Fuelling the import and export of goods and services, cross-border payments are essential to global trade — a fact that was recognised by G20 leaders in November 2020 when they endorsed a roadmap to revolutionise cross-border payments by 2027.
Back then, while the world was distracted by a global pandemic, it seemed there was plenty of time to achieve even the most ambitious goals — namely the quantitative targets set to lower costs, increase speed, accessibility and transparency of international payments by the end of 2027, including 75% of cross-border payments to be credited to the beneficiary within an hour.
With the COVID crisis behind us, that 2027 deadline is now worryingly close, and a range of challenges remain that continue to hinder the speed and efficiency of cross border payments. To address them, several promising projects are underway.
Current Cross Border Projects
Project Agorá is a cross-border payment project that was launched in April by the Bank for International Settlements (BIS) in collaboration with the central banks of France, Japan, the UK and private sector entities.
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This project is investigating how tokenised commercial bank deposits can be seamlessly integrated with tokenised wholesale central bank money in a public-private programmable core financial platform. This could enhance how the monetary system functions while providing new solutions using smart contracts and programmability.
This is an exciting prospect when it comes to the challenges of cross-border payments. It means significant transformations with innovative technologies like DLT (distributed ledger technology) and tokenization addressing the high fees and slow settlement afflicting cross-border payments, as well as instant, programmable transactions using smart contracts so settlement delays can be eliminated.
Project Agorá also is evidence of a shift in the broader financial and payment spaces. Where traditionally established incumbents and challengers have traditionally battled it out for market share, we’re now seeing more collaboration.
Shortly after this, Project Rialto was launched by the BIS. It’s designed to explore how instant cross-border payments could be improved using a modular foreign exchange (FX) component combined with settlement in wholesale central bank digital currencies (wCBDC).
FX is a key component of cross-border payments, but currently the FX services facilitated by correspondent banks can be expensive, slow and complex, exposing those in the payments chain to liquidity, credit and settlement risks.
Decentralised solutions, CBDC and interlinked payment infrastructures could unlock improved cross-border payments, but how they interact has not yet been explored. Project Rialto could therefore be instrumental in advancing cross-border payments globally.
Most recently, Project Nexus aims to connect several instant payment systems across Asia with a mission to achieve cross-border payments at scale. In July, the BIS announced completion of the blueprint for phase three of Project Nexus, which allows “ready participants to work towards the next stage of seamlessly connecting their instant payment systems.”
Rather than a payment system operator building custom connections for every new country it connects to, the operator can make one connection to the Nexus platform. This single connection allows a fast payments system to reach all other countries on the network. In the next phase of Nexus, the BISIH Singapore Centre will facilitate the central banks and IPS operators of India, Malaysia, the Philippines, Singapore and Thailand as they work toward live implementation of Nexus.
All three projects could unlock the full potential of cross-border payments, but stronger global trade flows can only be achieved through collaboration and coordinated action. Recognition of this is growing. Project Agora for example, represents a significant step forward in public-private partnerships, and recognises that working together is the best way to reshape the monetary system in a way that works better for everyone.
Ongoing Cross-Border Challenges
These projects, while full of promise, have their work cut out for them. Despite their best intentions, and those of the G20, cross-border payments remain riddled with challenges — a lack of interoperability between national payment systems, delays dues to different time zones and clearing house operating hours, and the impact of compliance and security checks chief among them.
But in the face of these challenges, progress has been made. Last year brought major milestones, not least when Swift went live in March 2023 with ISO20022. This provides the foundation for banks to communicate in the same language globally when processing cross-border payments. In turn, it means the chance to fulfil the G20 targets, as the standard allows banks to reduce costs, improve reconciliation and enhance financial crime detection.
However, migration to ISO20022 is perhaps not happening fast enough to beat that looming 2027 date. This is partly because the investment to migrate core banking systems is huge, and partly because corporates still need some convincing of the benefits they’ll get from such an investment.
An additional challenge here is that each jurisdiction and bank interpret ISO20022 slightly differently, making the term “standard” a little ironic.
But the ISO20022 journey is still at a relatively early stage, and there is time for these issues to be overcome. It remains to be seen if 2027 is enough time, but other efforts are underway that could be key to hitting the G20 goals.
Whatever the outcomes of these projects, compliance is still sure to present cross-border payments challenges due to the diversity of regulations across different jurisdictions. As progress toward G20 goals continues, businesses need to consider how they will balance innovation with adhering to regulatory requirements to ensure solutions are effective as well as compliant with international standards.
Edvards Margevics is the Co-partner of CONCRYT. With a deep understanding of both the technical and operational aspects needed to unlock new opportunities for online businesses, his professional experience extends across disciplines, including banking and finance for corporate clients, sales, risk management and operations.
