A blueprint for international payments plumbing that would enable cross-border payments to flow ‘as quickly as sending a text message’ has been presented by the Bank for International Settlements (BIS) Innovation Hub and the Monetary Authority of Singapore (MAS).
‘Project Nexus’ sets out how nations could fully integrate their retail payment systems into a single cross-border network with ‘minimal adaptations’, allowing people to make cross-border transfers instantly and securely via smart-phones or internet devices.
More than 60 countries currently have instant (or ‘fast’) payments systems that allow people to send money to each other within seconds. But sending money abroad can also be slow and expensive.
The blueprint includes technical standards, operational guidelines and common functionalities for a scalable network that would connect national instant payment systems (IPS), enabling cross-border payments that reach their destination ‘within 60 seconds’.
One-stop entry to global connections
The proposal comprises two main elements: ‘Nexus Gateways’, which would be developed and implemented by the operators of countries’ payment systems, and would co-ordinate compliance, foreign-exchange conversion, message translation and the sequencing of payments; and the ‘Nexus Scheme’, which comprises the governance framework for participating payment systems, banks and payment service providers.
Under the blueprint, participating countries would only need to adopt protocols once to gain access to the broader cross-border payments network. This removes the need for countries to negotiate payment linkages with each other directly.
“Country-to-country and regional payment connections already exist,” said BIS Innovation Hub Singapore centre head Andrew McCormack in a press release. “But they require significant co-ordination efforts, which increase exponentially with more participants. Three countries require three bilateral links but 20 countries would require 190 bilateral links.”
The BIS-MAS multilateral masterplan builds on the breakthrough bilateral linkage of Singapore and Thailand’s national payment networks, respectively PayNow and PromptPay, launched in April. It also benefits from the experience of the National Payments Corporation of India’s (NPCI) Unified Payments Interface (UPI) system. Thirty workshops were held with IPS operators, central banks and also private banks.
“Project Nexus is trying to achieve the equivalent of internet protocols for payments systems,” said BIS Innovation Hub head Benoît Cœuré. “That means creating a model through which any country can join by adopting certain technical and governance requirements.”
‘Reality in the next two to four years’
The G20 made enhancing cross-border payments a priority during the 2020 Saudi Arabian Presidency, with a Financial Stability Board roadmap – ‘Enhancing Cross-Border Payments’ – presented to the G20 last October.
NPCI chief digital officer Arif Khan said Project Nexus would “bring like-minded regulators and instant payments operators, along with global bodies like the G20 and the Committee on Payments and Market Infrastructures (CPMI) [which is housed by BIS], together to make real-time cross-border payments a reality in the next two to four years.”
“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures. The BIS Innovation Hub Singapore Centre is working on both,” said MAS’s chief fintech officer, Sopnendu Mohanty, who added that the Nexus project “maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.”
BIS says the Project Nexus blueprint is intended as a starting point, to be further refined and improved towards a technical proof-of-concept through technical research and engagement with IPS operators, banks and payment service providers.
Possible ways forward include: at least three IPS operators collaborating on a technical proof-of-concept, linking their IPSs together to process cross-border payments following the Nexus approach; or, ‘most ambitiously’, seed funding could be provided to set up an implementation entity to build the Nexus software and scheme as a public good to improve cross-border payments (alternatively, the same funding could support a ‘well-positioned’ IPS operator to lead the build and implementation).
All systems ‘Go’
Project Nexus enters the fray amid the growing popularity of private stablecoins and as central banks explore how central bank digital currencies (CBDCs) – which most are currently experimenting with but few have yet to fully commit to – could work internationally.
Just this week SWIFT, the Belgium-headquartered interbank payments network, announced the launch of ‘SWIFT Go’, billed as a ‘fast, cost-effective service for low-value cross-border payments’. Seven global banks – BBVA, Bank of New York Mellon, DNB, MYBank, Sberbank, Société Générale and UniCredit – are already live with the service.
JP Morgan announced earlier this year that it had set up a joint-venture, ‘Partior’, with Singapore sovereign wealth fund Temasek and Singapore-headquartered bank DBS to improve cross-border payments by using blockchain and smart contracts technology. Partior is partly inspired by Singapore state-led blockchain initiative Project Ubin.
Other central bank-run projects in the cross-border payments field are also ongoing. For example, the European Central Bank (ECB) announced in October last year that it was looking into whether and how its TARGET Instant Payment Settlement (TIPS), the market infrastructure service launched by the Eurosystem in 2018, could support transactions across different currencies, starting with a collaboration with Sweden’s Riksbank.
“Digital yuan ‘technically ready’ for international use as project ‘prudently advances’” – our news story (21 July) on the People’s Bank of China (PBoC) stating that its digital yuan (central bank digital currency) is ‘technically ready’ for cross-border use
‘Bahrain seeks to tackle cross-border payment “inefficiencies”’ – our news story (17 May) on the Central Bank of Bahrain teaming up with JP Morgan and Bahrain-headquartered Bank ABC (Arab Banking Corporation) for a project focused on ‘addressing inefficiencies’ in international payments using digital currency
‘Public and private sectors must work together to improve cross-border payments: BoE’s Cunliffe’ – our news story (24 March) on a BIS Innovation Summit 2021 panel discussion focused on the extent to which the development of wholesale CBDC has the potential to improve cross-border payments