Cutting Through the Complexities of Cross-Border Payments

Cutting Through the Complexities of Cross-Border Payments

While the world may be getting smaller, the challenges of sending payments across national borders are not. Inconsistent handling of the various national faster payment services and requirements, both to prevent crime and to protect personal privacy, are among the factors making cross-border payments cumbersome and complex.

These are problems worth solving. Speaking at the South African Reserve Bank in February 2024, Federal Reserve governor Michelle Bowmanicon denoting destination link is offsite said, "Faster, cheaper, more transparent, and more inclusive cross-border payment services offer widespread benefits for citizens and economies around the world, with the potential to support economic growth, international trade, global development, and financial inclusion."

In October, the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, released its 2024 progress report icon denoting destination link is in an Adobe PDF file formaticon denoting destination link is offsite on meeting the G20's worldwide goals for cross-border payments. Importantly, it includes data collected from various payment service providers (PSPs). The report encompasses three types of payments between payer and payee in different countries: (1) wholesale payments via large-value systems; (2) retail payments including business-to-business (B2B), consumer-to-business, and person-to-person (P2P); and (3) remittances from workers back to relatives in their home countries.

The G20's cross-border payments goals include standards for cost, speed, transparency (of both cost and speed), and accessibility. In other words, these payments need to be "faster, cheaper, more transparent, and more inclusive." The conclusion, as expressed in the FSB's report: We're not there yet.

Let's look at retail payments, defined in the report as payments with a value less than $100,000 (US):

Cost: The cost target for retail cross-border payments is that the global average cost per payment does not exceed 1 percent by year-end 2027. The 2024 survey of PSPs found that business-to-person, person-to-business, and P2P payment costs all exceeded 2 percent of the payment value; B2B costs for micro-, small-, and medium-sized entities (MSME) averaged 1.6 percent.

Speed: The speed target is that 75 percent of cross-border retail payments provide availability of funds for the recipient within one hour from the time the payment is initiated. Of the PSPs surveyed in 2024, about one-third of PSPs settle within one hour and two-thirds within one business day.

Transparency: The G20 targets that payers and payees receive minimum information about cost and speed, including total transaction cost itemized, expected time to delivery, and status tracking. Just over half of the PSPs surveyed provide this information.

Access: The G20 aims that all end-users have at least one way to send or receive cross-border electronic payments by year-end 2027. Worldwide, 90 percent of MSMEs had a transaction account at a regulated financial institution. Three-quarters of adults age 15 and older had such an account as of 2023. (See table 10 in the detail on key performance indicators icon denoting destination link is in an Adobe PDF file formaticon denoting destination link is offsite.)

While obstacles remain, measurement efforts like the FSB's are important first efforts to cut through the complications of cross-border payments-to the benefit of everyone around the globe.

Portrait photo of Claire Greene

By Claire Greene, center director, Atlanta Fed Payments Forum

November 4, 2024 in Fintech, P2P, Payments, Payments Inclusion | PermalinkS

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