Whereas, in many countries today #domesticpayments happen in
seconds and at near-zero cost, #crossborderpayments are notoriously slower, more expensive and more opaque. What if we could build on the success of #instantpayments to improve cross-border #payments? Let’s have a look at project Nexus, a BIS Innovation Hub project.
There are more than 60 instant payment systems (IPSs) today, enabling domestic account-to-account payments, with the recipient being credited in real time (or near-real time) on a 24/7 basis.
Nexus is a scalable crossborder payments network, that would connect IPSs in multiple countries, enabling them to offer cross-border payments that reach their destination within 60 seconds.
A number of #FinTechs have used their direct or indirect access to IPSs to provide near-instant cross-border payments. However, in these implementations it is the #FinTech that coordinates two independent payments in two countries; the two IPSs are not directly linked. Linking IPSs would go further by creating interoperability and connecting payment infrastructures – rather than banks – across borders.
Sending cross-border payments through domestic IPSs overcomes some of the challenges of traditional cross-border payments, i.e. speed, cost, transparency and access.
However, linking IPSs is not straightforward. Cross-border payments are inherently more complex than domestic payments; they require additional steps, such as currency conversion and compliance checks to prevent the financing of terrorism and other illicit activities. Moreover, IPSs have different processes and functionality, and often speak different “languages” in the way they share data and payment instructions.
This complexity increases exponentially as more participants join the network. Three countries require just three country-to-country links, but a network of 20 countries would require 190 country-to-country links.
Nexus overcomes the complexity of linking IPSs on a country-to-country basis by providing a standardised way for domestic payment systems to speak to each other. This enables “interoperability” between payment systems.
Despite Nexus being a good starting point, building a real-world Nexus network, gateway and scheme would require a coordinated effort from many players, central banks and regulators and a lot of work on governance, oversight and scheme specification, as well as addressing legal differences between jurisdictions. We are still in promising but very early steps.
Adapted from: BIS Innovation Hub, Nexus, A blueprint for instant cross-border payments .