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A letter of intent to establish an instant payment system in the Balkan region of Europe represents a significant step towards financial integration and alignment.
The initiative, supported by the European Central Bank’s (ECB) Governing Council, will see the Bank of Italy provide a real-time payment platform modelled on the TARGET Instant Payment Settlement (TIPS) service to the Balkan region.
“The signing of the Letter of Intent represents an important step in the process of integration of the Western Balkan countries with the financial system of the European Union,” Italy’s central bank said in a press release.
TIPS is a system for instant payment settlements, developed and managed by the Bank of Italy for the Eurosystem.
It was launched in November 2018 as an extension of TARGET2, since replaced by T2, and settles payments in central bank money.
TIPS settles payment transfers in euro and, as of February 2024, in Swedish kronor.
TIPS expansion
In addition to Sweden, other Nordic countries have been keen to become integrated with TIPS.
Danmarks Nationalbank and Norges Bank are preparing to onboard the service, and non-EU member Iceland has also expressed interest in joining.
Albania, Bosnia-Herzegovina, Kosovo and Montenegro have formally joined the Balkans initiative, and North Macedonia has said it intends to participate in the near future.
The planned system is expected to become operational within 18 months of the project’s commencement, which is scheduled for the coming weeks.
The platform will support transactions in the currencies of the participating nations, with additional functionalities to be rolled out during later phases.
The system will offer the potential for a bilateral connection between the TIPS-served European area and the Western Balkans.
It will deliver a technologically advanced and cost-effective solution for cross-border payment settlements.
The agreement marks a key step in aligning the financial systems of non-EU Balkan countries with the EU, and follows the European Payments Council's approval of Montenegro and Albania joining the Single Euro Payments Area (SEPA), which is set to become operational by April 2025.
Good news all round?
These changes highlight a significant transformation in the Balkans.
The region is making significant progress in both economic modernisation and regional integration, and alignment with EU standards.
This is a sign that EU membership is edging closer for the candidate states, some of which have been negotiating entry into the trading bloc for two decades.
The adoption of the instant payment system and Albania and Montenegro’s inclusion in SEPA indicate that the Balkan countries are bridging gaps with the EU in payments.
These changes are tangible steps towards alignment with EU policies and standards, and reflect the nations’ aspirations for deeper integration into the bloc’s economic and political structures.
The platform’s alignment with the TIPS system strengthens cross-border financial integration with the EU, as smoother connectivity facilitates trade and investment between the Balkans and EU countries, enhancing economic ties and driving regional growth.
In addition, the adoption of advanced payment infrastructure will modernise the financial systems of participating Balkan nations.
This will not only improve trust in the financial system, but also foster innovation and ensure alignment with global standards, paving the way for a more competitive and resilient economy.
However, there could also be drawbacks.
Implementing the system across multiple countries with diverse financial infrastructures presents inevitable challenges, especially with a relatively short timeframe.
The complexity of integration could lead to delays or technical issues, especially in nations with less-developed banking systems.
And although the system promises long-term cost efficiency, the initial expenses for implementation, training and infrastructure upgrades could be substantial.
Smaller payment service providers or resource-constrained countries may face difficulties in meeting these demands, potentially slowing progress.
