Sweden RIX-INST
An example of TIPS Single Instructing Party Settlement Model
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Welcome to a new episode of Payment Bites! In our previous episode on SEPA cross-border transactions, we introduced TIPS, a critical infrastructure in Europe for handling instant payments. Today, we delve deeper into its two distinct settlement methods. If you're just joining us, you can catch up by reading our two earlier articles where we provided an introduction to TIPS.
TIPS, TARGET Instant Payment Settlement System, offers the unique ability to settle transactions in central bank money. TIPS also boasts multi-currency settlement capabilities, making it a versatile solution. With TIPS, transactions are not only lightning-fast but also flexible, catering to a wide range of currencies, and backed by the security of central bank money settlement.
With the inclusion of Riksbank, central bank of Sweden, into TIPS service, a novel settlement model called Single Instructing Party (SIP) was introduced. This SIP model enables immediate settlement without the requirement for reserving funds in TIPS, following successful validations and checks by the SIP. Initially designed for the SEK market, the SIP model may also interest the EUR community in the future.
The necessity for this model arose during the preparations for incorporating the Swedish krona into TIPS. In Sweden, instant payments presently settle via a domestic technical infrastructure. To adapt to this setup and streamline settlement in central bank money, RIX-INST will assume the role of the instructing party for both originator and beneficiary banks, differing from the standard TIPS settlement model.
Swish also stands out as a key player in the Swedish market. Swish launched in 2012, is a leading mobile payment application in Sweden, created by major Swedish banks. It simplifies real-time money transfers by allowing transactions through just phone numbers. Its ease of use and integration with the Swedish banking system have made it a key player in Sweden's shift towards a cashless society. Efforts are in progress to transition Swish payments clearing and settlement to RIX-INST, with completion anticipated in early 2024. Upon completion, Swish will become the inaugural service to utilize RIX-INST.
As highlighted earlier in the article, TIPS incorporates two settlement models, standard and single instructing party or SIP. For an in-depth review of the standard settlement model in SICT, please refer to the article linked here.
As a summary to the previous article, in the conventional SCT Inst settlement model, upon successful validation of the payment transaction, TIPS reserves funds to guarantee the availability of resources for settlement once the reply from the Beneficiary Participant is received. This ensures that the transaction won't be declined due to insufficient funds. Should the Beneficiary Participant or Instructing Party reject the payment, TIPS will reverse the fund reservation and reject the transaction.
The single instructing party settlement model comes into play when both the debtor and creditor PSPs are connected to TIPS via the same instructing entity. In such cases, the majority of the pacs.008 and pacs.002 transmissions occur within the instructing party's domain. TIPS intervenes only in the final stage, executing the ultimate settlement in the Dedicated Cash Accounts (DCAs).
TIPS does not require fund reservation at this stage, as it is already confirmed that the beneficiary has accepted the transaction. Before executing the settlement, TIPS conducts several validations. If these validations are successful, the accounts are updated, and a confirmation message is sent to the instructing party's infrastructure. However, if the validations fail due to insufficient balance for the operation, a rejection message is dispatched back to the instructing party. TIPS is capable of settling payments only when the currency of the account being debited aligns with both the currency of the account being credited and the currency used in the payment transaction.
See you until next time!, for a deeper understanding of TIPS, feel free to explore our comprehensive article on SEPA Instant Cross-Border.