Banks are migrating to the updated payment system this week

Banks are migrating to the updated payment system this week

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Currently, the European Central Bank is carrying out one of the most ambitious projects to update the main European payment system – the consolidation of the TARGET2 system. TARGET2 is a Europe-based real-time settlement platform that processes up to 90% of the total value of euro payments in the world. This system is used by central and commercial banks and other financial institutions for mutual settlements.

Associative image from Pixabay.

Financial experts call the transition to the updated TARGET2 payment system a “positive revolution”, which will simultaneously move all system participants to a more technologically advanced and higher-quality payment infrastructure of the euro zone.

The complexity of the project is illustrated by the fact that the transition to the updated system will be carried out on a “big bang” basis – that is, more than 1,000 European banks will have to switch to the new system at the same time, between March 17 and 20.

The renewal of the TARGET2 system is led by the European Central Bank, the Bank of Lithuania is also actively involved in this process, and the consolidation project itself started back in 2017.

At the beginning of the project in 2017 The Council of the European Central Bank planned to complete the consolidation by 2021. in November, however, due to the Covid-19 pandemic and the delayed transition to the use of ISO 20022 standard messages, it was decided to extend the project deadline.

The aim of updating TARGET2 is to expand the range of services provided, unify and start using messages that comply with the ISO 20022 standard, optimize liquidity management, and harmonize login interfaces. Much attention is paid to strengthening IT security and cyber resilience, the importance of which has been growing in recent years.

“We have been a direct participant in the TARGET2 system for several years – this is how we aim to give our customers and partners, as well as other financial institutions, such as electronic money or payment institutions, the opportunity to quickly make international payments in euros not only in Europe, but also outside of it, – says Dainius Burneika, head of the Product Development Department of “Mano bankas”. – In preparation for the migration to the updated TARGET2 system, we have invested in updating the software to meet the new system requirements. At the same time, we updated the presentation and display of payment order data, and also paid a lot of attention to the automation of internal processes.”

According to D. Burneika, the transition to a consolidated and updated payment system will ensure further integration of the bank into the euro zone payment system, and will create more opportunities for clients to expand business relations abroad. The bank’s clients do not need to take any additional steps regarding the migration to the updated TARGET2 system – all preparatory work will be performed by “Mano bankas”.

“Using the updated software, customers will be able to provide and receive much more detailed information about SWIFT payments – this is especially relevant for institutions that make correspondence payments,” explains D. Burneika.

The association of fintech companies also welcomes the transition to the updated system.

“TARGET2 is one of the largest payment systems in the world, which is also actively used by fintech companies. Representatives of the fintech sector have been carefully preparing for the upcoming changes in the system. I really hope that in the near future, a greater number of fintech companies will be able to take advantage of the benefits of TARGET2 – not only specialized banks, but also electronic money and payment institutions. According to the Bank of Lithuania, the number of people who use the services of Lithuanian financial institutions in the European Union is increasing every year. The possibility of having access to TARGET2 for a wider circle of fintech companies would allow this sector to grow even faster and provide users with more services”, says Asta Grigaitytė, chairman of the board of the Fintech Hub LT association.