Connectivity makes payments faster and cheaper – panel

Central bankers from countries with large migrant populations have said connecting payment systems would enable faster and cheaper cross-border transactions.

Speaking at a panel discussion at the Central Banking Summer Meetings on June 12, one senior official said there was significant demand for quick and affordable remittance payments in their country, many of whose citizens worked overseas. The official said reliance on correspondent banks – and the “less than favorable” exchange rates they provided – was a key challenge the central bank hoped to solve.

The official said “harmonising” foreign exchange regulations across jurisdictions would be a necessary step towards seamless cross-border payments. Navigating other foreign regulations, preventing money laundering and ensuring privacy were also priorities for the central bank.

Connectivity

The official said the central bank had established international payment agreements with its regional counterparts, and noted its involvement in a major cross-border payment initiative that was expected to come online within two years. The initiative seeks to connect the instant payment systems of five countries that account for around a fifth of the world’s population.

ISO harmonisation was also a “very important” project for the central bank, as it would allow greater use of data that would improve cross-border payment services, the official said.

A central bank official from a second jurisdiction said cross-border payments were becoming more important because of their country’s “significant migrant population” and high tourist numbers. They agreed that cross-border payments should be cheaper and more efficient, and said their institution was focused on developing connectivity among different payment systems to achieve this.

The official said their central bank had worked with five countries in the region on instant cross-border QR code payments that worked with existing apps. They said usage of this payment method in their country had increased fourfold in recent years, which had motivated the central bank to provide additional, similar services.

The official said their central bank had also joined the global payment scheme mentioned by the previous panelist to boost regional economic and financial integration.

They said that although linkages between different countries’ international payment systems had become more common, their own country still mostly relied on correspondent banks. The central bank was exploring alternative ways to make cross-border payments – such as central bank digital currencies (CBDCs) – that would not involve these institutions.

The official said their central bank did not have plans to issue a CBDC because its payment systems were already “efficient enough”. However, they added that the bank had carried out research into CBDCs for domestic and international use, and would consider developing a wholesale CBDC.

Regional projects

An official at a Eurosystem central bank said improving cross-border payments was an urgent matter. They said the European Central Bank’s Target Instant Payment Settlement system was key to this, and that their own central bank had begun working with European countries that did not use the euro to bring them into the system.

This central bank was also working to link Tips with other cross-border payment services, including Nexus and India’s Unified Payments Interface, the official said. Nexus is a Bank for International Settlements-led project established in 2021 that aims to link the instant payment systems of India, Malaysia, the Philippines, Singapore and Thailand in partnership with those countries’ central banks. 

The ECB said last October that it would explore connecting Tips with Nexus, and that it would join the initiative if this yielded good results. It announced it would establish a bilateral link with UPI at the same time.

Anti-fraud measures

A central bank official responsible for payments and settlements said their country’s instant payment system was a “backbone” that enabled fast, secure and cheap fund transfers. They said the system had “huge potential”, but needed careful regulation and oversight to prevent fraud.

The official said their institution had responded to increasing online bank card fraud by requiring vendors to store customers’ information using tokenisation. The official said hackers might still access customer databases, but the tokenised information gained would be useless to them.

An official from another central bank agreed that fraud prevention measures were important, and said communication was key. He said banks needed to set the right tone when warning the public about potential scams, to avoid discouraging the use of digital financial services.