole and citizens’ confidence in the euro.

Each country has its own system for processing retail payments. Oversight responsibilities are assigned to the national central bank of the country where the system is legally incorporated. In the case of EBA CLEARING’s STEP2 system, which facilitates retail payments throughout the euro area (and beyond), the assessment was made by the ECB.

1. STEP 1 - a low-cost offering for commercial payments

STEP1 is primarily a payment service for commercial transactions and has been designed to process single cross-border payments in euro. The service enables the banks that operate in the European Union to exchange commercial payments with other STEP1 participants as well as the entire community or EURO1 banks.

Through the implementation of STEP1 in 2000, EBA CLEARING opened access to the EURO1 processing platform to banks hat did not comply with the strict admission criteria. With the help of STEP1, it became possible for more banks to process their cross-border retail payments within an efficient and broad pan-European payment service.

Admission to STEP1 is open to all banks operating in European Union. Participants in the STEP1 services can make full use of the EURO1 platform and are directly connected to all EURO1 and STEP1 participants. Each STEP1 participant settles with a EURO1 bank of its choice. This bank, acting as a settlement bank, provides the STEP1 participants with the liquidity it requires in the system.

STEP1 processes individual credit transfers and direct debits. Transaction values are typically below €50,000, but there is no actual limit other than the sending/receiving capacity of the STEP1 bank(s) involved

2. STEP 2 – the pan-European Automated Clearing House (ACH)

STEP2 is a Pan-European Automated Clearing House (PE-ACH) for retail payments in euro. It provides a state-of-the art network-independent processing engine. The STEP2 platform is a highly resilient processing system with full disaster recovery features and operational procedures that are regularly tested with the user community.

3. SEPA – Single European Payments Area

SEPA represents the next major step towards closer European integration. SEPA is a project to harmonise the way we make and process retail payments in euro. The goal is to make payments in euro and across Europe as fast, safe and efficient as national payments are today. SEPA enables customers to make cashless euro payments to anyone located anywhere in Europe, for example by credit transfer, direct debit or debit card. In the Single Euro Payments Area (SEPA) all euro payments will be treated as domestic payments and the current differentiation between national and cross-border payments will disappear.

The project is run by the banking industry which created for this purpose the European Payments Council (EPC) in 2002. The EPC has defined the new schemes, frameworks, rules and

standards for euro payments. The implementation of SEPA is being undertaken by European banking communities and all other stakeholders.

The SEPA is based on:- a common set of payment instruments – SEPA instruments:

SEPA credit transfer – provides customers with a single means of transferring funds, regardless of whether it’s within a single country or involves a cross-border payment.

SEPA direct debits – makes it possible, for the first time, to charge directly an account in one European country for services provided by a company based in another country.

SEPA card payment – will enable consumers to use the same cards they use in their own country for purchases everywhere in Europe more conveniently; for merchants, accepting cards will become easier and more attractive.

- a common standards – regarding business requirements, logical data elements and payment messages;

- a legal basis for making payments across Europe.The major objectives of SEPA are:

creation of a single domestic payments market; thus the customer could make cashless payments in euro zone as easily, efficiently and safely as in their domestic countries, from a single account anywhere in the euro zone using a single set of payments instruments;

common standards and procedures for credit transfers, direct debits and payment cards planning to remove the differences between domestic and cross-border payments in euro;

constructive economic outcomes and opportunities: encouraging of the competition among banks in order to offer

innovative services and new, added value products; an increasing usage of cards and competition among acquirers and

card scheme, which should decrease the costs and fees. SEPA was implemented in 3 stages:

the design stage (2004) – the plan of the new credit transfer, direct debit scheme, cards framework, and clearing and settlement infrastructure.

the implementation stage (June 2006 – December 2007) – the preparation for the new SEPA instruments, standards and infrastructure adoption;

the migration stage (January 2008) – the coexistence of the national payment schemes with the new SEPA schemes:

January 2008 – start of SEPA credit transfer; November 2009 – start of SEPA direct debit; 2011 – framework for card transaction processing.

