Cross-border B2B payments have gained increased notoriety in the past couple of years, mostly because of the growing availability of alternative methods to replace traditional correspondent banking flows. To this point, these alternative methods mostly (but not always) involve blockchain as a conduit for some form of digital currency exchange, with decentralized cryptocurrencies as a not so popular choice, given FI wariness around the regulatory scrutiny and interpretation of these volatile instruments.
Cross-border trends will be the subject of a panel discussion we’ll be joining at the upcoming Commercial Payments International (CPI) Global Summit in NYC. The referenced article appears in Finextra and asks the question about central banks’ role in developing the means to exchange digital currency across borders.
‘Cross-border payments are riddled with complexity and lack the regulatory framework and standards to ensure the instant, seamless performance and competitively priced offerings that today’s banking customers have come to expect….Ripe for a revolution, it’s attracting numerous new ‘disruptive’ players and, as the market becomes increasingly crowded, the question is who will be best placed to solve current issues and build confidence? And does the answer lie with central banks?’
We have stayed close to the blockchain discussion since the peak of hype in 2015-2016, tracking progress in corporate banking use cases, of which cross border is, of course, a primary example. We have also monitored regulatory attitudes (some may say progress) vis-à-vis digital currencies (including cryptos), most recently in a piece titled Trends in Global Regulations: Corporate Banking and Payments.
In that viewpoint, we discuss the growing number of central banks who are reviewing digital currencies, including several who have already piloted their use (such as Sweden Riksbank e-Krona and CB del Uruguay’s e-Peso).
It seems a logical progression since the tech exists and stable currency is fundamental to the corporate treasury interests (as well as central bank roles). The JPM Coin after all is a ‘stable coin’ tied to USD. We see about a five year window before this is a common solution.
‘Whether the issues around cross-border payments are solved by central banks, commercial banks, or new entrants, it’s likely that new cross-border projects and payment rails will start to cannibalise existing correspondent banking business and margins.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group