Interlinking fast payment systems boosts international trade
The European Central Bank highlights that interlinking fast payment systems could increase international trade by approximately 4 percent. This analysis, published in the Economic Bulletin, evaluates the economic benefits of such technological innovations.
The costly maze of global payments
International trade relies on cross-border payments, many of which remain slow and expensive.
Most transactions use correspondent banks, involving multiple intermediaries, leading to high fees, currency conversion, and operational frictions.
For example, nearly one-third of cross-border payments incur costs over 3 percent, and only 40 percent of international business-to-business transactions settle within one working day.
The global provision of correspondent banking services has also declined by 20 percent since the mid-2000s, increasing costs and disintermediating some payment corridors.
New fast payment systems, like the Eurosystem's TARGET Instant Payment Settlement (TIPS) and the Federal Reserve's FedNow Service, are deployed in over 80 countries.
Interlinking these systems can significantly reduce costs, increase speed, and foster transparency, a priority in the G20 Roadmap for enhancing cross-border payments.
Global connections, fragmented landscape
Around 500 connections already exist between fast payment systems globally, with more developing across Africa, Asia, and South America. Despite this, payment systems remain fragmented, and major economies still rely on correspondent banking.
The Eurosystem is pursuing new interlinkages, including with India's Unified Payments Interface (UPI), and exploring connections with Switzerland's domestic fast payment system and Nexus Global Payments (NGP).
Econometric evidence suggests that connecting fast payment systems has a positive and economically meaningful impact on bilateral trade, increasing it by about 4 percent.
This effect is roughly half the boost from a formal trade agreement, showing benefits even for well-connected countries.
More than just plumbing
This study provides robust evidence for a long-discussed policy goal, moving beyond anecdotal benefits to quantify the trade impact.
While the 4 percent trade boost might seem modest compared to currency unions, it represents a significant, achievable gain through infrastructure improvements.
This underscores the urgency for multilateral coordination to overcome technical and regulatory barriers.