Payment market infrastructures
The named systems banks plug into to clear and settle payments — TARGET2/T2, Fedwire, CHIPS, FedNow, CHAPS — and whether each settles gross, nets, or runs instant.
IN ONE LINE
An everyday analogy: think of the big shared systems that banks plug into as a country's motorways for money.
Cars — the payments — belong to individuals, but they all travel on a small number of public roads built and policed by someone else.
Every country has a few of these roads.
Some are express lanes for a handful of very large, urgent vehicles: the high-value systems.
Others are broad motorways carrying huge volumes of everyday traffic.
And newer ones never close, running every minute of every day for instant trips.
The banks own the cars; the state or an industry body usually owns the roads.
Learning the names of these roads — and which traffic each is built for — is most of what clearing and settlement infrastructure means in practice.
WHAT IT ACTUALLY IS
A payment market infrastructure — often called a financial market infrastructure, or FMI — is a shared system that clears or settles payments between institutions.
Two design choices sort most of them.
First, gross versus net: a real-time gross settlement (RTGS) system settles each payment individually and finally, while a netting system offsets many payments and settles only the difference.
Second, high-value versus instant: some carry large, urgent interbank payments, others round-the-clock retail traffic.
In the euro area, T2 — the Eurosystem service that replaced TARGET2 (the Trans-European Automated Real-time Gross settlement Express Transfer system) in March 2023 — is the RTGS, with EURO1 a separate net system.
In the United States, Fedwire is the Federal Reserve's RTGS and CHIPS (Clearing House Interbank Payments System) is a privately run high-value system that nets.
FedNow is the US instant service.
In the United Kingdom, CHAPS (Clearing House Automated Payment System) is the sterling RTGS.
HOW IT WORKS
What separates these systems in daily practice is who operates each, what it is built for, and when it is open.
Central banks operate the real-time gross settlement (RTGS) systems and settle them in central bank money: the Eurosystem runs T2, the Federal Reserve runs Fedwire, and the Bank of England runs CHAPS (Clearing House Automated Payment System).
Industry bodies operate others: The Clearing House runs CHIPS (Clearing House Interbank Payments System) in the United States, and EBA CLEARING runs pan-European systems including EURO1.
Instant systems such as FedNow run every minute of every day, so they have no cut-off in the way a high-value system does; a bank joining one must staff and fund it around the clock.
High-value systems, by contrast, have operating hours and hard cut-offs, and a large payment that misses the window waits.
Most economies run several of these side by side, and a bank chooses the path by currency, value, urgency, and which system can reach the beneficiary's bank.
THE WORDS
- Payment market infrastructure
- A shared system that banks connect to in order to clear or settle payments between themselves — the named plumbing behind an economy's money flows.
- TARGET2 / T2
- The Eurosystem's real-time gross settlement system for high-value euro payments in central bank money; TARGET2 was replaced by the consolidated T2 in March 2023.
- Fedwire Funds Service
- The US Federal Reserve's real-time gross settlement system, moving large US dollar payments individually and with immediate finality in central bank money.
- CHIPS
- A privately operated US dollar high-value system run by The Clearing House; it nets payments through the day and settles with finality in central bank money.
- FedNow Service
- The US Federal Reserve's instant payment service, launched in 2023, settling retail payments individually in central bank money around the clock.
- CHAPS
- The United Kingdom's sterling real-time gross settlement system for high-value payments, operated by the Bank of England.
READ FIRST
CONNECTED TO
SOURCES
- TARGET Services — European Central Bank
- Fedwire Funds Service — Federal Reserve Financial Services
- CHIPS — The Clearing House
- CHAPS — Bank of England
- Fast payments - enhancing the speed and availability of retail payments — CPMI, Bank for International Settlements
- EBA CLEARING payment systems (STEP2-T and RT1) — EBA CLEARING
- Payments Signal editorial teaching models — Payments Signal
Derived from Payment market infrastructures. Every claim on this card is sourced on that page.