Home Payments BIS-led cross-border instant payments project progresses

BIS-led cross-border instant payments project progresses

Project Nexus: the Bank for International Settlements Innovation Hub-led initiative was introduced in July 2021| Mobile phones photo credit: Dean Moriarty (Pixabay)

A multi-party project being driven by the Bank for International Settlements (BIS) Innovation Hub that aims to support the G20 priorities of improving the cost, speed, access and transparency of cross-border payments is to advance to its next stage having successfully undertaken a technical proof-of-concept involving three central banks.

Replicas of the payment systems of Singapore, Malaysia and the Eurosystem were linked through an experiment that enabled payments to be sent using just mobile-phone numbers – testing of a cross-border payments infrastructure model that those involved believe has the potential to be implemented globally.

The successful connection of the three domestic instant payment systems as well as details about the next phase of what is known as ‘Project Nexus’ have been announced today (23 March) by the BIS Innovation Hub’s Singapore centre.

The Monetary Authority of Singapore (MAS), Bank Negara Malaysia/Central Bank of Malaysia (BNM), Banca d’Italia/Bank of Italy (which is part of the Eurosystem), as well as payment systems operators PayNet and Banking Computer Services (BCS), have been the leading players in the collaboration to date.

In Project Nexus’s next phase, MAS and BNM will be joined by three further central banks – Bank Indonesia, Bangko Sentral ng Pilipinas and the Bank of Thailand. BIS and the central banks envisage that Nexus could eventually be implemented globally, so are also planning to set up a ‘global advisory panel’ of central banks and payment system operators to advise on the project’s development beyond the Southeast Asian region. Banca d’Italia and the Frankfurt-headquartered European Central Bank will be invited to join.

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‘Paves way for further development’

At present there are more than 60 instant (or ‘fast’) payment systems globally, which typically allow people to send money to each other within seconds. However, they are all domestic systems and international payments remain ‘opaque, slow and expensive’, according to BIS, which states that ‘trying to connect domestic systems bilaterally with other countries would be expensive and complex, generating an exponential number of links’.

Project Nexus – in the form of a 20-page blueprint, an overall project weblink and summary materials, including a three-minute explanatory video – was introduced in July 2021. It is looking to connect domestic instant payment systems across multiple countries through a ‘standardised and multilateral’ approach – accommodating differences between systems rather than trying to homogenise them.

The blueprint included technical standards, operational guidelines and common functionalities for a scalable network that would connect national instant payment systems, enabling cross-border payments that reach their destination ‘within 60 seconds’.

Introducing the project at the time, BIS Innovation Hub’s then-head Benoît Cœuré described the project as “trying to achieve the equivalent of internet protocols for payments systems”. This would, he explained, involve “creating a model through which any country can join by adopting certain technical and governance requirements.”

BIS Innovation Hub’s current head Cecilia Skingsley – who succeeded Cœuré (now president of France’s Autorité de la concurrence) last year – said today that she was “thrilled” by the success in connecting the three national payment systems “and the potential this indicates for Nexus”.

“It paves the way for further development, and we look forward to collaborating with our partner central banks on the next phase of the project,” Skingsley said.

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‘Strong focus on usability and user experience’

A 50-page ‘Enabling instant cross-border payments: conclusions from a technical proof-of-concept between the Eurosystem, Malaysia and Singapore’ report details how the testing took place.

The report explains how payments were initiated using only the mobile-phone numbers or recipients’ company registration numbers via the Singapore’s Fast and Secure Transfers (FAST) payment system, Malaysia’s Real-time Retail Payments Platform (RPP) and the Eurosystem’s TARGET Instant Payment Settlement (TIPS).

Each instant payment system operator created an ‘exact replica’ of their domestic payment system and proxy resolution service in an ‘insulated’ testing environment. This allowed them to adapt their systems to integrate with the Nexus hub ‘while avoiding any risk of disrupting the live domestic payment systems’, with no ‘real money’ payments nor real customer accounts used, it explains.

‘Nexus is designed with a strong focus on usability and user experience,’ the report states. ‘For example, where proxies – such as a mobile phone number – can be used to address domestic payments, Nexus allows these proxies to be used for cross-border payments too. This means that payers do not have to enter long international bank account numbers (IBANs) or unfamiliar local account details.’

As well as the central banks, PayNet and BCS, Tata Consultancy Services was commissioned for the proof-of-concept to ‘further refine the functional design and lead technical development’ of software, while Netherlands-headquartered consultancy In4Pay (the name is short for Innovation for Payments) ‘supported the development of a Nexus scheme and governance framework’.

Seeking to avoid bilateral ‘complexity’

The Nexus explorations build on the bilateral linkage of Singapore and Thailand’s national payment networks, respectively PayNow and PromptPay, in April 2021. This allows customers of participating financial institutions to send payments across the border using just the recipient’s phone number.

This breakthrough bilateral arrangement was followed in February 2023 by a similar two-way instant payment systems link between Singapore and India. But ‘each new bilateral initiative requires a complex technical integration and multi-party legal negotiation,’ the 50-page report notes.

The quintet of Southeast Asian central banks involved in Project Nexus’s next phase signed a Memorandum of Understanding (MoU) on ‘Co-operation in Regional Payment Connectivity’ in November 2022. The BIS Innovation Hub’s Singapore centre will collaborate with the five central banks to facilitate their design processes as they aim to connect their domestic payment systems.

‘The ASEAN (Association of Southeast Asian Nations) central banks share a desire for any real-world implementation of Nexus to be global rather than regional,’ the report states.

The BIS Innovation Hub’s Nordic centre recently presented the results of a collaboration (‘Project Icebreaker’) with the central banks of Israel, Norway and Sweden exploring the potential benefits and challenges of using retail central bank digital currency (CBDC) for cross-border transactions. The Project Nexus report contains just one mention of CBDCs, stating that the approach adopted (by Nexus) ‘opens the door to other alternative payments infrastructure, such as CBDCs, to connect to Nexus provided that they can meet the same requirements of providing secured funds and instant payments.’

FURTHER READING

‘BIS-Singapore project aims for international payments ‘as quick as a text message’ – our news story (30 July 2021) about the launch of the Project Nexus blueprint

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