What have been the most important factors furthering cross-border payments over the past decade? That’s one question answered by the U.S. Faster Payments Council‘s (FPC) latest report, The Practicalities of Cross-Border Payments in a Faster Payments World.
Over the last ten years, the volume and value of cross-border payments has increased by 61% and 37%, respectively, according to the Bank for International Settlements Committee on Payments and Market Infrastructures. In that same time frame, the number of correspondent banking relationships has fallen by 29%.
What caused those dramatic changes? The FPC identified five key developments that facilitated the growth of cross-border payments:
- In 2017, Swift introduced its Global Payments Initiative (GPI), allowing financial institutions to send and receive funds quickly and securely anywhere in the world. GPI also allowed for full transparency in the status of a payment at any given moment. By working together to strengthen the SWIFT network, banks can help ensure that clients receive a consistent and value-added global payments service. They can also pave the way for fast, traceable cross-border payments.
- ISO 20022 became a reality for SWIFT member banks in March 2023. This global standard uses a common language to both send and exchange payment data, enhancing the current interface within companies, payment schemes, and financial institutions worldwide. ISO 20022 offers enriched payment data, enabling more robust fraud controls, behavioral predictions, and building better resilience.
- Distributed ledger technologies (DLT) facilitate payments by providing a secure and transparent platform for the transfer of funds. DLT is also the technology that blockchains are made from. Blockchain is particularly well suited to cross-border payments, where numerous intermediaries are involved in processing transactions.
- Application programming interfaces (APIs) allow applications to communicate with each other. The harmonization of APIs has become a priority due to its ability to offer more accessible, transparent, affordable, and faster cross-border payments. APIs facilitate faster and more efficient cross-border payments by reducing manual intervention and supporting more timely data exchanges across the payment chain.
- Central bank digital currencies (CBDCs), digital versions of a country’s fiat currency, allow for faster, cheaper, and more secure payments than traditional methods. In July 2023, a BIS survey showed that 93% of central banks were working on digital currencies. The FPC sees digital currencies and tokenized assets as having immense potential to alter the global financial and cross-border payments landscape by making it faster, cheaper, and more secure.
The report also addresses topics like how correspondent banking relates to cross-border payments, and fintech in the cross-border space.