Cross-border payments: regulators need to step up to meet G20 targets

The G20 has set a number of targets to be achieved by 2027 to meet its roadmap for improving the cross-border payments system. The challenge is clear: to foster social inclusion and support international trade, by making payments more fluid and improving the user experience. The movement has already been initiated by the various players in the sector, but action by the public authorities will be necessary in order to reconcile objectives that sometimes conflict.

In October 2021, the G20 financial authorities set ambitious targets for the retail (individuals and businesses) and wholesale (between financial institutions) cross-border payment markets. These are based around four key areas: speed of execution, reduction of costs, transparency, and accessibility. For example, by 2027, 75% of cross-border payments in the market will have to be credited within one hour of initiation. In terms of accessibility, more than 90% of the world’s population will need to have access to a cross-border means of payment, including individuals who do not have a bank account.

To achieve these goals, the G20 financial authorities are working with regulators and the private sector. A set of KPIs has been defined, to measure the progress of the various market players over time, up to the 2027 deadline.

Objectives that are often difficult to reconcile

However, in many cases, the stated objectives may seem difficult to achieve. So how can we reconcile better service quality with lower prices? How can costs be reduced for the end-user, if at the same time massive investments are needed to manage transactions in real time and provide more transparency? Reconciling these conflicting demands is not easy…

The solution will require significant efficiency gains on the part of the operators of these transactions. But they will not be able to do it alone, because technology will not do everything: it certainly allows progress to be made and certain obstacles to be removed, but it is only part of the solution. Public authorities will therefore have a major role to play in creating the conditions for industry to achieve the efficiency gains it needs.

Overcoming redundancy to increase efficiency

In particular, many redundant processes could be eliminated, especially in the area of compliance. Globally and even regionally, KYC requirements are still far from standardised. Even in Europe, where directives apply to the entire European Economic Area, the rules differ in each country, as decisions are made by each national authority individually. 

At the same time, competing infrastructures are developing in parallel, even though they meet the same needs – this is especially the case with Instant Payment in Europe, a market in which private and public players are in competition. There are currently a dozen payment systems in the SEPA area that process the euro instant bank transfer!

Progress is already being made…

The targets set by the G20 should be welcomed: they correspond to the expectations of end customers and it would be foolish to go against them. Nevertheless, the financial balance for cross-border payment operators needs to be properly addressed in the interest of the G20’s stated objectives. 

Industry players are already beginning to work together to address the many tensions that remain in the market – including attempts to reduce infrastructure duplication and create interconnections between competing payment systems or those operating in jurisdictions with different currencies. 

But to go further, regulators and financial authorities will need to help harmonise regulatory processes, define new standards and encourage interoperability – in short, to remove many of the tensions that generate significant costs for existing players.