Achieving more efficient and compliant cross-border payments
Three mindset shifts are necessary for a truly seamless global payments ecosystem
CAN transferring money overseas ever be as speedy and easy as paying for a meal in your local restaurant using real-time payments systems or wallets such as DBS PayLah!? Imagine a world where consumers, businesses and institutions enjoy the same experience in every cross-border payment they make as they do domestically: with the same speed, efficiency, cost-effectiveness and transparency.
Though speedier and seamless cross-border payments will require a few mindset shifts to realise, it is not a far-fetched dream, especially so in Asia where a fast-growing digitally savvy middle class has led to the ubiquity of digital payments. A study by Deloitte found that two-thirds of global digital wallet consumer spending in 2023 came from Asia, at a combined US$9.8 trillion. Moreover, the region boasts the highest digital wallet penetration rate: half of its point-of-sale transactions were made using digital wallets as compared to the global average of 30 per cent.
Typically, cross-border payments are less speedy, efficient and transparent as compared to local payments. It routes through one or a series of correspondent banks while encountering currency cut-off timings and banking holidays. This often results in such transactions taking up to several days to process, while fees may be high and not fully known to the sender upfront.
These pain points are felt across all walks of society – from migrant workers who need to remit money to their families back home, to large corporations managing payments, collections and cash positions across different time zones and currencies.
Beyond the traditional correspondent banking approach described above, multiple payment platforms, including those from banks, have emerged in recent years. However, this has also led to a more fragmented cross-border payments landscape. Scaling new cross-border solutions can be challenging due to the lack of interoperability, as well as different regulatory frameworks and practices across territories. This hinders widespread interoperability and the development of a truly seamless global payments ecosystem.
First mindset shift: From competition to “co-opetition” between commercial banks and fintechs
According to the Bank of England, global cross-border payment flows are projected to surge from almost US$150 trillion in 2017 to over US$250 trillion by 2027 – a rise of over US$100 trillion in a decade.
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To resolve existing challenges in the space and to meet this burgeoning demand for cross-border payments, the financial services industry needs a mindset shift. Banks, neobanks, and fintech platforms – which have historically viewed each other as competitors – must pivot from competition to “co-opetition”: a mix of competition and collaboration to achieve greater interoperability and standardisation of practices.
The positive outcomes that collaboration brings to the cross-border payments space can already be witnessed through various intergovernmental initiatives. Several central banks in Asia have launched linkages between their domestic instant payment systems, where commercial banks and fintechs can participate, and where the rules and admissions criteria for each category of licences are clearly defined.
These include the bilateral integrations of Singapore’s PayNow with Thailand’s PromptPay, India’s Unified Payments Interface and Malaysia’s DuitNow. These integrations enable individuals and businesses to send and receive funds overseas in real-time, in some cases by simply keying in a recipient’s mobile number or e-mail address. It has brought unparalleled convenience, security and access to new economic opportunities for many.
The Bank for International Settlements (BIS) is scaling these connections onto the global stage with Project Nexus. It is a collaborative effort involving several central banks – including the Monetary Authority of Singapore (MAS) – as well as commercial banks and fintechs to standardise the way domestic instant payment systems connect with each other. It ultimately aims to create a global multilateral network that integrates several domestic payment systems.
Second mindset shift: The continued indispensable role of commercial banks in the global payments landscape
Commercial banks, with their longstanding and extensive connections to industry payment infrastructures, can play an outsized role in fostering a seamless cross-border payments ecosystem where settlements are completed either on the same day or on a real-time basis.
Commercial banks can harness the full potential of these speedier payments delivery networks by collaborating with one another to route client payments through each other’s network. For example, DBS recently partnered Mashreq – a leading financial institution in the United Arab Emirates (UAE) – to offer the latter’s retail customers same-day cross-border payments to selected markets across Asia-Pacific, Europe and the Americas. This partnership helps meet the growing demand for seamless remittances by the expatriate community in the UAE.
This form of collaboration extends to commercial banks supporting fintechs such as payment service providers (PSP), some of which have rapidly scaled their business with newer approaches to customer onboarding and revenue generation while routing payments through traditional correspondent banking networks.
In addition, commercial banks are well-positioned to provide other banks and fintechs with solutions to streamline the processes associated with payments acceptance and making cross-border payments on behalf of multinational corporate clients. These solutions include in-house banking, as well as value-added services such as payments tracking, account pre-validation and virtual accounts for seamless reconciliation.
The adoption of permissioned blockchain technology among a consortium of banks is another avenue to potentially unlock instant, 24/7 real-time settlement of cross-border payments. This applies even for ultra-high value transactions such as wholesale foreign currency trading and the settlement of securities trades.
Though relatively nascent, a few pilots have already evolved into commercial applications. For instance, DBS, JP Morgan, Standard Chartered and Temasek are founding shareholders of Partior, a blockchain-based settlement network that enables real-time cross-border multi-currency payments and settlements. Partior, in turn, emerged from Project Ubin, an industry project led by the MAS.
There are also ongoing collaborations initiated by central banks to explore the use of wholesale central bank digital currencies (CBDC), or a mix of CBDCs and commercial bank money, for settling cross-border transactions, especially high value ones. These include pilots such as Project mBridge, which will link up Hong Kong’s e-HKD and China’s e-CNY. In April this year, the BIS Innovation Hub launched Project Agora together with seven central banks and invited private sector financial institutions to explore how tokenisation could increase the speed and integrity of international payments.
Third mindset shift: Fostering a global level playing field
The digital economy in Asia is reaching an inflection point. It is home to some of the world’s largest and fastest-growing e-commerce markets, with the region’s e-commerce value projected to grow to over US$28.9 trillion by 2026, according to the International Trade Administration.
Creating a connected and efficient global payments network holds the key for Asia and the rest of the world to fully capitalise on the opportunities that the digital economy brings. However, beyond collaborating on technology and integrating networks, industry participants must also work together to strengthen trust in the payments ecosystem and establish a strong commitment to security and compliance. This could enable the financial services industry to better combat the illicit use of payments infrastructures.
Such initiatives have already begun. In 2024, MAS launched Cosmic, a centralised digital platform that facilitates the sharing of customer information among banks to combat financial crime. Co-developed with six major commercial banks in Singapore, including DBS, the platform is a testament to the close collaboration between industry participants to uphold the country’s reputation as a trusted financial centre.
Beyond customer information sharing, it is also important to harmonise payment regulations and standards of governance across jurisdictions and different categories of payment licences, such as between commercial banks, fintechs, stablecoin issuers and money service bureaus. The cross-border payments system is too important of a global public good to be compromised by a few bad actors.
Commercial banks, fintechs, policymakers and market infrastructure providers have been working closely to avoid walled gardens from forming. Many in the payments industry share the vision of fostering a more transparent, inclusive and seamless global payments ecosystem. The depth of collaboration taking place gives me the confidence that international money transfers will soon achieve the speed and convenience comparable to local digital payment services. This will ultimately uplift lives and livelihoods, and it can only come about with the transformation of the global cross-border payments landscape, with commercial banks collectively playing an indispensable role.
The writer is group head of global transaction services, DBS Bank
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