The road to full-scale interoperability between global payment systems has become a rapidly evolving — but increasingly fragmented — highway paved with innovations and emerging technologies. Everyone from multinational lending institutions and correspondent banks to fintech startups, small businesses and consumers have bought in to the concept of our collective cashless future and staked a claim in the movement.
But the dream can only become a reality when these systems connect seamlessly for the end users, and that’s where overarching guidance, standards and oversight become critical.
Enter Project Nexus, an initiative from the Bank for International Settlements (BIS). The project is now in its third phase to bring access, speed and affordability to the cross-border payments industry. To date, there are a few moving parts, including the central banks and instant payments systems (IPS) of India, Malaysia, the Philippines, Singapore and Thailand.
On the Converge podcast, we sat down with Rahul Bhargava, consultant for the World Bank, for an update about the evolving landscape of cross-border payments, international trade and the status of Project Nexus.
G20 roadmap for cross-border payments
The Group of Twenty (G20), an informal gathering of many of the world’s largest economies, has prioritized enhancing cross-border payments. The goal is to make these payments faster, cheaper, more inclusive and more transparent by the end of 2027.
Since 2020, when the G20 leaders endorsed the Roadmap for Enhancing Cross-Border Payments, much has been done to build the foundations. Now, the program is moving to prioritize cross-border payments interoperability, infrastructure, data exchange, and legal and regulatory processes.
First steps toward interoperability
Over the next two years, the G20’s roadmap for faster payments faces key milestones, but Bhargava is encouraged by the rate that key players are taking up best practices outlined in the Project Nexus.
“There’s already strong momentum and interest in Nexus, and I don’t see that dying down as things progress,” Bhargava says. “So it’ll be interesting to see how holistically Nexus is integrated into existing payment ecosystems and how other countries adopt Nexus as part of their business, either directly or indirectly.”
Some countries in the Association of Southeast Asian Nations (ASEAN) and India are already establishing a working framework of governance for cross-border payments. Proofs of concept have also been demonstrated in North America and Europe.
The plan is to integrate instant payment systems all over the world, allowing them to handle various currencies while adhering to regional and local standards of compliance. This integration will also need to ensure regulatory compliance to maintain the integrity and security of the payment ecosystems.
Bhargava believes we’re progressing on that path toward interoperability despite the industry’s fragmentation.
“The real fragmentation is something which is definitely another factor for Nexus, the G20 and the BIS to consider,” Bhargava says. “And I believe that the way they have structured Nexus is really the fundamental best practices for the movement of money, which will support the extension tomorrow, if needed, to other forms of money.”
Access for financial institutions and consumers
One of the stated goals of the G20 is for global payment systems to become open to all economic players, not just the multinational financial giants. This can be achieved in part through keeping local platforms intact and having a global system connect with them, rather than making the locals adapt or risk being shut out.
Financial inclusion is a key goal of the G20 and Project Nexus. The idea is that accessible, secure and convenient cross-border payments will drive financial inclusion and spur economic integration between countries. But financial inclusion is not a one-size-fits-all solution.
“It is a global solution,” Bhargava explains. “It clearly states the ambition to scale and be inclusive to integrate across instant payments systems and also across use cases. In terms of some of the design principles, they’re looking at various types of participants’ open access to the maximum possible extent.”
Transparency of cross-border payments
“On transparency, we want to ensure that basic fundamentals of cost, data privacy and other details are provided upfront and as part of the information made available to the customer for making a decision,” Bhargava says.
Getting there may not be easy, he adds. Even though models that work by interlinking with local instant payments systems have the potential to scale, local operators need to be flexible and provide additional standards of transparency to make their platforms compliant with the global network.
“It kind of adds on to the existing scope of work. And as the members accept that … they need to obviously adhere to certain rules, certain requirements,” Bhargava says. “Project Nexus lays down, for example, the fact that cross-border payments could be considered time critical and non-time critical. Now, this is very important from a compliance perspective, because one of the classic problems of taking domestic payments into cross[-border] instant is the fact that cross-border payments need to be screened in real time differently.”
Lowering the cost of cross-border payment systems
To truly scale instant payments worldwide and optimize their potential, their services will have to be affordable for much of the world. The reverse is also true: To bring the costs down, the systems need to be scaled to a certain size with the right economic incentives.
“The idea [is] to overall lower the cost, but yet keep it commercially viable,” Bhargava says. “More clarity on the economic incentive is key to getting industry participation and the right kind of stakeholders on day one — and then going beyond that to scale with the right business cases.”
Building cross-border payments with digital technology
G20 and Project Nexus have other strategies for bringing down the cost of cross-border payments, involving the implementation of technology, adoption of global standards and the re-usability of existing investments, Bhargava adds.
“When we look at the technology architecture, I think the guiding ambition there is to look at cost effectiveness, scalability, resilience and flexibility,” Bhargava says. “It has to, by definition, minimize the cost of the community and cost of the infrastructure; otherwise, the friction is too massive to actually implement and get adopted. And this underlying principle, I’m happy to say, has pretty much been a foundation of Nexus from day one.”
Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.
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