What are the challenges to meet the G20’s goals on cross-border payments?

In the autumn of 2020, the G20 financial authorities published a roadmap aimed at improving cross-border payments, in order to facilitate global trade. Further detail was added to this roadmap the following year with the defining of a series of quantitative targets, aimed at the sector’s various players. Particularly ambitious, these targets are structured around four key areas: speed of execution, cost reduction, transparency and accessibility. These are all frictions to be removed in cross-border payments. 

Structured cooperation and initial improvements

Four years after the launch of this initiative, highly structured cooperation between the private sector and the public sector has been put in place and the magnitude of the task is clear to see. Major improvements have already been achieved, as reflected in the first progress report, published in 2023.  Two initiatives led by the Swift interbank cooperative these last few years have allowed the payments sector to make transnational transfers fast, predictable, less expensive and more secure. The first, “Swift GPI” (Global Payments Initiative), ensures that the beneficiary can use the funds the same day, the payment can be tracked throughout, final confirmation of the credit is received, and the fees invoiced are totally transparent. The second, “Swift Go”, is a comparable initiative devoted to low-value payments and with even greater service levels. 

However, the final stretch before the finish line is always the most complicated! Current efforts are focussing on three key challenges: the harmonisation of legal and regulatory frameworks, the exchanging of data and the standardisation of messages (notably via the ISO 20022 standard), as well as the interoperability and extension of payment systems. 

The challenges in terms of harmonisation and standardisation

The harmonisation of legal and regulatory frameworks would appear to be the most complicated challenge to overcome, as it is not in the hands of private players but in those of national authorities. Today, 90% of cross-border payments carried out via Swift are processed in under an hour… but are only credited to the beneficiaries within this same timeframe in 50% of cases! Most of the time, this discrepancy is due to the internal systems of the beneficiary banks that operate by shift (an efficient and robust process, but one that depends on predefined processing schedules) and to the array of controls imposed by the regulators (within the framework of sanction or embargo programmes or measures covering the fight against the funding of terrorism, money laundering, fraud and organised crime, as well as the monitoring of foreign exchange and capital movements). 

In view of the magnitude of these threats (as a reminder, over 3 trillion dollars in illicit funds flowed through the global financial system last year, according to the latest Nasdaq Verafin report), the regulators’ reluctance to move towards greater harmonisation of legal and regulatory frameworks is understandable. Indeed, the choice between promoting social inclusion and growth on the one hand, and making the financial system more secure – which requires a strengthening of locally-applied controls – on the other, is a difficult one.

But on the banking player side too, there is a lot to do in terms of harmonisation, in particular with regard to standardising processes and practices, whether it be transfer processes, invoicing methods or the exchanging of information. To make progress in all these areas, a common language (the ISO 20022 standard that is gradually being deployed for payments through 2025) is necessary but will not be enough on its own: all players will need to use it in the same way around the world!

Technical and organisational questions to resolve

Many organisational questions also emerge as progress is made and discussions take place. For example, how can the various instant payment systems all be efficiently interlinked? How can we deal with the fragmentation in payment methods, ensuring resources and energy are put in the right place? And how can we ensure that all payment sector players, regulated or not, follow the same rules and operate within the same framework, in other words how can we make sure there is a level playing field?

Societe Generale group’s interbank specialists are doing their part by being involved in the various French, European and international market authorities, Swift cooperative, market infrastructures and central banks’ work and discussion groups. They are involved in standardisation bodies that are working to harmonise the standards and rules of use of payment systems (HVPS+, IP+...) and banking correspondence activities (CBPR+) while actively participating in the Bank for International Settlements’ thinktanks, and notably the Payments Interoperability and Extension (PIE) taskforce, a forum for discussing the experiences and best practices of all market players globally. Internally, it will also mean working out how to be better technically and humanly organised to ensure the fastest possible service 24/7, 365 days a year – despite the fact that currency markets and most banks are closed at the weekend and on certain public holidays – without this leading to additional costs and risks for clients.

Indeed, to answer the majority of these questions, market players will need the full support of the regulators. The role of head of operations will thus have to be assumed by the authorities that will have to plan and guide the developments that need to be prioritised, ensure that the same rights and same obligations indeed apply to the various players undertaking the same activities, and make sure that the services offered to users are secure and economically viable, for all payment service providers. Without this prerequisite, it will be difficult for the payments industry to solve the particularly complex equation it is facing: how to reduce costs for users while continuing to invest – sometimes massively – to improve these services and be capable of meeting the G20’s ambitions.