The paper outlines the objectives, structure and mode of operation of the first - and so far, the only - cross-border retail payment settlement system in Europe. The STEP 1 system settles small-amount payments in euros on a net basis, using the technical infrastructure of the EURO 1 system. STEP 1 has been developed and implemented by Euro Banking Association (EBA). It was launched on 20 November 2000. The name of the system is an acronym for "Straight Through Euro Payment", which denotes automatic payments in euros.

The paper also outlines the assumptions for the STEP 2 system currently under construction. STEP 2, also designed to deal with cross-border retail payments in euros, will be initiated in a little over a year.

In developing the new cross-border retail euro payments system, EBA took a stage-by-stage approach. First, STEP 1 was established on the existing infrastructure of the EURO 1 system, a move which secured a quick launch at a manageable cost. Only at the second stage does EBA plan to create the STEP 2 system in the shape of an automatic clearing house, introducing the technology which will fully satisfy the requirements of the market.

The role of the STEP 1 and STEP 2 systems is mainly to:

1. reduce the time necessary to make small-amount cross-border payments;
2. promote the application of standards in order to ensure automatic payments processing;
3. develop a common practice in the area, to be adopted by all countries involved;
4. assist banks in satisfying the needs of their clients in the changing payments environment in Europe;
5. ensure an open and direct access to the system;
6. provide efficient central infrastructure, which, in a competitive environment, will lead to a reduction in the costs incurred by the end-customer.