The Bankers Association for Finance and Trade (Baft) has released a new whitepaper that provides recommendations and key considerations for the development of high-speed cross-border payments around the world.
Produced by Baft’s cross-border faster payments working group, which is made up of 24 members based in North America, Europe, the Middle East and North Africa and the Asia Pacific region, the paper, titled Enabling Faster Payments Across Borders, is the first step of Baft’s larger strategy to facilitate global faster payments by encouraging the designers of national and regional payments systems to include the capability at the outset.
“Baseline standards and processes must be established to address the open issues that make real progress on cross-border faster payments difficult to attain,” says Samantha Pelosi, senior vice-president for payments and innovation at Baft and co-chair of the working group. “These issues fall into three broad categories of interoperability, business processes and compliance, and are similar to the frictions that the Financial Stability Board (FSB) and Committee on Payments and Market Infrastructures (CPMI) have identified as inherent to all cross-border payments.”
Speeding up cross-border payments has long been an area of focus for the financial services industry. While Swift’s global payments innovation (gpi) service, launched in 2017, has increased the speed, transparency and tracking of cross-border payments through the Swift network, delays still come about when the final leg of the transaction needs to be cleared on the recipient country’s domestic payments system.
“To benefit international trade and economic growth, we need to enhance global connectivity by making payment systems in different geographies interoperable,” says Vinayak Prabhu, vice-president of global transaction banking at Mashreq Bank and co-chair of the working group. “The paper provides recommendations along with potential models for building a seamless, transparent, and faster cross-border payments ecosystem.”
Speaking to GTR, Pelosi outlines Baft’s work in this area, and explains why the association is currently encouraging entities that are currently building or upgrading their domestic faster payments systems to incorporate the functionality and operating rules necessary for processing cross-border payments.
GTR: What is driving Baft’s work on cross-border faster payments, and why now?
Pelosi: Over the last couple of years, we have been interfacing on behalf of our members with the developers of national and regional faster payments systems, such as the Federal Reserve System in the US and Buna in the Middle East, in standing up new platforms. In fact, many countries have work underway to modernise their entire national payments system and the core of these efforts is often faster payments. Baft’s objective is to ensure that the basic requirements for processing cross-border transactions are incorporated in the design of national and regional faster payment systems in order to create a global faster payments ecosystem.
GTR: Is this work a precursor to a set of standards or rulebook for faster payments systems around the world?
Pelosi: We are currently looking at the functionality and rulebooks of different existing domestic and regional cross-border systems, such as the EU’s Sepa Instant, the Nordic countries’ P27, and the Arab Monetary Fund’s Buna system. We are comparing these features and considering the best in class, so that we can hold them up as an example of best practice. Our next step will be to go out to operators and infrastructure providers, and encourage them to build this functionality in at the outset instead of having to retrofit it in the backend. So, we’re not necessarily looking to put together specific standards, but rather identifying the key underlying considerations and requirements.
GTR: According to the whitepaper, over 50% of payments are already completed with 30 minutes through Swift and correspondent banking. What gains therefore are there to be made by further speeding up the cross-border payments system?
Pelosi: By analysing its gpi payments, Swift has observed that a lot of cross-border correspondent banking transactions take place within 30 minutes. When speaking of cross-border faster payments, we are not seeking instant delivery – a couple of hours to reach the beneficiary might suffice. However, there are still significant barriers to faster payments, and we are certainly a long way from having 100% straight-through processing. There is still a lot of ground that can be covered, and I think that if some of these issues identified in the paper are tackled, the industry can attain a more efficient, more cost-effective global payments system.
GTR: A large section of the whitepaper is given over to looking at the state of readiness for cross-border faster payments around the world. What’s your assessment? Do bottlenecks still remain?
Pelosi: I do think that we will collectively need to take baby steps in achieving a cross-border faster payments ecosystem. Certain institutions are more ready than others to move cross-border. The UK rolled out its domestic faster payments system almost 15 years ago. Because of Brexit, all payments traveling outside the country are now considered international and UK banks may be looking for a faster method of delivery. Meanwhile, in the US, The Clearing House’s real-time payments network has been active for five years and the Federal Reserve System’s FedNow platform will launch in 2023. Therefore, US banks are likely focused on their capability to deliver domestic, rather than cross-border, payments. Readiness really differs from country to country and from region to region.
GTR: This work has come out of Baft’s Global Payments Industry Council (GPIC), which was launched last year as part of Baft’s new payments strategy. What other issues is the GPIC working on?
Pelosi: The GPIC has three different work streams underway. Cross-border faster payments is one of them and we intend to engage in some advocacy later on. Another workstream is around ISO20022, which is about standardising the use of the standard globally, with a particular focus on payment purpose codes. Another area we are looking into is making sure there is a level playing field for our bank and non-bank members in payments with respect to anti-money laundering (AML) requirements. Our aim is to tackle all of this low-hanging fruit along the most voluminous corridors for cross-border payment flows.