The global cross-border payments space has been under scrutiny for roughly ten years now due to perceived high costs, lack of transparency, and generally slow transaction settlement.
As many readers will know as a result of reading these pages, there has been a bevy of innovation activity to improve these experiences, which of course differs by use case. Remittances—and to some extent disbursements—have been attracting much fintech attention, and improving consumer experiences by making them more transparent and mobile friendly with incremental improvements in speed.
But the bulk of cross-border transactions are found in B2B uses, both internal and external, as we pointed out in recent member research. A posting found at Zawya provides a summary of recently released testing results by Swift, the Belgium-based bank cooperative that provides messaging services for bank transfers across most global countries. The tests are related to a CBDC connector that enables cross-border transactions between different DLT networks and with existing fiat-based payment systems. Based on the article, 18 central and commercial banks participated over a 12-week period in sandbox testing that consisted of 5,000 simulated transactions, with participants encouraging continued development work.
The article suggests that 110 countries are “currently exploring CBDCs … with almost a quarter expecting to launch within the next one or two years,” with the vast majority interested in retail uses—that is, consumers making purchase. This is changing however, with a number of wholesale uses also being tested, as we again have pointed out before. So it is in Swift’s best interests to keep close to these development efforts and determine ways to facilitate easier CBDC transfers across borders. A main goal in accomplishing such a goal is interoperability between individually developed sovereign systems of currency. The piece states that Swift announced the development of the API-based CBDC connector back in October. The successful testing will now lead to further development, with Swift producing a beta version that can be tested even further by central banks.
What is expected is that a second phase of sandbox testing will then occur, with collaboration between Swift participants to focus on new use cases, which should include trade finance and securities settlements.
Overview by Steve Murphy, Director, Commercial Advisory Service at Javelin Strategy & Research.