A number of steps are involved when a consumer, for example, uses his payment card in a payment terminal, from the money being debited from the consumer’s bank account to it being credited to the store’s account. It happens completely automatically via a network of systems which are collectively known as the payments infrastructure.
The Danish payments infrastructure handles payments and transfers between private individuals, between consumers and shops or companies, between companies, and between the banks where the private individuals and companies have accounts. Payments between individuals and businesses are called retail payments. Payments between banks are called interbank payments. In addition, the payments infrastructure also handles foreign exchange transactions, securities transactions etc.
Retail payments are handled by three different systems
The three systems, also known as ‘facilities’, that handle Danish retail payments are called the ‘Straksclearing’, the ‘Intradagclearing’ and the ‘Sumclearing’ systems.
In the Straksclearing system, the banks’ customers can make account-to-account transfers which are received by the recipient immediately after the transfer has been made. This includes, for example, transfers via online banking or mobile payments. Instant payments have an upper limit of kr. 500,000, and can be made around the clock every day of the year.
The Intradagclearing and the Sumclearing
The Intradagclearing and the Sumclearing are so-called multilateral net settlement systems, which means that it is not the individual transaction that is settled between the banks. Rather, the banks settle the difference between payments to and from their customers at fixed times of day. The amounts exchanged between two banks are called the net positions.
In the Intradagclearing, amounts – or net positions – are exchanged between the banks four times a day – at 1:30, 9:00, 12:00 and 14:00. This makes it possible to transfer money from an account in one bank to an account with another bank on the same day, so-called same-day transfers. In the Intradagclearing, transfers are made from one account to another, for example online banking transfers, salary payments and disbursements from the public sector.
In the Sumclearing, amounts are exchanged between banks once a day – at night at 1:30. The positions are calculated on the basis of two subclearings: One comprises settlement of inpayment forms, cash withdrawals from ATMs and OverførselsService (transfer service). The other one comprises Dankort payments, transfers via Betalingsservice (direct debit) and LeverandørService (supplier service). Furthermore, it includes payments with international payment cards.
Finance Denmark owns the clearing systems
All three clearing systems are owned by Finance Denmark, while Mastercard is the operator and Danmarks Nationalbank is the supervisory authority.
The Sumclearing, Intradagclearing and Straksclearing systems have a dual participant structure with both direct and indirect participants. Direct participation, among other things, requires a current account and a settlement account at Danmarks Nationalbank. Not all banks have accounts with Danmarks Nationalbank. If a bank does not have an account, it can be an indirect participant in the clearing systems. In this case, indirect participants settle their payments via settlement accounts held by direct participants.
Danmarks Nationalbank’s Kronos2 is at the heart of the network
Kronos2 is at the heart of the Danish payments infrastructure. Kronos 2 is Danmarks Nationalbank’s real-time gross settlement (RTGS) system for payments in Danish kroner. An RTGS system can handle instant payments, i.e. the money is transferred instantly from one account to another. Kronos2 is the system in which most banks settle their respective balances as well as their balances with Danmarks Nationalbank.
Most banks in Denmark have accounts with Danmarks Nationalbank, and when the banks need to transfer money between each other, it takes place via Kronos2. If the banks deposit money into their account at Danmarks Nationalbank, or if they need to draw on the various types of loans and credit they can get from Danmarks Nationalbank – also called monetary policy operations – this is also effected via Kronos2.
Both Danish and international payment and settlement systems can be connected to Kronos2, just as Danmarks Nationalbank is connected to the systems operated by other central banks. Danmarks Nationalbank is, for example, linked to T2, which is the European Central Bank’s system for handling payments in euro.
Systems linked to Kronos2
In addition to the three clearing systems that handle Danish retail payments, a number of other systems are connected to Kronos2. The systems settle different types of transactions, including foreign exchange transactions and securities trading.
CLS is a multilateral system that handles currency trading. Foreign exchange transactions involving Danish kroner are settled via CLS Bank’s account at Danmarks Nationalbank. CLS is owned by large international banks.
T2 (previously named Target2) is the pan-European payment system for the settlement of large, time-critical payments in euro. The system is used by banks and settlement systems in EU countries to make payments to each other. Danmarks Nationalbank and a number of Danish banks participate in T2. T2 is based on a shared technical infrastructure (the Single Shared Platform), while account and business relationships with the participating banks continue to be handled by the individual central banks, e.g. Danmarks Nationalbank.
T2S (previously named Target2-Securities) is a pan-European system for the settlement of securities transactions in euro and in Danish kroner.
Securities settlement in Danish kroner
Euronext Securities Copenhagen (ES-CPH) undertakes the settlement of Danish securities transactions. In Denmark, the professional participants’ mutual securities transactions are settled in the European securities settlement system, T2S, while private investors’ transactions are settled through ES-CPH’s own settlement system (ES-CPH settlement system). For both settlement systems, participants must have a custody account at ES-CPH in order to use the systems. In a securities transaction, securities are exchanged in custody accounts at ES-CPH, while payment is executed via the participants’ Kronos2 accounts.
Scandinavian Cash Pool
The Scandinavian Cash Pool (SCP) is a system for the provision of cross-border collateral for intraday credit in Danish and Norwegian kroner and Swedish kronor. The main principle of SCP is that liquidity raised from the central bank of one country can be provided as collateral to the central bank of another country.