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VIXIO caught up with the pan-European payments clearing house, EBA Clearing, to talk the prospects and roadmap for its new Immediate Cross-Border Payments (IXB) as participants gear up for live testing.
Earlier this month, Europe’s EBA Clearing, US-based The Clearing House (TCH) and SWIFT announced that the delivery of the IXB pilot service is on track, claiming that it will revolutionise cross-border payments.
The IXB pilot service will leverage existing real-time payment systems of TCH's RTP service in the US and EBA Clearing’s pan-European RT1 service.
"This project offers opportunities for banks to have very predictable and fast, account-to-account payments on a cross-border basis,” Petra Plompen, senior manager at EBA Clearing, told VIXIO.
Rather than a series of payments all happening successively, IXB ensures synchronisation of payments and end-to-end certainty of payments being executed, she said.
“IXB offers transparency on what to expect and that forms the basis for further user solutions."
IXB will begin processing the first live transactions in the euro and US dollar currency corridor in the coming months.
Developed with the support of 25 financial institutions from both sides of the Atlantic, the IXB pilot has been progressing during the past six months.
This work resulted in the delivery of the IXB solution processing the technical messaging between the pilot institutions engaged in the testing and the respective payment systems.
End-to-end testing between RTP, the IXB app and RT1 is ongoing with user integration and testing following shortly thereafter.
"We did a technical proof of concept to show that the systems can respond to each other in a timely manner,” said Plompen. “The banks didn't involve any customers at that stage, because the aim was to ensure we can synchronise the settlement between the payment systems.”
Now, Plompen pointed out that parties are in the phase of launching live testing.
“This will be actual payments, involving real money, in a live environment. We and the participating banks see this as a necessary step. We want to get IXB up and running, as we need the live learning to further develop the service."
In cooperation with the supporting financial institutions, the three private-sector organisations designed a service that takes advantage of existing building blocks to ensure a shorter time to market and to leverage existing investments. IXB will enable synchronised settlement of RTP and RT1 payments. This will ensure certainty of execution of immediate cross-currency transactions and constitute a core value of the future IXB service.
Designing use cases
Plompen pointed out that this phase does not focus on specific use cases. “The banks’ customers involved need to make payments and this will depend a bit on whom they can reach.”
Yet, the banks are giving some thought to use cases.
“For example, they're thinking about areas such as international salaries and pension payments, business-to-business payments and generally targeting areas that currently are less well served via correspondent banking,” she said.
At Sibos, a variety of US and EU-based banks were enthusiastic about what IXB could offer.
"At Société Générale, we see IXB as a clear revenue and client retention opportunity," said Frantz Teissèdre, the French bank’s head of interbank relations.
Meanwhile, Giancarlo Esposito of Intesa Sanpaolo said that he thought it would bring cheaper, faster, more transparent transactions to customers, and J.P. Morgan’s Jeremy Wing said that "it's a natural fit for us to be involved in IXB on both sides as a provider bank”.
It is hoped that the pilot phase will move towards a commercial rollout in 2023.
The eventual live service will be aligned with the focus areas related to speed, access, cost and transparency, as outlined by the Committee on Payments and Market Infrastructures (CPMI) and the Financial Stability Board (FSB) for enhancing cross-border payments, which is otherwise known as the G20 Roadmap.
As it is based on a model that can be replicated across other currency corridors and payment systems, the IXB initiative is expected to add additional currencies from an early stage to meet customer expectations for instant cross-border payments across the globe.
The cross-border push
Cross-border payments were a central theme at Sibos, which took place in Amsterdam this month.
“IXB is one way to overcome fragmentation in cross-border payments and build a uniform customer experience for end users,” said Carl Slabicki, co-head of global payments at BNY Mellon, while speaking at one Sibos session.
Plompen agreed. "At Sibos, we heard about improving cross-border payments at many of the sessions. The interlinking of payment systems was seen as one of most promising avenues for fast delivery of improvements.”
“On one hand, the cross-border payments conversation has been started due to pressure from regulators,” she pointed out. For example, there is the G20 roadmap, which is really driving for improvement. “This sets the tone for the industry.”
At the same time, although it is a bit different depending on where you are in the world, instant payment systems are being adopted and becoming more mature, she continued. “Users are increasingly wanting the same experience and service cross-border."
Although IXB is timely in this sense, it did actually come into existence prior to the G20’s roadmap.
"Our work began pre-COVID in fact,” said Plompen. “This is an example of user needs and the regulatory view coming together."
And although market initiatives like this are now in play, regulators and some market participants at the event were keen to play up the role of central bank digital currencies as a method to improve cross-border transactions.
Plenty of projects have been promoted by central banks, as well as the Bank for International Settlements (BIS), in this space.
There is, for example, Project Jura, which explores the direct transfer of euro and Swiss franc central bank digital currencies for wholesale payments between French and Swiss commercial banks on a single distributed ledger platform operated by a third party.
There is also Project Icebreaker, which is a joint exploration of how central bank digital currencies (CBDCs) can be used for international retail and remittance payments, which is being undertaken by BIS, alongside central banks in Israel, Norway and Sweden.
"Central banks are not there yet with CBDCs and depending on which central bank project you are looking at, they want to solve a large variety of problems,” pointed out Plompen.
Taking a measured stance, Plompen suggested that CBDCs are a case of wait-and-see, including whether they will improve cross-border payments.
“We believe that we shouldn't wait for CBDCs to be ready but leverage the infrastructures we have put in place as an industry to contribute to improving cross-border payments now."
