Payment rails are the infrastructure that enables the transfer of money between banks, payment service providers, and other financial institutions. For businesses, choosing the right payment rail depends on factors like speed, cost, geography, and customer satisfaction.
SEPA (Single Euro Payments Area) and TARGET2 are two prominent payment systems in Europe. SEPA facilitates euro-denominated payments across European countries, while TARGET2 is a real-time gross settlement system for large-value payments in euros. Lightspark is trying to move past these traditional payment rails by leveraging Bitcoin’s decentralized technology to create a new global payments network.
The Payment Rail Landscape
Payment rails are crucial for transferring money between parties. However, current systems can be slow, fragmented, and costly, often leading to inefficiencies and higher expenses for businesses and consumers alike.
Understanding SEPA and TARGET2
How SEPA Works
SEPA (Single Euro Payments Area) standardizes and simplifies cross-border euro (EUR) bank transfers within participating countries, making them as straightforward and cost-effective as domestic transfers. The process involves the sender's bank processing the payment as a SEPA transfer, which typically arrives at the recipient's account within 1–2 working days. SEPA-compliant accounts, like those provided by Wise in Estonia and Belgium, facilitate these transfers. The technology relies on standardized electronic bank transfer protocols and EU regulations, ensuring efficiency and automation. Most banks do not charge for receiving SEPA payments, though a few may still impose fees.
Strengths and Limitations of SEPA
Strengths
- SEPA standardizes euro payments across participating countries, making cross-border transactions as easy and inexpensive as domestic ones.
- SEPA payments are generally fast, with funds typically arriving within 1–2 working days.
- SEPA is supported by a robust legal framework, ensuring secure and efficient transactions.
Limitations
- SEPA is limited to euro (EUR) transactions and does not support other currencies.
- Some banks, particularly in Italy and Spain, may still charge extra fees for SEPA transfers despite EU regulations.
- Regular SEPA payments are not available 24/7 and are subject to banking hours and working days.
How TARGET2 Works
TARGET2 is a real-time gross settlement (RTGS) system operated by the Eurosystem, processing euro-denominated payment orders from central and commercial banks. Payments are settled individually in central bank money with immediate finality, without value limits. The system operates on a harmonized technical platform developed by the Banque de France, Deutsche Bundesbank, and Banca d'Italia. A typical transaction involves submitting a payment order, which is processed and settled continuously during business hours (07:00 to 18:00 CET). Advanced liquidity management tools, such as payment priorities and timed transactions, ensure efficient processing.
Strengths and Limitations of TARGET2
Strengths
- TARGET2 offers real-time gross settlement (RTGS) in central bank money, ensuring immediate finality and high security for large-value payments.
- It supports the Eurosystem’s monetary policy operations and facilitates efficient cross-border euro payments, enhancing the stability of the euro.
- With over 1,000 direct participants and more than 52,000 reachable banks worldwide, TARGET2 has extensive reach and scale.
Limitations
- TARGET2 operates only during business hours (07:00 to 18:00 CET) and is closed on specific holidays, limiting its availability for urgent payments outside these times.
- The system is primarily designed for large-value payments, making it less suitable for retail or small-value transactions.
- TARGET2 processes only euro (EUR) transactions, restricting its use for multi-currency or international payments outside the Eurozone.
SEPA and TARGET2 Compared
Transaction Speed
SEPA transactions typically take 1–2 business days for standard credit transfers, while SEPA instant payments via TIPS are processed in real-time. TARGET2, on the other hand, offers real-time gross settlement, ensuring same-day processing for large-value payments. Lightspark's Money Grid surpasses both by enabling instant, 24/7 global money movement.
Fees
SEPA payments are generally low-cost, especially when processed in bulk, with fees as low as 0.0025 euros per transaction. TARGET2 has a tiered fee structure starting at 0.80 euros per transaction. Lightspark offers a more cost-effective solution, eliminating hidden fees and reducing transaction costs significantly.
Cross-Border Capabilities
SEPA facilitates cross-border euro payments within 36 European countries, making them as straightforward as domestic transactions. TARGET2 supports large-value cross-border payments within the Eurozone. Lightspark extends these capabilities globally, supporting over 140 countries and 120 currencies.
Security Protocols
SEPA adheres to strict EU regulations and uses standards like EBICS for secure transactions. TARGET2 employs ISO 20022 for enhanced security features. Lightspark leverages Bitcoin’s decentralized foundation, offering robust security through cryptographic protocols and self-custodial wallets.
Operational Hours
Standard SEPA services operate during banking hours, while SEPA instant payments are available 24/7 via TIPS. TARGET2 operates from 07:00 to 18:00 CET on business days. Lightspark provides an always-on infrastructure, enabling 24/7 payments without the constraints of traditional banking hours.
How SEPA And TARGET2 Are Used
Retail Payments
SEPA is ideal for routine, non-urgent euro payments within the SEPA zone, offering low fees and standardized processing. TARGET2 is less suitable due to higher costs and its focus on large-value transactions. Lightspark excels by enabling instant, low-cost payments globally, supporting multiple currencies and digital assets.
Large-Value Corporate Transactions
TARGET2 is designed for high-value, urgent payments, providing real-time settlement and advanced liquidity management. SEPA is less appropriate for such transactions due to its slower processing times. Lightspark offers a competitive edge with instant, secure transfers and lower costs, even for large sums.
Cross-Border Payments
SEPA facilitates cross-border euro payments within Europe efficiently, while TARGET2 handles large-value cross-border transactions within the Eurozone. Lightspark surpasses both by supporting over 140 countries and 120 currencies, enabling seamless, real-time global payments without the limitations of traditional banking hours.
Recurring Payments
SEPA is well-suited for recurring payments like payroll and subscriptions, offering low-cost, automated processing. TARGET2 is not designed for such high-volume, low-value transactions. Lightspark enhances this use case by providing instant, low-cost payments with support for digital assets, ensuring a frictionless user experience.
Time for a New Standard
Lightspark is a global payments infrastructure provider that leverages Bitcoin’s decentralized technology to enable instant, secure, and low-cost payments across over 140 countries and 120 currencies, surpassing the limitations of SEPA and TARGET2.
- Built on Bitcoin: Lightspark’s infrastructure is built on Bitcoin’s open, decentralized foundation, utilizing the Bitcoin Lightning Network for fast, low-cost transactions.
- Instant Settlement: Lightspark enables real-time payments using both native Bitcoin and domestic real-time payment systems, allowing money to move instantly and securely.
- Lower fees: The platform offers payments at a fraction of the costs associated with traditional financial systems, with no hidden fees.
- Cross-border security by default: Lightspark’s infrastructure provides secure, cross-border payments by leveraging Bitcoin’s decentralized and secure foundation, ensuring compliance and reliability.
A Modern Infrastructure
For businesses looking to transcend traditional payment systems like SEPA and TARGET2, Lightspark offers the following solutions:
- Wallets: Advanced digital wallets with flexible custody options, supporting Bitcoin, Lightning, stablecoins, and domestic payment rails.
- Digital Banks: Connect to the Money Grid for real-time, low-fee payments and global reach, enhancing competitiveness and operational efficiency.
- Exchanges: Seamlessly integrate with the Bitcoin Network to offer instant, low-cost Bitcoin transfers and compliance tools.
- Stablecoins: Use Spark to create, distribute, and monetize stablecoins on the Bitcoin network, providing a modern alternative to fiat-based transfers.
Emerging technologies and evolving regulations are reshaping the future of payments. Lightspark can help achieve real-time, low-cost global payments. Don’t just choose between two outdated options—upgrade to a payment rail built for the internet age. Learn more or book a demo.
