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Fabio Panetta
Member of the ECB's Executive Board
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Extending the benefits of digital technologies to cross-border payments

31 October 2023

By Fabio Panetta

Making cross-border payments cheaper, faster, and easily accessible would bring huge benefits to businesses and households alike, especially in emerging markets and developing economies.

In recent decades, the world has witnessed a remarkable surge in cross-border payments, driven by the globalisation of trade, capital and migration flows. Global payments are expected to skyrocket from USD 190 trillion in 2023 to a staggering USD 290 trillion by 2030.[1]

Despite such spectacular growth, cross-border payments remain prohibitively expensive and sluggish, leaving the most vulnerable behind. While domestic payments are becoming instant and digital, cross-border payments have yet to benefit from the transformative power of digital technologies. Fees for international payments currently average 1.5% for corporates and as much as 6.3% for remittances. And it can take up to several days for these payments to reach their recipient.[2]

This raises three pressing issues.

The first is the impact on economic integration. Costly and slow payments hinder integration and growth. The costs and complexity of cross-border payments have been shown to deter many small and medium-sized enterprises from expanding across borders.[3]

Second, the world’s most vulnerable populations pay disproportionately more than others. Migrant workers, who support one in nine people globally through remittances, can face exorbitant costs when sending money home.[4] In sub-Saharan Africa, the cost of sending remittances abroad reaches 8.4%.[5] With remittances amounting to USD 626 billion in 2022, even a tiny 1 percentage point reduction in fees would leave those most in need with USD 6 billion in their pockets every year.[6]

Third, alternative players have identified these inefficiencies as a business opportunity, but their solutions carry significant risks. Unbacked cryptos are intrinsically volatile and akin to gambling.[7] Stablecoins cannot guarantee convertibility at par at all times, making them prone to runs. And major technology companies may seek to create closed-loop payment solutions, leading to fragmentation and a high concentration of market power. Facebook’s Diem project initially looked like a potential candidate for such a global payment solution. And more recently PayPal USD was launched – a stablecoin issued by a global tech company with over 400 million users worldwide.

We therefore need to provide a safer and easily accessible alternative that makes global payments cheaper, faster and more transparent.

Public institutions have demonstrated their ability to build payment systems that provide payment rails as a public good. Over the past decade, central banks have significantly improved the back-end infrastructure for facilitating payments, thereby fostering the digitisation of domestic payment systems. There are now more than 70 domestic, fast payment systems around the world. By linking them together, the benefits of digitisation would finally also extend to cross-border payments.[8] For the many emerging markets and developing economies that do not currently have fast payment systems, it will be important to leverage international standards, such as ISO 20022, to foster cross-border interoperability.[9] And by providing technical assistance and funding, international organisations can lend their support to further developing domestic payment systems for cross-border payments.

Interlinking fast payment systems is a promising avenue for reducing costs and increasing the speed and transparency of cross-border payments. It will improve efficiency by shortening transaction chains, enabling payment service providers to conduct transactions without having to use multiple payment systems or rely on intermediaries, such as correspondent banks. And instead of being run by a single, profit-maximising company, it will ensure that connectivity and conversion layers are managed as an open platform and public good, thus avoiding closed loops and discriminatory pricing.

In many ways, Europe serves as a compelling example of what this interconnected payments landscape might look like.

Within the euro area, many of the G20 targets regarding cost, speed, access and transparency have already been met.[10] Not only is TARGET Instant Payment Settlement (TIPS) a 24/7 settlement mechanism for instant payments initiated directly by the participating banks, it is also a central hub linking multiple fast payment systems and ensuring that instant payments have a pan-European reach. A key feature of TIPS is that it settles instant payments within a payment scheme[11] governed by uniform rules, standards and protocols, avoiding the risk of fragmentation.

This model can also work across multiple currencies. The ECB and Sveriges Riksbank are exploring possible solutions for cross-currency instant payments between the euro and Swedish krona. And the European Payments Council is currently developing a scheme to standardise the euro leg of international instant credit transfers. As with the introduction of any new payment scheme, further fine-tuning in consultation with clearing and settlement mechanisms and market participants will be required to improve its potential.

The public sector also has a role to play in addressing the high compliance costs, legal complexities and risks associated with navigating multiple legal frameworks, regulations and central bank policies in cross-border payments. According to one survey, the top three pain points for banks are differences in regulatory and supervisory frameworks, the requirements of anti-money laundering and combating the financing of terrorism, and diverging privacy and security regulations across jurisdictions.[12]

It is therefore crucial to foster cooperation and explore technical solutions while aligning policy interests. A key role in this regard is played by the G20's Roadmap for Enhancing Cross-Border Payments, led by the Financial Stability Board (FSB) and the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructures (CPMI) in collaboration with other partners, such as the BIS Innovation Hub, the International Monetary Fund and the World Bank.

Improving cross-border payments is a complex challenge that requires concerted efforts from both public and private stakeholders. The FSB and the CPMI are actively engaging with industry representatives and authorities from G20 countries and beyond to work together on improving cross-border payments. Such efforts could pave the way for a global network of fast payment systems that enable instant, low-cost, transparent and easy-to-access cross-border payments. Making this vision a reality would bring huge benefits to businesses and households alike, especially in emerging markets and developing economies.

A shorter version of this blog post was published as an opinion piece in The Financial Times.

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  1. FXC Intelligence, Cross-border payments market sizing data.

  2. Financial Stability Board (2023), Annual Progress Report on Meeting the Targets for Cross-border Payments, October.

  3. Wise, Growing pains: how big banks block small businesses’ international ambitions.

  4. Zambrana Cruz, G. and Rees, G. (2020), A Lifeline at Risk: COVID-19, Remittances and Children, UNICEF.

  5. Financial Stability Board, op. cit.

  6. See The World Bank (2022), Remittances Grow 5% in 2022, Despite Global Headwinds, press release and Forbes (2023), Will Cross-Border Payments And Embedded Finance In Remittance Improve?, August.

  7. Panetta, F. (2023), “Caveat emptor does not apply to crypto”, The ECB Blog, January.

  8. See Bank for International Settlements (2022), “Interlinking payment systems and the role of application programming interfaces: a framework for cross-border payments”, CPMI Papers, July and Bank for International Settlements (2023), “Linking fast payment systems across borders: considerations for governance and oversight”, CPMI Papers, October.

  9. Bank for International Settlements (2023), "Harmonised ISO 20022 data requirements for enhancing cross-border payments – final report”, CPMI Papers, October.

  10. Financial Stability Board (2021), Targets for Addressing the Four Challenges of Cross-Border Payments, October.

  11. This is the Single Euro Payments Area (SEPA) Instant Credit Transfer scheme.

  12. World Economic Forum (2023), Unlocking Interoperability: Overcoming Regulatory Frictions in Cross-Border Payments, September.