Target2 is the replacement of the Target1 system. The Target2 functionality has been fully incorporated into the international payments system.
For banks this will mean that, where as they were sending Euro payment orders to their central bank for onward settlement within the Target1 system, they will now send their payment messages directly to the beneficiary bank, or the intermediary bank of that beneficiary bank, while settling via the Target2 system.
The actual settlement will be initiated by the SWIFT Y-copy service. This service will interrupt the payment transfer, then send the mandatory settlement information onward to the Target2 clearing system. Once the Target2 clearing system has actually transferred the amount from the ordering bank to the beneficiary bank the SWIFT Y-copy mechanism is then notified, thereby releasing the interrupted payment for onward transmission to the beneficiary bank. The beneficiary bank can of course also use an intermediary bank.
The Target2 directory will be published by the Target2 system. This allows the Target2 participants to route their payments to the correct counter-parties. Veracity will use this directory to feed its already existing payment routing database. This will allow the banks to automatically route their payments, independent of the settlement through Target or the Target2 system.