The world is watching: hitting G20 targets for cross-border payments
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The world is watching: hitting G20 targets for cross-border payments


The world is watching: hitting G20 targets for cross-border payments

Edward van Dooren

Strategic Advisor Worldline Financial Services

The world is watching: hitting G20 targets for cross-border payments

The ability to facilitate international transactions and payments is crucial in our modern, global economy. Still, many challenges remain as to the efficiency of cross-border payments, despite the importance they have in overall global growth, economic development and financial inclusion.

During the Sibos 2022 session: 'The world is watching: hitting G20 targets for cross-border payments', guest speakers Victoria Cleland, Executive Director Payments with the Bank of England, Chris Jameson, Co-Head of Product Management with the Bank of America and Ritu Jutla, Transaction Banking Sales with Goldman Sachs, discussed how defined targets can be achieved, what tasks still need to be done and what it requires from everyone involved.

G20 top priority

For the G20 - the intergovernmental forum comprising 19 countries and the European Union - enhancing cross-border payments has been a major financial issue discussed with top priority. The reason is simple: with analysis, it was found that there was certainly room for improvement. Cheaper, more transparent, more inclusive, and faster international transactions – including remittances – would have huge benefits for economies and citizens on a global level. Although everyone is affected by this aspect of our global economy, small companies and individuals face specific challenges with retail cross-border payments. In developing economies and emerging markets, financial inclusion continues to present itself as adversity to many. Small payments may incur high fees as a percentage of the amount sent, which not all users can absorb as easily.

Roadmap to enhance cross-border payments

In 2020, the G20 asked the Financial Stability Board (FSB) to coordinate a three-stage process to develop a roadmap to enhance cross-border payments alongside relevant stakeholders. This process was briefly outlined by session speaker Victoria Cleland, who also discussed the ‘holistic nature’ of the approach to outlining each challenge and associated targets from a broader perspective. The main challenges of cross-border payments lie mostly in high costs, low speed, limited access and an overall lack of transparency across wholesale, retail and remittance market segment. In October 2020, the roadmap was published as a comprehensive plan for addressing the identified challenges, including practical steps and indicative timeframes.

G20 cross-border targets

The process to enhance cross-border payments continued into 2021. In October of that year, the FSB released its progress report on the first year of the G20 roadmap, along with specific quantitative global targets for addressing the challenges of cross-border payments. In the below table, the four challenges are outlined, along with the targets associated with each.

 

Challenge

Payment Sector

 

Wholesale

Retail (e.g B2B, PsB/B2P, other P2P)

Remittances

Cost

No target set.

Global average cost of payment to be no more than 1%, with no corridors with costs higher than 3% by end-2027.

Reaffirm UN SDG: Global average cost of sending $200 remittance to be no more than 3% by 2030, with no corridors with costs higher than 5%.

Speed

75% of cross-border wholesale payments to be credited within one hour of payment initiation or within one hour of the pre-agreed settlement date and time for forward-dated transactions and for the remainder of the market to be within one business day of payment initiation, by end-2027. Payments to be reconciled by end of the day on which they are credited, by end-2027.

75% of cross-border retail payments to provide availability of funds for the recipient within one hour from the time the payment is initiated and for the remainder of the market to be within one business day of payment initiation, by end-2027.

75% of cross-border remittance payments in every corridor to provide availability of funds for the recipient within one hour of payment initiation and for the remainder of the market to be within one business day, by end-2027.

Access

All financial institutions (including financial sector remittance service providers) operating in all payment corridors to have at least one option and, where appropriate, multiple options (i.e. multiple infrastructures or providers available) for sending and receiving cross-border wholesale payments by end-2027.

All end-users (individuals, businesses (including MSMEs) or banks) to have at least one option (i.e. at least one infrastructure or provider available) for sending or receiving cross-border electronic payments by end-2027.

More than 90% of individuals (including those without bank accounts) who wish to send or receive a remittance payment to have access to a means of cross-border electronic remittance payment by end-2027.

Transparency

All payment service providers to provide at a minimum the following list of information concerning cross-border payments to payers and payees by end-2027: total transaction cost (showing all relevant charges, including sending and receiving fees including those of any intermediaries, FX rate and currency conversion charges; the expected time to deliver funds; tracking of payment status; and terms of service).

 

So, where are we today?

The FSB will publish in November 2022 an update on its planned framework for monitoring progress toward the G20 targets for cross-border payments. The targets have been set to motivate progress along the roadmap. In terms of concrete progress, Victoria suggested that results can be difficult to quantify, stating that:

"The targets themselves come into effect in 2027, but clearly we need to be working now in order to meet them, so right now, I can’t provide any quantitative feel for how far along the track we are.”

However, in terms of the overall roadmap, Victoria noted that progress toward future goals has been evident, with positivity on the horizon.

“The Bank of International Settlement published a new progress report today, with several actions completed. These actions alone are not enough, although we see real tangible success. Next steps will be moving to ISO20022, increased access to systems and industry cooperation. ISO20022 is crucial to progress, as is interoperability.”

In an audience poll, transparency was voted as the audience’s most critical point to address, further highlighting this aspect. Additionally, Chris Jameson suggested several additional areas where attention is needed.

"Equally important, I think, is the stability, safety and security, and resiliency of the financial systems and payments infrastructure we all leverage today. Compliance and sanctions screening are essential to achieving that. Still, they're also very, very fractious and cause a lot of pain points for commercial banks and the underlying users of the payment."

Throughout the Sibos discussion, the importance of strong coordination, commitment and accountability was reinforced by all three speakers. In their parting words, all three indicated that these will be critical to success.

“Building collaboration should be the key focus for us all, which needs global economic interoperability," suggested Chris. "So, we have to have interoperability between the various systems, the tools, the schemes, the banks and commercial banks. Without that, we will not get there."

This view was supplemented by Ritu Jutla, who suggested that: "We've talked about other means to address the challenges, but until we break that (collaboration) barrier, I think it will be, you know, a significant challenge to move as far forward as we need to without that global view. And that harmonisation effort."

This final note on harmonisation was echoed once again by a second audience poll. In it, the audience responded that the biggest barrier to improving cross-border payments was harmonisation of regulatory and supervisory frameworks. This must come through taking shared responsibility and the momentum that comes from international cooperation and interoperability.

From our side, Worldline is highly committed to contribute to the G20 targets by migrating Clearing & Settlement Mechanisms (CSMs) from batch to instant, by providing SWIFT gpi services to banks and corporates, and actively contributing to existing and future cross-border industry initiatives like International Payments Frameworks.