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David Woolcock 6 min read

The Temperature Hots Up on Cross-Border Payments

The G20 initiated a roadmap for enhancing cross-border payments, and we received the first consolidated progress report in October 2021 from the Financial Stability Board (FSB). As shown below, 2022 is a pivotal year, and the Committee on Payments and Market Infrastructures (CPMI) have commenced work on multi-lateral service level agreements among cross-border payment schemes. CPMI will also work on areas such as liquidity bridges, interlinking domestic payment systems for cross-border payments and harmonising API protocols.

CPMI (2021)

The focus areas are –

Focus area A: Committing to a joint public and private sector vision to enhance cross-border payments

Focus area B: Coordinating regulatory, supervisory and oversight frameworks

Focus area C: Improving existing payment infrastructures and arrangements to support the requirements of the cross-border payments market

Focus area D: Increasing data quality and straight-through processing by enhancing data and market practices

Focus area E: Exploring the potential role of new payment infrastructures and arrangements

The success of implementing this roadmap will hinge on the commitment of the public sector and private sector to work together. The collective efforts and actions are set down in the roadmap and rely on Central Banks improving their core payment systems, thus enabling the private sector to make technological advancements to payment systems that derive from the Central Bank systems. Alongside this, the private sector will be developing new payment systems and arrangements parallel to enhancements to existing services.

We have seen tangible progress in this regard. For example, Russ Waterhouse, the executive vice president of product development and strategy for The Clearing House (TCH) in the USA, recently noted that -

"As much as we see use cases developing from real-time pay in the US and Europe in their own countries, you'll see the same kind of innovation in cross-border payments."

The comment was made at the launch of a collaboration between the Paris-based EBA Clearing, which supports a pan-European payment structure, and TCH. Both organisations have been recruiting banks to participate in real-time payment schemes — the RTP rail in the US and the RT1 system in the Single Euro Payments Area, which includes 34 countries in the European Union and surrounding nations such as the UK.

The push to make end-to-end money movement more instant, secure and transparent across borders has the payment industry continuously looking to improve the user experience. One example is embedding digital innovation into traditional clearing rails to enhance existing technology; creating new solutions like real-time payments and wallets is another. These developments are driving current digital trends and will continue to set the agenda into the future—all of which will produce new technology and payment methods and the emergence of a variety of non-bank payment providers. Our recent blog Central Bank Digital Currencies (CBDC) – The R, The M and The W of The Issue looks at how CBDCs could shake up the settlement landscape. One thing is for sure: we are likely to see, thanks to distributed ledger technology, cross-border payments becoming settled faster, cheaper, and more securely in the future.

With the continued growth of cross-border payments, banks of all sizes have to listen to the demands of their customers. As a result, banks require solutions that make payments more instant, secure and transparent in a user-friendly manner. This development is leading to demands for specific International Payments platforms that offer APIs. These easy plug-and-play solutions have real-time visibility into FX rates. As a result, they can more effectively manage currency exposure, mitigate risk across global accounts and provide real-time FX rates earlier in the process. In addition, the International Payments platform needs to offer much of what a traditional single bank platform does, such as order book functionality and functionality to manage cash flows across currencies through a centralised account structure.

As we approach the end of the first half of the year, the forecast is looking good for the public sector with projects such as the collaboration mentioned above alongside many other projects, ranging from the initiative from India & Singapore supplemented by organisations such as SWIFT, Mastercard and Visa, all playing an essential role in developing cross-border real-time payments interoperability globally. However, going down the long list of banks, we see that many need to re-assess the needs of their customers and develop better solutions, especially given the fierce competition beginning to emerge as mature solutions from the innovative Fintech sector.

As the public sector, in the form of central banks and monetary authorities look set to make hay while the fintech sun shines, our wider banking sector should pay attention and heed the clear messages being sent out by their respective regulators and central banks - “Adapt and innovate or face an uncertain future!”. We’ll be sure to raise this in our upcoming interview with a payments expert in our Treasury IQ Talks series.

 

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