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Cross-border payment linkages are as beneficial to the private sector as they are to regulators and government, according to panelists at Sibos 2021. This comes after EBA Clearing, The Clearing House and SWIFT announced their new cross-border payments initiative.
Cross-border payments have become an increasingly important issue for regulators worldwide.
In South-East Asia, payments linkages between Thailand and Indonesia and Malaysia and Singapore have recently been announced and the European Commission’s Retail Payments Strategy released in 2020 included an objective for the EU to improve cross-border payments with third-country jurisdictions.
Improving the efficiency of cross-border payments also became a key objective of the Saudi Arabian presidency of the G20 in 2020.
The international body has tasked the Financial Stability Board, together with the Committee for Markets and Payments Infrastructure and other standard-setting institutions, with providing a roadmap to improve cross-border challenges such as slow timings and high costs.
Despite these various plans, innovation in cross-border payments is ultimately a commercial issue, said Russ Waterhouse, vice president at The Clearing House, speaking at the Sibos event, ‘Payments systems interlinkages for cross-border payments: What’s the end game?’.
“Banks need to be more innovative, we in the market infrastructure recognise that,” he noted.
A new initiative
On Monday, The Clearing House, together with EBA Clearing and Swift announced a new initiative called Immediate Cross-Border Payments (IXB). Acknowledging regulatory expectations, Petra Plompen, a senior manager at EBA Clearing, speaking at a separate event for Sibos TV, described the benefits of the new system.
“A new thing we want to bring with linking the payment systems is to be able to synchronise settlement of payments in overseeing payment systems. This will ensure that the payment is settled in a single moment and not in a series of steps, where a payment might succeed in one system but fail in another.”
The synchronicity adds certainty to the payment and helps reduce speed. Plompen also highlighted increased transparency and reduction in the number of exception handling, helping to “improve scaling in the immediate cross-border space”.
There is always a commercial angle to solving the problems that the cross-border payments market faces, said Marc Bayle De Jesse, chief executive of CLS, the US financial institution, speaking alongside Waterhouse.
“In retail payments, there are a lot of commercial challenges,” he pointed out, noting these transcend the current actors, such as card payments and instant payments.
There is a demand from the market to be able to use instant payments beyond the domestic market for retail purposes, while there are also challenges in the wholesale market, such as liquidity.
“There are different challenges for different purposes,” he said. “However, in the world in which we are, there is a need for agility so people can settle safely and efficiently on a cross-border basis.”
There is clearly a commercial need for this, agreed Waterhouse. “Real-time systems have come into play and they’re really changing the dynamic in terms of how payments are made and the needs of the customer,” he said, adding that pay on demand has increasingly become a trend in his native U.S.
“Uber and Lyft, where people opt to get paid upon completing a shift, have now started to take hold in more traditional businesses such as fast food, Walmart and other sectors,” he noted.
As customers see this take hold domestically, it is unsurprising that they want to change how cross-border commerce happens, he said.
“This is a massive market and one where fintech has started to take aim”, pointing to the phenomenal success these disruptors have had with lower value cross-border payments. Traditional institutions are now looking at this issue as well with the goal to find a better solution.
Discussing the success and positive participation for the IXB proof of concept, Waterhouse explained that the initiative has had 11 banks contribute to the design, with seven banks — Bank of America, BBVA Group, Citi, HSBC, Intesa Sanpaolo Bank, J.P. Morgan and PNC Bank — participating in the proof of concept, successfully exchanging payment and confirmation of receipt messages.
“Our want for this was to do it in a way that is highly repeatable,” noted Waterhouse.
When the US is considered, Canada is also very important, as are Australia and the UK, he said. “Our goal would be now to finish the job, with RT1 and RTP and then move it to other corridors to provide value,” he said.
“The model and approach we see are replicable across different currency corridors using other instant payment systems in other currency areas and the opportunity to use high-value payment systems with liquidity efficiency for certain payments”, said Plompen.
For EBA Clearing, IXB demonstrates how the current ecosystem of cross-border payments may be enhanced and made suitable for new high-volume 24/7 business, said Plompen’s colleague, Erwin Kulk, head of service development and management, in a press statement issued earlier this week. “In combination with an international request to pay, its potential applications would be limitless.”
“Linking market infrastructures and financial institutions is a fundamental pillar of our strategy to enable instant and frictionless transactions around the world, and one of the key building blocks in the CPMI’s global roadmap on enhancing cross-border payments,” said David Watson, chief strategy officer at SWIFT, continuing that as a neutral party with worldwide reach, working with players from across the financial ecosystem, it is uniquely placed to support this partnership with EBA Clearing and The Clearing House, as well as other initiatives.
