Leaders from the world’s largest economies developed a roadmap to improve cross-border payments four years ago, but those objectives now appear unlikely to be achieved.
A progress report from the Financial Stability Board (FSB) found that, although many milestones have been reached, the measures taken so far have yet to translate into real-world results. In fact, key performance indicators for cross-border payments have improved only marginally over the past two years.
The FSB noted that Group of 20 (G20) nations are likely to miss their target of making cross-border payments more efficient and transparent by 2027, citing the complexity of coordinating among numerous countries and the challenges involved in modernizing payment infrastructures.
A Longstanding Issue
The improvements achieved so far have been mostly related to speed. The FSB noted progress in the overall speed of wholesale payments and remittances, meaning that those who rely on financial support from family members abroad are now receiving funds more quickly. However, the initial goal set by the G20 leaders was for 75% of wholesale and retail payments to be credited within an hour of being made.
Additionally, the costs of cross-border payments—a longstanding issue—are still too high. One of the original goals set by G20 countries was to reduce the global average cost of retail payments to below 1%.
Unfortunately, not only have cross-border payment costs failed to fall below this threshold, but in some cases, they are actually rising. For example, the FSB reported that peer-to-peer payments in sub-Saharan Africa are the most expensive and the costs have increased to roughly 4% per transaction, up from 3.2% in 2023.
The Final Leg
To address these issues, the FSB called for significant overhauls to many countries’ payment infrastructures. Two of the main challenges with cross-border payments have been selecting the correct payment route at the outset and ensuring the payment reaches the recipient in the final leg of the process.
Regarding the issues in finalizing transactions, the FSB underscored the significant variations across regions. In addition to currency differences, banks often face differing regulatory frameworks, anti-money laundering laws, and Know Your Customer requirements that they must navigate.
The FSB called on regional and local leaders to take practical steps to revamp their domestic processes in alignment with international policies, noting that such reforms could not only improve the cross-border payments experience for citizens but also stimulate economic growth.
The Need for a Standard
There’s also a need for a standardized cross-border payment protocol. Such a standard could go a long way toward reducing complications arising from differing regional regulations while also helping to mitigate fraud risk.
There have been several attempts to build this network, such as the platform developed by global messaging system Swift. Swift’s infrastructure connects the financial institutions in the correspondent banking network with a standardized framework for communication.
Under the correspondent banking model, each bank establishes partnerships with foreign institutions in a complex web that can involve multiple intermediaries. This system, built on convoluted processes, often leads to the delays, high costs, and lack of visibility that have come to define cross-border payments.
Searching for a Solution
While Swift’s network has been instrumental in accelerating the current model, the emergence of new technologies has led many to call for a new paradigm. Some have pointed to digital assets—particularly stablecoins—as a potentially better solution for cross-border payments, since they can be transferred immediately over secure blockchain networks.
Several competing cross-border payment systems have also emerged in recent years. Visa and Mastercard have leveraged their global credit card networks to create networks that are effectively a more efficient version of the correspondent banking system.
Visa Direct and Mastercard Move are connected to financial institutions worldwide, and these networks have the liquidity and foreign exchange capabilities to serve as compelling alternatives for cross-border payments.
There are also networks created by fintechs like PayPal and Circle that link global payments players. For example, PayPal World connects digital payments systems like India’s UPI and China’s WeChat Pay—rather than local financial institutions—through PayPal’s network.
While it is unclear how this fragmented landscape will evolve, relief from cross-border payment inefficiencies doesn’t appear imminent. The FSB noted that, as G20 nations are unlikely to meet their 2027 targets, global leaders will soon have to decide whether to extend the deadline or develop a new strategy.
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