• Edvards Margevics, Co-partner at CONCRYT


• 26.09.2024 11:00 am
#G20 #CrossBorderPayments

Cross-border payments are essential to the success of global trade, but their speed and efficiency are yet to be maximised. Here, Edvards Margevics, Co-partner of CONCRYT, looks at the progress of the G20’s ambitious cross-border goals, and the projects working to make them achievable.

In November 2020, G20 leaders endorsed a roadmap to revolutionise cross-border payments by 2027. The roadmap set quantitative targets 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.

Now half of the seven-year period to meet G20 requirements has now elapsed, and significant challenges remain, including 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.

That’s not to say no progress has been made; there have been major milestones, not least the launch of ISO20022, which provides the foundation for banks to communicate in the same language globally when processing cross-border payments. 

However, migration to ISO20022 is slow, partly because the investment to migrate core banking systems is huge, and partly because corporates still need some convincing of its benefits.

Furthermore, each jurisdiction and bank interpret ISO20022 slightly differently. Fortunately, other efforts are underway that could be key to hitting the G20 goals. 

Cross border projects to watch

Launched by the Bank for International Settlements (BIS) in June, Project Rialto is 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).

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. 

Preceding Rialto this year was Project Agorá; a cross-border payment project launched in April by the BIS in collaboration with the central banks of France, Japan, the UK, and private sector entities. 

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. 

Project Agorá is also 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. 

Finally, 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. 

Whatever the outcomes of these projects, compliance will always present cross-border payments challenges due to the diversity of regulations across different jurisdictions. As progress towards 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.