The Eurosystem is the monetary authority of the Eurozone composed of the European Central Bank and Eurozone’s national central banks. It oversees Euro payment systems, including the TARGET services it operates.

In July 2024, the Eurosystem rather quietly published its “Policy on access by non-bank payment service providers to central bank-operated payment systems and to central bank accounts”, following the adoption of Instant Payments Regulation (IPR) in March 2024.

Indeed, the IPR introduced the possibility for non-bank PSPs, namely payment institutions (PIs) and electronic money institutions (EMIs) to

The Eurosystem policy addresses these two elements.

Let’s start with the later element, as Eurosystem’s answer is quite simple: PIs and EMIs won’t be granted access to central bank accounts to safeguard customer funds.

While the Eurosystem acknowledges the benefits to PIs and EMIs of safeguarding customer funds at central banks, it details that enabling them to do so would blur the lines between PIs/EMIs and banks or create an equivalent of a central bank digital currency (CBDC) misleading investors and customers. The risk would be that consumers and businesses favour PIs/EMIs to hold deposits and “adversely affecting the intermediation role of banks and their lending activity to the economy”.

National central bank-operated payment systems, like Bank of Lithuania’s CENTROlink, which acted as a sponsor bank for SEPA indirect participants, effectively allowed PIs and EMIs to safeguard customer funds on their equivalent settlement accounts. In light of these new Eurosystem policies, CENTROlink issued new safeguarding requirements to its customers.

Per the new Eurosystem policy, existing accounts at central banks shall be closed, or their usage for safeguarding purposes be ceased by April 2025.

Eurosystem policies apply to its own TARGET payment services (T2 for SEPA credit transfers and SEPA direct debits and TIPS for SEPA instant credit transfers) as well as other payment systems operated by national central banks (such as Bank of Lithuania’s CENTROlink, Deutsche Bundesbank’s RPS and Central bank of Malta’s MTEUROPAY).

This Eurosystem policy does not apply to payment systems not operated by central banks, such as EBA CLEARING or STET.

Concerned payment systems must comply with this policy by 9 April 2025.

In its policy document, the Eurosystem lists eligibility criteria for PIs and EMIs to access TARGET systems and shares that, per its mandate, such guidelines also apply to national retail payment systems operated by national central banks.

First, “access to TARGET would be granted to authorised non-bank PSPs on the basis of a clear demonstration by the respective non-bank PSP of its ability to meet the operational and technical requirements already applicable to credit institutions.”

These requirements are listed in the TARGET guidelines. The access criteria per se include:

In addition to the listed access criteria, just like credit institutions, PIs and EMIs seeking to become direct participants in payment systems will have to follow the systems’ technical and operational rules.

On top of existing requirements, the Eurosystem lists additional criteria for future PI and EMI participants.

First, given the fast-growing and agile nature of PIs and EMIs compared to banks, the Eurosystem will expect yearly updates on PIs/EMIs operational and risk management processes. It will also mandate immediate notification from the PI/EMI in case of status changes, such as the suspension of its license.

PIs and EMIs will face complex liquidity management on their payment systems’ settlement accounts, as such accounts won’t be used to safeguard customer funds. PIs/EMIs will have to ensure they have sufficient liquidity at all times to settle payments while respecting liquidity limits to ensure no customer funds are safeguarded on settlement accounts.

The Eurosystem will publish details on how PIs and EMIs should calculate their minimum and maximum balance on settlement accounts.

Direct access to payment systems for PIs and EMIs represents a major progress for those with the scale and expertise to benefit from it, and Numeral is looking forward to supporting these companies in this new step of their payment journey.

But just like for banks (80% of which are indirect participants to payment systems), direct access might not be the right model for all PIs and EMIs.

New models, such as UK’s directly connected non-settling participation model, might also appear, providing PIs and EMIs with the benefits of direct participation without the liquidity complexity.