By Edvards Margevics
CONCRYT
Fueling the import and export of goods and services, cross-border payments are the lifeblood of global trade. Yet a range of challenges continue to hinder their speed and efficiency. This article delves into how close we really are to the G20's ambitious cross-border goals, and the projects that could make them achievable.
It seems a lifetime ago that G20 leaders endorsed a road map to revolutionize cross-border payments by 2027. Back in November 2020, and in the midst of a global pandemic, that date was a mere dot on the horizon—plenty of time to achieve even the most ambitious goals.
And ambitious they were. The road map set quantitative targets to lower costs and increase speed, accessibility and transparency of international payments by the end of 2027, including 75 percent of cross-border payments to be credited to the beneficiary within an hour.
Now the deadline for these goals isn't a dot on the horizon, but a looming presence. Half of the seven-year period to meet G20 requirements has now elapsed, and significant challenges that must be overcome still exist.
Despite the best intentions of the G20, cross-border payments remain riddled with challenges. Chief among them are lack of interoperability between national payment systems, delays due to different time zones and clearing house operating hours, and the impact of compliance and security checks.
But in the face of these challenges, progress has been made. Last year brought major milestones, not the least being when Swift went live in March 2023 with ISO20022, for example.
This provides the foundation for banks to communicate in the same language globally when processing cross-border payments. In turn, it means the chance to fulfill the G20 targets, as the standard allows banks to reduce costs, improve reconciliation and enhance financial crime detection.
However, migration to ISO20022 is perhaps not happening fast enough to beat that looming 2027 date. This is partly because the investment to migrate core banking systems is huge, and partly because corporations still need some convincing of the benefits they'll get from such an investment.
An additional challenge here is that each jurisdiction and bank interprets ISO20022 slightly differently, making the term "standard" a little ironic.
But the ISO20022 journey is still at a relatively early stage, and there is time for these issues to be overcome. It remains to be seen whether there is enough time to meet the 2027 deadline, but other efforts are underway that could be key to hitting the G20 goals.
G20 leaders aren't the only one's intent on improving cross-border payments; some promising BIS projects are underway with the same aim.
Launched by the Bank for International Settlements (BIS) in June, Project Rialto (see www.bis.org/about/bisih/topics/cbdc/rialto.htm) is designed to explore how instant cross-border payments could be improved using a modular foreign exchange (FX) component combined with settlement in wholesale central bank digital currencies (CBDC).
FX is a key component of cross-border payments, but currently the FX services facilitated by correspondent banks can be expensive, slow and complex, exposing those in the payments chain to liquidity, credit and settlement risks.
Decentralized solutions, CBDC and interlinked payment infrastructures could unlock improved cross-border payments, but how they interact has not yet been explored. Project Rialto could therefore be instrumental in advancing cross-border payments globally.
Preceding Rialto this year was Project Agorá (see www.bis.org/about/bisih/topics/fmis/agora.htm); a cross-border payment project launched in April by the BIS in collaboration with the central banks of France, Japan, the UK and private sector entities.
This project is investigating how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money in a public-private programmable core financial platform. This could enhance how the monetary system functions, while providing new solutions using smart contracts and programmability.
This is an exciting prospect when it comes to the challenges of cross-border payments. It means significant transformations with innovative technologies like DLT and tokenization addressing the high fees and slow settlement afflicting cross-border payments, as well as instant, programmable transactions using smart contracts, so settlement delays can be eliminated.
Project Agorá is also evidence of a shift in the broader financial and payment spaces. Where traditionally established incumbents and challengers have traditionally battled it out for market share, we're now seeing more collaboration.
Finally, Project Nexus (see www.bis.org/about/bisih/topics/fmis/nexus.htm) aims to connect several instant payment systems across Asia with a mission to achieve cross-border payments at scale. In July of this year, the BIS announced completion of the blueprint for phase three of Project Nexus, which allows "ready participants to work towards the next stage of seamlessly connecting their instant payment systems," BIS stated.
Rather than a payment system operator building custom connections for every new country it connects to the operator that can make one connection to the Nexus platform. This single connection allows a fast payments system to reach all other countries on the network.
In the next phase of Nexus, the BISIH Singapore Centre will facilitate the central banks and IPS operators of India, Malaysia, the Philippines, Singapore and Thailand as they work towards live implementation of Nexus.
These projects could unlock the full potential of cross-border payments, but stronger global trade flows can only be achieved through collaboration and coordinated action. Recognition of this is growing. Project Agora, for example, represents a significant step forward in public-private partnerships and recognizes that working together is the best way to reshape the monetary system in a way that works better for everyone.
Whatever the outcomes of these projects, it's worth noting that compliance will always present cross-border payments challenges due to the diversity of regulations across different jurisdictions. As progress towards G20 goals continues, businesses need to consider how they will balance innovation with adhering to regulatory requirements to ensure solutions are effective as well as compliant with international standards. 
Edvards Margevics is the co-partner at Concryt, a game-changer in finance that brings reliability to every challenge, be it payments, technology or risk management. With a deep understanding of both the technical and operational aspects needed to unlock new opportunities for online businesses, his professional experience extends across disciplines, including banking and finance for corporate clients, sales, risk management and operations. For more info, see https://concryt.io. or contact Edvards at linkedin.com/in/edvards-margevics.
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