After highlighting the ongoing challenges in cross-border payments, the European Central Bank (ECB) is taking steps to link its instant payments system with India’s Unified Payments Interface (UPI).
This integration was first proposed months ago, and after positive results from an exploratory study last month, the ECB is now moving forward with the realization phase to interconnect the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service with India’s payments giant.
The ECB is also exploring the possibility of linking TIPS with Nexus Global Payments—a network born from Project Nexus, an initiative established by central bank consortium Bank for International Settlements (BIS). Nexus Global Payments connects payments systems across South and Southeast Asia, including India, Malaysia, Thailand, Singapore, and the Philippines.
These connections, along with a potential integration with Swiss National Bank’s Swiss Interbank Clearing Instant Payments (SIC IP) system, are part of an overarching strategy to simplify cross-border payments and remittances for European consumers and businesses.
Falling Short of Goals
Earlier this year, a member of the ECB’s executive board underscored the high costs of cross-border payments in the region, even as IT and telecommunications expenses have declined.
For example, a small business owner needing to send a payment to a supplier outside the EU’s Single Euro Payments Area (SEPA) often faces costs roughly 10 to 12 times higher than payments made within SEPA.
Separately, a progress report from the Financial Stability Board (FSB) found that G20 nations have fallen short of achieving the goals they set for improving cross-border payments. The FSB cited challenges including the complexity of coordinating payments across countries and the limitations of legacy payment infrastructure.
Staying at the Forefront
As more real-time payments systems have emerged, interlinking these systems could offer a powerful solution. This approach would reduce costs, increase speed and visibility, and prevent payment service providers from having to engage with multiple payment systems or a series of correspondent banks.
Other solutions for cross-border payments have also been proposed, including networks established by SWIFT, Visa, and Mastercard. Stablecoins have been suggested as another option, though there has been some pushback in the EU because these tokens are largely backed by U.S. dollars.
Conversely, integrating TIPS with a system like UPI could help maintain the euro’s prominence in international transactions. UPI handles the largest real-time payment transaction volumes globally, and India is among the top 10 recipients of euro remittances.
