Last week at the virtual Sibos banking conference, one of the most trending topic for this year is cross-border payments. Banks are exploring ways to make the system of cross-border payments more profitable and easier.
what major challenges for cross-border payments?
Victoria Cleland, Executive Director for Banking, Payments and Innovation at Bank of England states “Cross-border payments are very important, but compared to domestic payments they are slower, more expensive, less transparent and less easily accessible. More and more people are moving around the world, so we need to improve the situation. I am not sure if cross-border payments will ever be as strong as domestic payments. 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 percent of cross-border payments require manual intervention. So, there is a lot to solve and the price is high. Some remittance payments can cost 20 percent of the value of that payment. Good improvements have been made, for example SWIFT gpi (the new standard in global payments), but we still see that less than half of the payments are settled in 24 hours. If we improve transparency, speed and cost, it will make a big difference for citizens worldwide, it will help economic growth and ultimately global development.”
What impact does COVID-19 have on cross-border payments?
Cleland: “Cross-border payments represent an enormous value. In 2017 it was 150 trillion dollars and is expected to increase by 100 trillion dollars in the next 10 years. During the pandemic, I saw in the UK, where I look at the payment systems, a reduction in the number of cross-border and domestic payments, but the number of cross-border payments is picking up faster than the number of domestic payments. Outside the UK, you see global remittance rates falling by 20 percent. But the fact that the number of cross-border payments is decreasing in difficult times does not mean that we do not have to solve the problems. When we recover from the pandemic, it is important that the payment systems are there for us to support and remove friction. It should in no way be seen as a hindrance.”
What progress do you think financial institution will make from now until 2025?
Diane Reyes, Global Head of Liquidity and Cash Management at HSBC and David Watson, Chief Strategy Officer at SWIFT says “I think we can make significant progress in the next 5 years, but I think it's wise to take a pragmatic and collaborative approach. If we know that 80 per cent of cross-border payments come from 3 currencies – the dollar, the euro and the pound – and we can align our standards in these three jurisdictions while solving most of the pain points for cross-border payments, we will make a huge step forward.”
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