The deadlines for the migration to the new SEPA instruments werw:- the deadline for the euro area was 1 February 2014; a further transition period of six

months was introduced on European Commission initiative (1 august 2014);- for niche products with specific characteristics a longer transition phase (until 1

February 2016) can be applicable in some countries;- for EU member states with other currencies than the euro the respective end-date was

31 October 2016 for all credit transfers and direct debits in euro.

As of these dates, the existing national euro credit transfer and direct debit schemes will be replaced.

Before the introduction of the euro, each country developed its own models and practices for cashless payments. This has led to a diversity of cross-border payment procedures. Therefore, the necessary steps to migrate and adapt to SEPA can differ from country to country.

The SEPA territory consists of 34 European countries and also includes countries which are not part of the euro area and the European Union (EU-28, plus Iceland, Liechtenstein, Monaco, Norway, San Marino and Switzerland).

There is also Securities Settlement System operating in euro zone, named TARGET2-Securities (T2S).

T2S is one of the largest infrastructure projects launched by the Eurosystem so far. It brings substantial benefits to the European post-trading industry by providing a single pan-European platform for securities settlement in central bank money.

The platform provides integrated settlement of domestic and cross-border securities transactions and of related funds via securities accounts opened and managed on the platform by connected central securities depositories (CSD), and via dedicated cash accounts (DCAs) opened and managed on the platform by the national central banks. Thus, cross-border securities transactions within the European Union will be settled under the same conditions as the domestic ones. The main important objectives of TS2 are:

reduction of the cost of the cross-border securities settlement; maximization of the safety in the securities settlement by applying the

delivery versus payment mechanism; maximization of the efficiency in the securities settlement by settling cash

and securities on the same IT platform. T2S will consolidate across all countries in Europe the most fundamental part of the

securities infrastructure value chain: settlement. It will be a state-of-the-art settlement engine offering to the whole European market centralised delivery-versus-payment (DvP) settlement in central bank money. It will be operated by the Eurosystem on a cost-recovery basis, to the benefit of all users. T2S will be neutral towards all countries and market infrastructures and towards the business models adopted by all CSDs and market participants. T2S will only perform settlement and will be a service offered to central securities depositories (CSDs), and not a CSD in itself. 

T2S will be run by the Eurosystem, because Settlement in central bank money is a very important safety feature that only central banks can offer. T2S will have a multicurrency dimension. It will extend beyond the euro area, enabling the interested non-eurozone national central banks to connect to T2S with their currencies. Today most CSDs organise DvP settlement in central bank money with only one central bank. In T2S securities will be settled against any of the available currencies.

T2S will remove barriers across countries and eliminate differences between domestic and cross-border settlement, offering a solution to the drawbacks of the current fragmentation. T2S is a key driver for the harmonisation of post-trade services and standards, and will contribute to achieve stronger financial integration and a true European single market.

T2S is implemented in 3 stages: the user requirements phase, opened in March 2007; the development and internal testing phase, launched in January 2008; the migration phase; it is scheduled to go-live in 2017.

The migration of the participants to T2S (central depositories, financial institutions and central banks) is performed gradually, between June 2015 and February 2017, four main periods of migration (“migration waves”) being set in this regard.

T2S went-live on 22 June 2015 with the implementation of wave 1 and became fully operational in 6 February 2017.

Payment instruments and payment systems in Romania

Cashless payment means

The transfer of funds can be made by payment service providers (credit institutions, payment institutions and electronic money institutions), based on a payment instruction sent via payment instruments (credit transfer, direct debit, payment card, cheque, bill of exchange and promissory note). Making a cashless payment via funds transfer from the payer to the payee involves a series of operations which may be performed only by authorised institutions (i.e. payment service providers) and the State Treasury.

Payment systems

According to its statutory tasks, the National Bank of Romania (NBR) promotes the smooth functioning of payment systems with a view to ensuring financial stability and maintaining public confidence in the national currency.

