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India has become the first non-ASEAN country to join the latest phase of Project Nexus, a multilateral effort to deliver instant cross-border payments by interlinking domestic payment systems.
On Monday (July 1), the Reserve Bank of India (RBI) announced that it has signed an agreement with the Bank for International Settlements (BIS) and the central banks of Thailand, Malaysia, Singapore and the Philippines to join Project Nexus.
The RBI noted that it has already collaborated on a bilateral basis with several countries to establish instant payment linkages for person-to-person (P2P) and person-to-merchant (P2M) payments.
In February 2023, as covered by Vixio, the RBI announced the first of such linkages with Singapore.
Under the partnership, users of India’s Unified Payments Interface (UPI) and Singapore’s PayNow can make P2P payments to one another using their respective mobile apps.
India has since launched similar linkages with Sri Lanka, Nepal and Mauritius. However, unlike the Singapore tie-up, these linkages can also be used for P2M payments, providing an effective solution for foreign tourists and cross-border e-commerce.
The RBI said Indian consumers and businesses will continue to benefit from these bilateral linkages, but by pursuing multilateral connectivity, India’s payment systems can accelerate their international reach.
If Project Nexus goes to plan, the RBI said, the multilateral platform will launch by 2026.
'Near-zero cost' cross-border payments in less than 60 seconds
Led by the BIS Innovation Hub in Singapore, Project Nexus was launched in 2021. Its first two phases succeeded in producing a technical proof of concept for the linking of the instant payment systems of the Eurosystem, Malaysia and Singapore.
In the third phase, beginning in 2023, the central banks of Thailand, Malaysia, Singapore, Indonesia and the Philippines (the ASEAN-5) took the concept further.
Their work led to the development of a comprehensive scheme and governance framework for Nexus, alongside a technology blueprint and a commercial model.
Phase four will see the ASEAN-5 plus India attempt to deploy a live implementation of Project Nexus. In this phase, Indonesia will serve as a special observer to the project, but will not participate directly.
By linking users’ bank accounts with an applicable ID, such as a phone number, Nexus aims to enable cross-border payments that reach their destination in 60 seconds or less.
In more than 70 countries that have an instant payments system, this speed is already achieved for domestic payments, the BIS said. However, delivering the same metrics for cross-border payments will be a new challenge.
Source: BIS Innovation Hub - Enabling instant cross-border payments
Connecting 1.7bn payment system users
The BIS said that Nexus is the first of its Innovation Hub projects in the payments area to move towards live implementation.
Agustin Carstens, general manager of the BIS, said that when Project Nexus is complete, it will set a new standard for speed and efficiency in cross-border payments.
“Even with just the first wave of connected countries, Nexus has the potential to connect a market of 1.7bn people globally, allowing them to make instant payments to each other easily and cheaply,” he said.
Project Nexus will also help participants to meet their commitments under the G20 Roadmap for Enhancing Cross-border Payments.
By the end of 2027, as per the roadmap, the average global cost of sending a cross-border retail payment should be no more than 1 percent, and in no corridor should it be above 3 percent.
By 2023, the average cost of a remittance (a cross-border P2P payment) should be no more than 3 percent globally.
In Q2 2023, a study by the World Bank found that the average cost of a remittance is 6.2 percent, an indication that there is still much work to be done.
On speed, the roadmap aims for 75 percent of all cross-border payments to be settled in one hour, and the remainder to be settled in one business day.
Source: Lammer, T, T Rice (2022): The G20 cross-border payments programme: A global effort.
In its latest progress report, the Financial Stability Board (FSB), which oversees the implementation of the roadmap, said that lower-income regions tend to be among the furthest from the cost and speed targets.
“There are encouraging signs of progress, and the data provide some clear indications of where investment and action by the public and the private sector could make the most significant contribution to achieving the targets,” said the FSB.
“But there is a considerable distance to go and more needs to be done across all of the key areas for action.”
