We analysed the distribution of the TARGET cross-border interbank payment flows from both a cross-section and a time-series point of view using average daily data for the period 1999–2002. Our findings were, first, that “location matters” in the sense that bilateral payment flows seem to reflect an organisation of interbank trading between countries in which the size of the banking sector, geographic proximity and cultural similarities play a significant role. This result was also confirmed by a model developed drawing on the gravity models literature. Second, we found that the payment traffic in TARGET is strongly affected by technical market deadlines. In addition, such traffic is positively related mainly to the liquidity conditions and to the turnover of the euro area money market (particularly the unsecured overnight segment). Our model also provides a good explanation of the determinants of the interbank payments settled in the EURO 1 system.