This posting is in The Banker and discusses the topic of cross-border payments, which is an area of global financial transactions that has become a hot point of both scrutiny and innovation during the past five years. We have covered this through member research and numerous tracking posts on these pages as well. In this piece, the author focuses on recent releases from BIS’ Committee on Payments and Market Infrastructures (CPMI) on the cross-border topic. Many readers will know that there is an innovation hub at BIS that is in process of testing improved cross-border capabilities as well.
On May 12, the CPMI released two reports that suggest that the answer to the long-standing challenges inherent in cross-border transactions identified by the G20, including high costs, low speed, limited access and opaqueness, is two-pronged: extend the operating hours of real-time gross settlement (RTGS) systems; and expand access to RTGS systems to non-bank payment service providers (PSPs), foreign banks and financial market infrastructures (FMIs)…
According to the report, ‘Extending and aligning payment system operating hours for cross-border payments’, the benefits to extending RTGS operating hours across jurisdictions include faster payments and settlement, improving liquidity management and reducing settlement risk…
Providing greater access, on the other hand, could foster competition and innovation by levelling the playing field and reducing barriers to entry; improve efficiency through shorter transaction chains; and promote financial inclusion and improved remittance services through lower costs, increased innovation and improved processing speed, according to the other report, ‘Improving access to payment systems for cross-border payments: best practices for self-assessments’.
Indeed, many readers may already know that extended operating hours have occurred at Fedwire and CHIPS, with further movement towards operating extensions aligned with the migration to ISO 20022, now expected to start in late 2023. The other ‘prong’ of granting greater access to non-bank members is also on the table. Obviously this opens up further risk related concerns, but momentum is building for sure. Worth a quick read on the pros and cons.
‘Expanding access to new participants, such as non-bank PSPs, FMIs and foreign banks, also throws up risks and barriers, including changes to legal and regulatory frameworks, as well as increased reputational, operational and financial stability risks for payment system operators and central banks…
And despite the apparent simplicity of the two solutions, the majority of the 82 jurisdictions surveyed by the CPMI are far from making them a reality. For example, 40 jurisdictions are open less than the average 11 operating hours on working days, with 21 featuring eight operating hours or fewer per day. Only four jurisdictions – India, Mexico, South Africa and Switzerland – have operating hours of 24 hours or nearly 24 hours per day on working days, only eight having any weekend hours and only five operating seven days per week.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group