As domestic instant payment schemes are linked together in greater numbers, more money is flowing across borders in real time. But given the complexity of stitching together highly scaled domestic systems, just what is the path to full global connectivity?
In this week’s episode of the Payments Innovation podcast, host Piers Marais was joined by David Reiss, Director of Strategic Partnerships at Currency Cloud, and Leo Lipis, CEO of Lipis Advisors. They discussed the future of real-time cross-border payments, and why big banks, once so mistrustful of Fintech disruptors stealing their market share, are now burying the hatchet to work together with Fintech companies to make that future a reality.
Here are three key takeaways from their conversation:
The traditional cross-border payments system is broken
Instant payments are good for consumers and good for businesses. As our world becomes more interconnected, that is as true for cross-border payments as it is for domestic transactions. In an emergency, an individual can’t wait days for their overseas payment to arrive. Businesses also rely on the improved cash flow of instant transactions, ensuring they can continue to operate.
But Lipis and Reiss agreed that the legacy cross-border payments infrastructure is not serving the needs of either consumers or businesses.
“From a user’s perspective, (cross-border payments) cost more. They also take longer,” Lipis explained. “A typical domestic payment clears in most countries on the same day, and in a real-time system within a matter of a few seconds. A cross-border payment can take as long as a week. Once I send (it), I don’t really know where it is. I don’t know how long it’s going to take. I don’t even know how much it’s going to cost me.”
Global connectivity is happening in front of our eyes
As the demand for instant cross-border payments has grown, domestic real-time systems have been joining together to allow for real-time payments across borders. Singapore and Thailand were the first to stitch their systems together to allow consumers to make instant payments from a bank in one country to an account in the other.
Singapore has recently launched a similar system with India, while Europe and the US are currently in the pilot phase of creating what will probably be the world’s most important real-time currency corridor.
“Now, the BIS (Bank for International Settlements), has put together a system they’ve dubbed Project Nexus, which creates a hub-and-spoke system for connecting up instant payment systems all over the world,” Lipis observed. “We’re expecting that to have a big impact in the coming years.”
Both big banks and Fintech have a role to play
In the long term, the goal is full global connectivity, with a standardised system enabling instant payments across any border. However, such a system remains years away.
In the meantime, with some payment corridors channelling large flows of money daily, while others experience far less demand, Lipis and Reiss agreed that both big banks and Fintech can play their part in creating real-time payments corridors wherever there is demand.
“What’s the most appropriate tool for the problem at hand?” asked Reiss. “A lot of cross-border flow certainly justifies a much more high-level strategic relationship between governments, between clearing systems. Whereas if you’re looking at slightly more niche corridors, the private-market solutions can tailor bespoke user experiences. That, to me, is a more natural way to solve this problem in the short term.”
Both Lipis and Reiss agreed that with banks and Fintech companies working together, global connectivity will rapidly gather pace. That’s good news for consumers and businesses the world over.
Until next time!