International payments are big business: the total value of B2B cross border transaction is set to reach USD 35 trillion by 2022, according to a 2020 study. While the pandemic continues to impact growth numbers, the restrictions on movement and travel brought in during this period mean cross border payments are increasingly vital for global business. In this article, we look at the current obstacles and the future potential for cross border payments – including the Financial Stability Board’s latest plan for the road ahead.
Driving payments forward
During a panel at Sibos 2020, Victoria Cleland, Chair of the CPMI Task Force on cross border payments, described international payments as “very important” but “slower, more expensive, less transparent and less easily accessible” than their domestic counterparts.
“There are more complications, such as much longer transaction paths and the fact that they go through different time zones with often inconsistent system opening hours and multiple compliance checks. In addition, there is the data problem, as it turns out that 60% of cross border payments require manual intervention.”
With more and more people moving around the world, the current situation needs to be improved, Victoria said, adding that while there is a lot to be solved, “the price is high.”
David Watson, Chief Strategy Officer at SWIFT, also spoke on the panel and called for ongoing improvement in the cross border payments space.
David highlighted the need for collaboration in driving the progress of international payments, and described the SWIFT gpi initiative as a “phenomenal step forward,” but “an early step in what is a continued evolution in how we evolve the industry.”
“Frictionless cross border transactions are driven by the ability of all of us to interact with each other in a very simple and very easy way,” he said. “We want to help facilitate the further development of innovation in the ecosystem by the banks and other direct members, while at the same time having backward compatibility with the way we do things today. We want to preserve the benefits we have, but also improve and exploit new opportunities. But we can’t play this role alone – we have to work together.”
A roadmap for the future
Earlier this year, the G20 announced that it would be launching initiatives to make cross border payments a priority, with the aim of making transactions faster, cheaper, more transparent and more inclusive. This, it says, will deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.
Following this move, the Financial Stability Board (FSB) published a report in October which set out its roadmap for improving cross border payments. The plan aims to tackle the key challenges currently faced, which the FSB says are: high costs, low speed, limited access and insufficient transparency.
The report provides a high-level plan, which it says sets ambitious but achievable goals and milestones, centred around five focus areas. The first four focus areas aim to enhance the existing payments ecosystem, while the fifth is described as “more exploratory” and covers emerging payment infrastructures and arrangements.
The FSB roadmap’s five focus areas are:
- Committing to a joint public and private sector vision to enhance cross border payments
- Coordinating on regulatory, supervisory and oversight frameworks
- Improving existing payment infrastructures and arrangements to support the requirements of the cross border payments market
- Increasing data quality and straight-through processing by enhancing data and market practices
- Exploring the potential role of new payment infrastructures and arrangements
Find out more about Banking Circle’s cross border payments solutions here.