The world’s largest economies launched a strategic plan to enhance cross-border payments four years ago, but progress so far suggests that these objectives might remain unfulfilled.
A recent report by the Financial Stability Board (FSB) revealed that while significant milestones have been achieved, existing measures have yet to yield tangible results in real-world scenarios. Over the past two years, key performance indicators related to cross-border payments have shown only slight improvements.
Unmet Goals and Challenges
The FSB indicated that G20 nations are likely to fail in their mission to improve cross-border payment efficiency by 2027. Coordination among multiple countries’ policies and the modernization of payment systems present major hurdles.
In terms of progress, speed improvements have been observed for both wholesale and retail payments, enabling faster delivery of financial support from overseas family members. However, these advancements fall short of the initial targets set by G20 leaders, which required 75% of such transactions to be credited within an hour.
CostsPersist as a Major Issue
The cost of cross-border payments remains excessively high, a problem that persists despite efforts. One original goal was to reduce the global average for retail payments below 1%. Unfortunately, transaction costs have not only failed to drop but are increasing in some regions.
For instance, peer-to-peer payments in sub-Saharan Africa now cost around 4% per transaction, up from 3.2% in recent years, highlighting the ongoing challenge.
Navigating Complexities
To tackle these issues, the FSB advocates for significant overhauls of existing payment infrastructures. Central to this are the challenges of selecting the correct payment route and ensuring successful delivery at the final stage of the transaction.
The variations in regional regulations—such as currency differences, differing regulatory frameworks, anti-money laundering laws, and Know Your Customer requirements—add complexity to cross-border payments.
Call for Standardization
A standardized protocol for cross-border payments is necessary to reduce complications from varying regional regulations while mitigating fraud risk. Efforts like Swift’s blockchain-based platform have made strides in this direction but fall short of addressing all needs.
The correspondent banking model, with its multiple intermediaries and complex processes, continues to be a major bottleneck. This system often results in delays, high costs, and a lack of visibility in cross-border transactions.
Exploring Alternatives
New technologies, such as stablecoins, offer potential solutions through secure blockchain networks for instant transfers. Meanwhile, Visa Direct and Mastercard Move leverage their global networks to provide more efficient alternatives to the correspondent banking system.
Fintech companies like PayPal and Circle have also created cross-border payment networks that link global players directly, enhancing liquidity and foreign exchange capabilities.
Despite these advancements, a unified solution remains elusive. The FSB notes that G20 nations are unlikely to meet their 2027 targets, prompting the need for an extension or a new strategic approach from global leaders.