The NBR fulfils this task by: providing settlement means for payments and securities; thus, the NBR runs a

payment system for large-value payments in lei (ReGIS), , as well as a central depository and securities settlement system (SaFIR), and manage, on the Eurosystem’ behalf, the national component of a payment system for large-value payments in Euro (TARGET2-România); the NBR is the system administrator of ReGIS and SaFIR, whereas the technical operation services were outsourced to TRANSFOND4;

supervising payment and securities settlement systems; thus, the NBR sets forth standards with a view to ensuring sound and efficient systems for processing transactions in RON and assesses the systems' compliance with these standards;

cooperating with the national authorities, the European System of Central Banks, the ECB, as well as with any other relevant international bodies, with a view to ensuring a regulatory and supervisory framework of payment and securities settlement systems harmonized with international standards;

4 TRANSFOND is a trading company, having as shareholders the NBR (33.33 percent) and a number of 23 credit institutions (66.67 percent). TRANSFOND is in charge of clearing and settling all domestic currency interbank transfers, as operator of the payment system, in line with the mandate granted by the NBR.

promoting efficiency across payment systems and the infrastructures adjustment to SEPA requirements.

In Romania there are three interbank payment systems, of systemic importance: ReGIS (the Romanian electronic Gross Interbank Settlement):

for large-value payments in lei (above 50,000 lei)

the RTGS system

managed by NBR and operated by TRANSFOND;

launched on 2005;

SENT (the System for Electronic Net Settlement run by TRANSFOND)

for retail payments in lei (lower than 50,000 RON);

the automated clearing house;

managed and operated by TRANSFOND;

launched on 2005;

TARGET2-Romania - the Romanian component of TARGET2:

for large-value payments in Euro

managed, on the Eurosystem’ behalf, by NBR;

launched on 4 July 2011.

There are also three securities settlement systems, that settle in ReGIS: SaFIR (Settlement and Financial Instruments Registration):

managed by NBR and operated by TRANSFOND; launched on 2005.

and two clearing/settlement system of securities: RoClear – managed and operated by Depozitarul Central S.A. Sibex – managed and operated by Depozitarul SIBEX S.A

All the afore-mentioned systems ensure the settlement via credit institutions' accounts opened in NBR.

Together with Depozitarul Central S.A., NBR, as operator of the national component of the TARGET2 payment system has also connected to the TARGET 2 – Securities (T2S) platform in the first migration wave.

To ensure continuity of activity of the electronic payment system, in case of a contingency, a back-up and recovery system was also implemented.

Romania also joined the SEPA project: implementation of the SEPA RON credit transfer national payment scheme – in

in June 2012; Implementation of SEPA RON direct debit national payment scheme - in

December 2013The Romanian payment systems are compatible with the payment systems in the EU

from the viewpoint of both functionality and compliance with European and international standards and practices in the field.

References:1. Bank for International Settlements, Payment systems in the euro area, 2003, available on

https://www.bis.org/cpmi/paysys/ecbcomp.pdf2. Bank for International Settlements, the CPSS report titled Core Principles for Systemically Important

Payment Systems, the, January 20013. ECB, The current TARGET system, available on

https://www.ecb.europa.eu/pub/pdf/other/target2005en.pdf?3201cff4f28bcafbdf32f3c1904c874c4. ECB, Overview of TARGET, July 2005, available on

https://www.ecb.europa.eu/paym/pdf/target/current/targetoverview.pdf5. ECB, Migration weekend of wave 1, available on

https://www.ecb.europa.eu/paym/t2s/progress/pdf/migration_teams_of_wave_1.pdf6. The Central Banking system of Euro Area, SEPA in a nutshell, available on

https://www.ecb.europa.eu/paym/retpaym/shared/pdf/SEPA_in_a_nutshell.pdf7. Websites:http://www.cls-group.comhttps://www.ecb.europa.euhttps://www.ebaclearing.euhttps://en.wikipedia.orghttp://www.bnr.ro