Scott Frisby is the head of strategy for the European division of U.S. Bank’s Elavon payment processing subsidiary in London.
Traditional business-to-business, cross-border payment systems are still handled manually, causing excessive friction and higher costs that result in a challenging user experience and major operational inefficiencies. Outdated operating systems, a lack of transparency of pricing, and delayed processing times often cause smaller businesses to favor domestic supply chains.
In 2020, the G20 countries made enhancing cross-border payment systems a global priority, setting out a roadmap to address the four major challenges to unite payment systems: cost, speed, access, and transparency. Progress is already being made on making transparency on pricing a mandate through the Remittance Community Task Force, a group of businesses and governmental bodies making policy recommendations on global payments solidarity.
Multilateral payments platforms that operate over multiple jurisdictions and process several currencies are also becoming more commonplace. Project 27 (P27), a joint venture by several Nordic financial institutions, aims to bring the seamlessness of domestic payments to the region via a real-time cross-currency Nordic payments platform.
A single platform for both domestic and cross-border payments enables Nordic businesses to compete more effectively with large countries like the USA which use one currency and one clearing platform. P27 is likely to be imitated across other regions, creating the building blocks for an eventual global payments system.
To achieve a global, real-time cross-currency payment system, a collaborative effort between public and private organizations and bodies is crucial, with three key areas in mind: payments system interoperability and extension; legal, regulatory, and supervisory frameworks; and cross-border data exchange and message standards.
Regional regulatory bodies must work together on common financial standards that support multilateral payment systems if we are to make progress. At the same time, fintechs will need to accelerate payments digitalization in countries using outdated systems and support the proliferation and interoperability of solutions such as P27.
Cross-border data exchange will prove difficult as personal data transferred across jurisdictions will be subject to varying data protection laws. An entirely new framework, based on existing regulations, needs to be established that demonstrates flexibility by adhering to countries’ overarching data laws while providing standards unique to an inter-jurisdictional payment system.
All of this will take time, but the sooner progress is made, the sooner companies can start to benefit from the opportunities available through cross-border e-commerce. This will support local and regional economic growth, improving access to international markets from developing countries, democratizing markets and creating next-generation payments systems for the world.