Target has been at the centre of a blazing row during the preparations for monetary union, because France and Germany want the system to discriminate against banks from countries that stay out of the single currency.
Eddie George, Governor of the Bank of England, has been campaigning for better treatment for British banks that use Target if the UK does stay out of EMU. But he made clear in September that if the obstacles to using Target to process payments between banks are too great there will be alternatives available.
The ECU Banking Association, which represents 49 of the world's largest banks including Deutsche Bank and Union Bank of Switzerland, said it had decided at a meeting in Luxembourg, chaired by Ashley Dowson of Barclays Bank, to proceed with what it called a "truly European cross-border payment system for EMU".
The cost will be less than one euro per payment compared with five to seven euros which the EBA claimed would be the cost for Target. A report prepared for the Luxembourg meeting said the EBA system should be capable of reaching a market share of 30 per cent, half as much again as Target.
A third system in which banks would use correspondent banks in other countries to process their payments was expected to reach a similar market share to Target of 20 per cent.
The EBA claimed its new system, which will be developed from an existing computerised clearing system for ecus, would be complementary to Target.
It could become the main payment system for cross-border commercial and financial payments in Euros, while Target was designed for monetary policy transactions and very high value or urgent wholesale payments.
The difference between the two systems, and the main reason the EBA's is cheaper, is that Target settles transactions instantly, eliminating the risk that a failure of one bank could have a knock-on effect on others.
The EBA system makes transfers of money within one day, so there could be tremendous disruption if a bank fails during the hours a transaction is waiting to be completed within the system. The Bank of England's greatest concern in the row over Target is that it will discourage commercial banks from using the safest system.