Addressing pain points and barriers to achieve the G20’s cross-border payments targets
In this article, we share our perspectives on potential ways to assist efforts to achieve the Roadmap’s targets: 1) to acknowledge the interoperability barriers that the public sector must address; 2) to understand the true pain points of specific cross-border flows; and 3) to shift the narrative on cost, where cost is considered against payment system resiliency and security.
The public sector’s role
At this stage of Roadmap implementation, it is acknowledged that many of today’s cross-border payments frictions cannot be solved by technology or private sector investment alone — there are many barriers that the public sector needs to address. Such barriers include, but are not limited to: differences in national regulatory frameworks; central bank operating hours; access to central bank payment systems; and national data localization requirements.
If we use data as an example, governments across the globe continue to introduce new data localization requirements that mandate data be stored on soil and forbid (or severely restrict) the transfer of data outside of a particular country or region. Of note, a report by the Organization for Economic Cooperation and Development found that in 2021, 92 measures across 39 countries mandated data be stored or processed domestically. Privacy and data security concerns are often behind the increase in data localization requirements. Governments and policymakers rightly feel a responsibility to protect the privacy of their citizens and to ensure high levels of security around sensitive user data.
However, data barriers often slow down the speed of a payment and increase its cost - an example of how the Roadmap’s targets can conflict with other important policy goals. Political will is needed to address these competing policy objectives, not just domestically but at the global level. Stakeholders from law enforcement, data regulators, and intelligence agencies — institutions without direct FSB membership — must be part of this discussion.
Pain points and targets
Regarding pain points and the targets, the Roadmap established targets in the areas of cost, speed, access, and transparency for wholesale, retail, and remittance payments. This application of targets may not always fully reflect the wide variety of use cases and local market considerations for cross-border flows — such payments do not always fit neatly into the buckets outlined by the G20 process.
For example, many non-financial corporates may not need their funds within one hour from the time the payment is initiated (as dictated by the current target for speed). These corporates may have set and predictable payment schedules that work for their organization’s financial cycles. This contrasts with some remittance flows, where the timely arrival of funds within the one-hour target may be critical for the recipient. These are only two examples, but demonstrate how different pain points are associated with different cross-border payment use cases.
The extension and alignment of real-time gross settlement (RTGS) operating hours also highlights the need to consider pain points by cross-border payment use case. While many retail users want to make payments and access their funds instantly, the same availability may not be necessary for wholesale flows. An extension of RTGS operating hours would create larger overlapping windows of settlement, potentially decreasing transaction times and certain risks. However, these institutions may lose critical weekend windows to perform mandatory system upgrades and maintenance should RTGS operating hours move to 24/7 (or extend hours). Further, the resulting change in wholesale market practice would likely require significant investment by banks, financial market infrastructures, and other payment system participants for tech build and overnight operations.
Cost versus resiliency and security
High costs are undoubtedly a key challenge for certain cross-border flows. As the KPI Report demonstrates, the global average cost of sending retail payments exceeds the 1% target in all use cases; ranging from 1.5% for B2B to 2.5% for P2P use cases. For remittances, the global average and the World Bank’s Smart Remitter Target (SmaRT) average cost of sending a USD 200 remittance is 6.3% and 3.5%, respectively (both above the Roadmap’s target of 3%).
However, the goals of faster and cheaper cross-border payments should not create incentives to underinvest in system resiliency and security. Running a resilient, secure system with an uptime over 99% requires significant investment in technology, skilled staff, suitable premises, and data and cloud storage. There is also an expectation to uphold robust KYC and sanctions scanning programs. To do all these things right, the speed of a transaction may decrease and the cost may rise – another example of competing policy goals.
Conclusion
The scope, scale, and accomplishments of the Roadmap process to date are to be commended. To close the gaps between the Roadmap’s targets and the current state, the public sector should act to remove barriers to interoperability under its control. The removal of these barriers will require political will from national governments. Consideration of pain points of specific cross-border flows and a more holistic view of cost could help enable tangible outcomes that improve the efficiency of cross-border payments.
Mastercard looks forward to supporting the public sector as it continues its work via the Roadmap to improve the efficiency of cross-border flows.