Why was TARGET developed?

One of the key components that enables the Eurosystem to fulfil its tasks – particularly promoting the smooth operation of payment systems (see Article 22 of the Statute of the European System of Central Banks and of the European Central Bank – is the operation of its own real-time gross settlement express transfer system. The Eurosystem is composed of the European Central Bank (ECB) and the national central banks of the euro area.

In view of this, the Eurosystem developed TARGET, pursuing the following three main objectives:

• to serve the needs of the Eurosystem’s monetary policy in order to ensure smooth implementation;
• to create a safe and reliable mechanism for the settlement of euro payments on a real-time gross settlement (RTGS) basis;
• to increase the efficiency of inter-Member State payments within the euro area.

The TARGET system allows the Eurosystem central banks to operate a market infrastructure which, alongside markets and institutions, is a core component of the financial system and contributes significantly to a sound currency, the implementation of monetary policy, the functioning of the markets and financial stability. TARGET stands for “Trans-European Automated Real-time Gross Settlement Express Transfer”.

The first generation of the TARGET system

When the euro was launched, the first generation of the TARGET system went live on 4 January 1999, the first working day of that year. Designed as an RTGS system, it carried out euro-denominated payments individually, continuously and in real time, ensuring immediate finality. This allowed the funds received to be reused several times a day. 

TARGET consisted of a network of sometimes fairly different RTGS systems, with only a minimum level of harmonisation, for example with regard to operating hours or message formats and prices for cross-border transactions. The Eurosystem had thus established a service for the (cross-border) settlement of euro payments in secure central bank money within the European Union (EU).

TARGET2 – the second generation of the TARGET system

Although TARGET proved successful, two disadvantages became increasingly apparent over time: first, the decentralised technical structure, and second, a lack of consistency with regard to technology and range of services. It became clear that the system would not be able to meet future demands in terms of efficiency, costs and stability.

Work therefore began on developing a second generation of the TARGET system. On 19 May 2008, after a six-month migration phase, the network was finally replaced by a new system operated on a single shared platform: TARGET2. The Banca d’Italia, the Banque de France and the Deutsche Bundesbank were responsible for its technical development and operation; from a legal perspective, TARGET2 was structured as a multiplicity of systems in which each participating central bank acted as an independent system operator. 

TARGET2 now offered all participating institutions a fully harmonised, highly standardised range of services at uniform prices (including for national and cross-border payments), thus creating a level playing field for financial market players. 

Options for settling direct debit payments and submitting payments in advance were added to the existing features, which included settling payments connected to monetary policy operations as well as settling interbank payments, customer payments exchanged between banks, and transactions under other market infrastructures (e.g. payment and securities settlement systems). Tailor-made settlement procedures and the option of night-time processing were introduced for the other market infrastructures, referred to as ancillary systems. On top of that, opportunities for efficient and pan-European liquidity management were improved for participating institutions.

In line with the principle of decentralisation within the European System of Central Banks (ESCB), each of the central banks remained responsible for individual customer support.

The Bundesbank migrated its national banking community to TARGET2 on the launch date of 19 November 2007. Its national TARGET2 component system was named “TARGET2-Bundesbank” (or “TARGET2-BBk” for short).

Expansions to TARGET2

Since June 2015, institutions participating in TARGET2 have been able to open T2S DCAs (TARGET2-Securities dedicated cash accounts) to settle the cash leg of securities transactions.

Since November 2018, they have also been able to hold TIPS DCAs (TARGET Instant Payment Settlement dedicated cash accounts) in order to settle instant payments around the clock.

The third and current generation of TARGET

Given the synergies between TARGET2 and TARGET2-Securities, the two market infrastructures for payments and securities settlement, the Eurosystem worked intensively on consolidating both services. As is the case for TARGET2-Securities and TIPS, the Banco de España has now joined the existing consortium of developers and operators (the Banca d’Italia, the Banque de France, and the Deutsche Bundesbank).

On 20 March 2023, technical and functional expansions were made, mainly taking into account the changed market requirements in the areas of payments and liquidity management and enabling optimised liquidity management across all TARGET Services. Specifically, as part of its Trans-European Automated Real-Time Gross Settlement Express Transfer system, now called “TARGET” once more, the Eurosystem set up a new “T2” service. This provides central liquidity management services, including the settlement of central bank transactions via MCAs (main cash accounts), as well as the real-time gross settlement (RTGS) of payments via RTGS DCAs (RTGS dedicated cash accounts). MCAs are technically managed in the CLM (Central Liquidity Management) component of T2, while RTGS DCAs are managed in the RTGS component of T2. 

However, the newly established liquidity management via MCAs includes not only the provision of RTGS DCAs for RTGS payments, which are located in the same service (“T2”), but also the T2S DCAs for the settlement of the cash leg of securities transactions and the TIPS DCAs for the settlement of real-time payments.

As well as this structural adjustment, various functional expansions and updates were made, such as enhanced liquidity management functions, support for data analysis and also longer operating hours for RTGS payments. 

In addition, the message standard for the settlement of RTGS payments was changed to the new ISO 20022 standard and the system was equipped to settle RTGS payments in currencies other than the euro. 

TARGET2-Securities and TIPS, introduced in 2015 and 2018, respectively, already featured the ISO 20022 message standard and multi-currency capability. Therefore, only minor adjustments had to be made to these two services, such as linking them to the Central Liquidity Management module or the common components used by all services. These include Common Reference Data Management, Billing, Business Day Management, Data Warehouse (currently excluding TIPS) and the Eurosystem Single Market Infrastructure Gateway. This gateway enables the participating institutions to connect via several network service providers, thus providing them with a range of different connectivity options (and therefore promoting competition between network service providers). It also increases resilience through parallel connections via different service providers.

Ultimately, cyber resilience has been further enhanced so as to offer more effective safeguards against the growing risks posed by cybercrime.

Because TARGET2 is now called TARGET, the Bundesbank’s national TARGET component system has been given the name “TARGET-Bundesbank” (or “TARGET-BBk” for short).

By launching the third generation of TARGET in 2023, the Eurosystem has made its market infrastructure fit for the future, helping it to support financial integration, financial stability and liquidity efficiency in the euro area by continuing to provide harmonised services and a single pricing structure at the EU level, support for ancillary systems with tailor-made settlement procedures and support for users through enhanced liquidity management tools.