Several steps are involved when a consumer uses a payment card at a payment terminal, from the debiting of funds from the consumer’s bank account to the credited of those funds to the store’s account. This sequence occurs entirely automatically through a network of systems collectively known as the payments infrastructure.
When you pay in a shop, the payment instrument is crucial for how – and how quickly – the payment is handled in the system.
When making a payment in a store, the chosen payment instrument is crucial in determing the method and speed of the payment process within the system.
The payments infrastructure manages transactions and transfers between private individuals, between private individuals and stores or businesses, between businesses, and between the financial institutions where private individuals and businesses hold accounts. Transactions between private individuals and businesses are referred to as retail payments, while transactions between financial institutions are known as interbank payments. Additionally, the payments infrastructure also facilitates currency exchanges, securities trades, and other financial activities.
Retail payments are managed in two systems; TIPS and Batch Clearing
TIPS
Instant payments are managed in TIPS, which is part of the European Central Bank's TARGET Services. TIPS is a gross settlement system where financial institutions continuously process payments and transfer funds from account to account as transactions occur, thousands of times during an ordinary day.
Instant payments enable account-to-account transfers that reach the recipient immediately after the transfer is made. These can include payments via online banking or mobile payments. Instant transfers have an upper limit of DKK 500,000 and can be made 24 hours a day, every day of the year.
Batch clearing
Batch Clearing encompasses both Intraday Clearing and Sum Clearing. These are multilateral net settlement systems, meaning that individual transactions are not exchanged between financial institutions. Instead, at designated time slots during a banking day, funds are exchanged between financial institutions corresponding to the net difference between payments to and from the institution's customers. The exchanged funds between two financial institutions are referred to as net positions.
In Intraday Clearing, net positions are exchanged between financial institutions four times a day—at 01:30, 09:00, 12:00, and 14:00. This facilitates the transfer of funds from an account in one institution to an account in another institution within the same day, known as same-day transfers. Intraday Clearing processes account-to-account transfers such as online banking transfers, salary payments, and public payments.
In Sum Clearing, net positions are exchanged between financial institutions once a day at 01:30 at night, except on the first banking day following a closing banking day the exchange will be executed at 06:00. The net positions are calculated based on two partial clearings: the paperless clearing and the PBS clearing. The paperless clearing includes the settlement of payment slips, cash withdrawals from ATMs, and Transfer Service. PBS clearing encompasses payments made with Dankort, transfers via Payment Service and Supplier Service, as well as payments made with international payment cards.
Sum and Intraday Clearing are collectively referred to as Batch Clearings and are settled in the T2 Real Time Gross Settlement (RTGS) system.
Finans Danmark owns the clearing systems
The Sum and Intraday Clearings are owned by Finans Danmark, with Mastercard Payment Systems serving as the operator. Nationalbanken is the system owner of TIPS.
The participant structure in Batch Clearing is two-tiered, allowing access for both direct and indirect participants. To become a direct participant, it is necessary, among other requirements, to have a main cash account and a settlement account at Nationalbanken. Not all financial institutions maintain accounts at Nationalbanken. If a financial institution does not have its own account, it can participate indirectly in the clearing systems.In such cases, the indirect participant's payments are processed through a direct participant's settlement account.
TARGET DKK is the core of the network
TARGET DKK is the core of the Danish payment infrastructure, serving as Danmarks Nationalbank's RTGS system for payments in Danish kroner. This system enables the settlement of mutual balances among financial institutions and their balances with Nationalbanken.
Most financial institutions in Denmark maintain accounts at Nationalbanken. When these financial institutions need to transfer funds to each other, the transaction is carried out through TARGET DKK. Similarly, when financial institutions deposit funds into their account at Nationalbanken, this process is facilitated through TARGET DKK. Should the financial institutions require access to various forms of loans and credit provided by Nationalbanken - referred to as monetary policy operations - they utilise a system integrated with TARGET Services, specially Nationalbanken's system for collateral and monetary policy instruments (SPI).
Both Danish and international payment and settlement systems can connect to TARGET DKK, as it functions as a pan-European payment system.
Several systems are connected to Nationalbanken's TARGET DKK system, which forms the core of the network of systems for payments in Danish kroner, DKK.
Systems connected to TARGET DKK
In addition to the three clearing systems that handle Danish retail payments, a number of other systems are connected to TARGET DKK. These systems manage various types of transactions, including currency exchange and securities trading.
CLS
CLS is a multilateral system responsible for managing currency trading. The settlement of the Danish kroner (DKK) portion of financial institutions' currency trades is conducted through CLS Bank's account at Nationalbanken. CLS is owned by larger international banks.
Scandinavian Cash Pool
The Scandinavian Cash Pool (SCP) is a system designed to provide cross-border collateral for intraday credit in Danish kroner (DKK), Norwegian kroner (NOK), and Swedish kroner (SEK). The fundamental principle of SCP is that liquidity obtained from the central bank of one country can be utilised as collateral for the central bank of another country.