Facing Cross-Border Payment Challenges
The European Central Bank (ECB) is addressing the significant challenges in cross-border payments by planning to integrate its instant payment system with India’s Unified Payments Interface (UPI). This collaboration, which was initially proposed some time ago, has gained momentum following encouraging results from an exploratory study last month. The ECB is now proceeding with the implementation phase of this linkage between the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service and UPI.
The integration will also explore connections to Nexus Global Payments, a network that emerged from the Bank for International Settlements’ (BIS) Project Nexus, connecting payment systems across South and Southeast Asia. This move aligns with efforts to interconnect TIPS with Switzerland’s Swiss Interbank Clearing Instant Payments (SIC IP), aiming to simplify cross-border transactions.
Efforts to Overcome High Costs
The high costs of cross-border payments within the European region, despite decreasing IT and telecommunications expenses, remain a concern. A member of the ECB’s executive board highlighted that even small businesses often face payment costs up to 10 to 12 times higher when making transfers outside the Single Euro Payments Area (SEPA).
A progress report by the Financial Stability Board (FSB) revealed that G20 nations have not fully met their goals for improving cross-border payments. The FSB cited complexity in coordinating international transactions and limitations of legacy infrastructure as key challenges.
Promoting Real-Time Payment Systems
The integration aims to provide a solution by linking real-time payment systems, reducing costs and enhancing speed and transparency. Interlinking different systems could help mitigate the need for businesses to engage with multiple payment networks or correspondent banks repeatedly.
Alternatives to cross-border payments include networks established by SWIFT, Visa, and Mastercard, but stablecoins are facing resistance in Europe due to their reliance on U.S. dollars as backing. Integrating TIPS with UPI could bolster the euro’s prominence internationally, given that India is one of the top recipients of euro remittances.
