Cross-border payments face high costs and interoperability gaps
A new Bank for International Settlements (BIS) paper highlights that cross-border payments, especially for retail and remittances, remain costly, slow, and opaque. The paper argues that private sector efforts alone cannot overcome market failures and limited interoperability, necessitating proactive public sector involvement.
Private efforts fall short for global payments
Cross-border payments (XBP), particularly for remittances and retail transactions, continue to be significantly more costly, slower, less accessible, and less transparent than their domestic counterparts.
This persistent inefficiency, despite technological advancements in domestic payment systems, stems from inherent market failures that private actors alone cannot overcome.
The primary constraint is limited interoperability, driven by multi-sided market frictions and diverse institutional frameworks across countries.
The paper argues that only proactive and collaborative public sector efforts can address these deep-seated issues.
Key priorities include greater harmonization of standards, particularly for message transmission, more effective compliance regimes, and the promotion of increased competition within the XBP landscape.
These measures are deemed essential to unlock the full potential of digital innovation in global payments.
From telegraphs to SWIFT: XBP evolution
The traditional model for cross-border payments, correspondent banking, has a history stretching back centuries and continues to dominate XBP in value terms.
This system evolved from transferring precious metals to message-based 'wire transfers' in the 19th century, maintaining a distinct hub-and-spoke structure with global financial centers.
Modern advancements include SWIFT (Society for Worldwide Interbank Financial Telecommunication), established in 1973, which provides a secure messaging network for over 11,000 financial institutions.
SWIFT's Global Payments Innovation (gpi) offers real-time tracking, with 60 percent of payments credited within 30 minutes.
CLS (Continuous Linked Settlement) Bank, founded in 2002, complements wholesale payments by mitigating Herstatt risk in FX transactions for 18 major currencies, and introduced CLSnet using DLT for over 120 currencies.
A clear call for public leadership
This BIS paper delivers a crucial message: the persistent inefficiencies in cross-border payments are not merely technical hurdles but systemic market failures demanding public intervention.
While technological innovations like SWIFT gpi offer incremental improvements, they cannot fundamentally resolve the deep-seated issues of interoperability and regulatory fragmentation.
The call for harmonization, effective compliance, and competition underscores a necessary shift towards collective, policy-driven solutions to truly modernize global payment flows.