Taking the pain and cost out of cross-border payments could be as easy as extending RTGS operating hours and opening up access to a wider variety of players. However, nothing is ever simple in payments.

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While the Bank for International Settlements has been working with central banks and regulators across the world through its Innovation Hubs on developing central bank digital currencies (CBDCs) to solve cross-border payment issues, its Committee on Payments and Market Infrastructures (CPMI) has been working on real-life solutions within the existing market set-up.

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’.

However, these solutions are far from simple and easy to implement; the report also identified several risks that need to be addressed when considering the right route for each jurisdiction.

For example, extended hours could impact operational resilience and risk management by allowing more time for cyber-attacks and payment fraud. It also raises policy considerations for central banks, such as issues around monetary policy, financial stability and resolution policy for troubled institutions, as well as implications for market conventions, including value date conventions, market ‘end-of-day’ processes and capital and liquidity management/regulations.

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.

On the access side, almost all payment systems limit direct participation to domestic financial institutions with a banking licence. While demand for access to payment systems is reportedly increasing in certain jurisdictions, no widespread changes to access policies have taken place recently or are expected in the short run, according to the CPMI survey. Only 28% of payment systems reported have made adjustments to their access policies.

That said, a majority of payment systems are open to consideration of expanding access within the next five years, mainly to foster innovation and competition. However, few payment systems currently have concrete plans to do so.

But despite the state of play and the barriers and risks to change, it is clear the line of march for the global payments industry is real-time, 24/7 and increased competition. These two solutions are stepping stones on the way to tackling friction in cross-border payments and may come to fruition before the great CBDC roll out, or at least help to modernise payment systems along the way. 

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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