A member of the European Central Bank’s executive board voiced frustrations over the persistently high costs of cross-border payments, despite declines in IT and telecommunications expenses.
Speaking at the Regional Governors’ Meeting, Piero Cipollone highlighted the issue with a specific example: a small business owner in Croatia sending a €5,000 transfer to a supplier in a Western Balkans country outside of the EU’s Single Euro Payments Area (SEPA) could face costs up to 12 times higher than when sending to a supplier within SEPA.
Since its launch in 2018, SEPA’s reach and capabilities have expanded greatly, with Montenegro, Albania, and North Macedonia set to join this year. Still, Cipollone noted that fragmentation within the EU remains a barrier to growth.
Interlinking Instant Payments
Because cross-border payments are a challenge on a much wider scale, a better system can be built by linking the existing real-time payment systems across countries.
This approach would reduce costs, increase speed and transparency, and prevent payment service providers from having to engage with multiple payment systems or a chain of correspondent banks.
Targeting Cross-Border Payments
At the heart of Cipollone’s proposal is the EU’s TARGET Instant Payment Settlement (TIPS) service, a multi-currency instant payments platform that already operates within SEPA.
Cipollone proposed implementing a currency exchange service within TIPS so real-time payments can originate in one TIPS currency and settle in another. Initially, this service would operate within the euro area, Sweden, and Denmark.
The system could then be expanded to include other networks globally. One such framework could be Project Nexus, which was established by a central bank consortium, the Bank for International Settlements (BIS). Set to take effect next year, the project is designed to connect payments systems in South and Southeast Asia, such as India, Malaysia, Thailand, Singapore, and the Philippines.
The next step in the proposed plan would be to establish a direct link between TIPS and India’s UPI, which has quickly become one of the leading instant payments systems in the world.
After these steps, the ECB can then work to further achieve its goal, which—according to Cipollone—is to “develop safer, more accessible alternatives that make global payments cheaper, faster, and more transparent, without compromising on integrity, stability and sovereignty.”
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