Cross-Border Instant Payments: Banks Facing Liquidity and Fraud Management Challenges

When it comes to payments, whether domestic or cross-border, user expectations are the same: more immediacy, transparency, and lower costs. However, the execution of a cross-border payment is significantly more complex than that of a domestic payment. While improvements have been made with the Swift GPI Tracker, there are still areas for progress, particularly regarding the delay between when the bank receives the payment and when it credits the beneficiary. Developing local instant payments by allowing cross-border payments to be settled "instantly" could resolve this issue by facilitating the processing in the final stages of the transaction.

In this context, as of January 9, 2025, the European Commission mandates that European payment service providers (PSPs) – including European banks – must accept instant euro transfers. As an active participant deeply involved in European working groups on this subject since 2018, Societe Generale offers its bank clients a sub-participation system that allows them to benefit from its direct connection and thus receive these payments. Each integration of a sub-participating bank constitutes a large-scale cross-functional project, requiring significant human, technical, and financial resources. This explains the delay observed in the deployment of instant payment reception across all European banks in accordance with regulatory requirements, considering that banking actors have concurrently undertaken various structural transformations, such as the migration of cross-border payment messages to the ISO 20022 standard. Implementation also takes several months, mobilising different areas of expertise and necessitating testing to identify and correct incidents leading to rejections. In payment matters, the devil is in the details, making it imperative to refine processes. Moreover, in the SEPA zone, instant payments are delivered within 10 seconds. Public authorities have made this a key issue, as there is also a sovereignty concern in Europe, with instant payment emerging as an alternative to card payments.

Optimising Liquidity Management

While accelerating cross-border instant payments and ensuring their execution 24/7 presents advantages for users, it does not come without consequences for banks in terms of liquidity management. This requires having sufficient liquidity available at all times to honour settlements. This is particularly challenging as the thresholds for instant payments continue to rise – reaching 10 million dollars in the United States – and are even being removed in Europe. Two considerations arise. The first concerns the ability of PSPs to source liquidity in urgent situations when the RTGS (real-time gross settlement) systems operated by central banks are closed on weekends, part of the night, and on public holidays. The second is an economic consideration, whereby banks must lock amounts either in non-interest-bearing central bank accounts dedicated to instant payments or in interest-bearing central bank accounts to which the bank cannot access at will. This would lead to a reputational risk if it were potentially unable to immediately settle its clients' instant payments at any given time.
To limit the impact on liquidity and better manage risks, banks can adjust their risk policy by setting, for example, limits on the amount for instant payments per client. Instant payments will not be disadvantaged compared to standard payments. Another solution could be to extend the operating hours and days of central bank settlement systems, similar to the Fedwire in the United States. The Eurosystem, which includes the central banks of the euro area, and the Bank of England are planning consultations on the subject, respectively in April and in the second half of the year.

However, allocating liquidity for instant payments further fragments the bank's liquidity reserves. Furthermore, with 24/7 operations, when will positions be frozen for accounting reconciliations? Not to mention that cross-border instant payments face constraints related to time zones. Similarly, when the system runs continuously, it never has a break. However, the bank needs time to adjust balances, update them, and freeze accounting. This implies duplicating IT systems and management tools to ensure business continuity, which is very costly.

Better Understanding Fraud

According to Nasdaq Verafin, worldwide payment fraud is estimated at $500 billion annually¹. This cost weighs heavily on economic agents. Fraud is not necessarily linked to instant payments but is more broadly associated with the digitalisation of economies and the emergence of unregulated actors. The interconnection of systems operating 24/7 and the speed of execution create opportunities for fraudsters. However, instant payments must operate within a secure framework. It is crucial that tools continue to evolve to prevent fraud. In this regard, with its data processing capabilities, artificial intelligence can better manage fraud risks by enhancing system effectiveness and anticipating liquidity needs.

Beyond technical challenges, there are also issues of responsibility. Today, payments can be initiated by end users through banks, but also via text messages, phone calls, and social media platforms. Each actor in the chain has obligations towards customers. For example, in Australia, banks are required to implement beneficiary verification systems. This will become mandatory in Europe in October with the rollout of the verification of payee (VOP). Australian legislation also requires telecommunications companies to verify, intercept, and shut down lines where they detect fraudulent texts and calls. The same applies to social media platforms, which must block illegal sites. The burden of fraud is no longer solely borne by the end user but is shared across the entire payment chain, depending on actors’ specific responsibilities. In the event of a failure to meet their obligations, they will have to reimburse customers and may face fines of up to the equivalent of €30 million.

While today, 90% of cross-border payments using banking correspondence mechanisms are credited to the beneficiary's bank in less than one hour – exceeding the 2027 G20's target of 75% – the development of cross-border instant payments requires all stakeholders to address the challenges of liquidity and fraud management.

Isabelle Poussigues, Head of Products and Network Management, Cash Clearing, Global Transaction & Payment Services, Societe Generale

Frantz Teissèdre, Head of Public Affairs, Cash Clearing, Global Transaction & Payment Services, Societe Generale 

¹ Nasdaq Verafin 2024 Global Financial Crime Report | Nasdaq