How Close Are We to G20 Cross-Border Goals?

Attribute to Kamran Hedjri, Group CEO at PXP Financial.

Cross-border payments are crucial to the global economy, facilitating transactions across countries and currencies. As such, addressing the challenges in this space is more pressing than ever, prompting G20 leaders to set an ambitious target: 75% of cross-border payments credited to the beneficiary within an hour by 2027. As we cross the halfway point in achieving this, Kamran Hedjri, Group CEO at PXP Financial, looks at how close we really are.

In today’s interconnected global economy, cross-border payments play a pivotal role in facilitating international trade and commerce. With a surge in low-value cross-border transactions, particularly in the digital services sector, addressing the challenges in this space has never been more important.

It’s encouraging that, since its endorsement in November 2020, the G20’s ambitious roadmap to transform cross-border payments by 2027 has been driving significant advancements towards making payments cheaper, faster, and more transparent.

Achieving the goal of 75% of cross-border payments being credited to the beneficiary within an hour means making a significant leap forward in speed and reliability, and there’s a lot still to be done.

The importance of cross-border payments in international trade

The value of cross-border payments is estimated to increase to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years. They have become a critical component of international trade, especially in the growing digital services sector.

By facilitating transactions across different countries, they allow businesses and individuals to engage in international commerce efficiently, provide a streamlined process for making international transactions, reducing the complexity and time associated with international trade, and, by making it easier to buy and sell across borders, help increase trade volumes, which contributes to global economic growth.

Cross-border payments are critical for businesses to expand into new international markets, tapping into a broader customer base and increasing revenue potential. Companies that effectively manage cross-border payments can gain a competitive edge by offering better pricing, faster delivery, and improved customer service.

And it’s not just businesses demanding a better cross-border service. Consumers increasingly expect seamless and instant payment experiences, regardless of geographical boundaries.

As the expansion of the digital services sector continues, the need for cross-border payments becomes even greater. They are essential for facilitating transactions in this sector, where services are often delivered digitally across borders. Many digital services operate on subscription or licensing models that require recurring cross-border payments, highlighting the need for reliable and efficient payment systems.

All this considered, it’s little wonder that the world’s economic heavyweights have placed great expectations on cross-border payments through the Financial Stability Board’s (FSB) G20 cross-border payments targets.

G20 Roadmap progress

It’s worth mentioning that, when the G20 targets were first agreed, there was no widely available data on how the industry was performing against the targets at the time. Although it was generally agreed there was a way to go, very few players or countries had a strong sense of how they were performing against the goals.

Nevertheless, a major milestone came in 2023 when Swift adopted ISO20022 messages, establishing a standardised communication framework for cross-border transactions worldwide. Its implementation has provided the foundation to live up to the G20 targets, because the message standard allows banks to reduce costs, improve reconciliation and enhance financial crime detection.

However, data from October 2023 showed only 18% of cross border payments and cash management reporting messaging were being based on the ISO format, with a little less than 800 banking institutions systematically issuing payment messages with an ISO syntax, proving there was still a considerable amount of work to do. Even today, migration needs to be faster, but the investment to migrate core banking systems is a huge barrier, and corporates also need to be persuaded to use ISO20022.

Elsewhere, industry initiatives led by Swift and supported by banks, are having a transformative effect in creating fast, predictable, cost-effective and secure cross-border payments – namely, Swift GPI (Global Payment Initiative), which provides end-to-end tracking for high-value cross-border payments, and Swift Go, a comparable service focused on lower-value payments.

Efforts are also being made to interlink domestic payment systems to enable instant cross-border flows. So far, such schemes have found success in Singapore, India and other countries across South-East Asia, where connections have been established to solve specific cross-border instant payment use cases.

Other initiatives in development are as the Immediate Cross-Border Payments (IXB) Pilot devised by EBA Clearing, The Clearing House (TCH) and Swift, to interconnect systems in the United States and Europe, as well as the European Payments Council’s (EPC) new One-Leg-Out Instant Credit Transfer (OCT Inst), which aims to use the existing SEPA (single Euro payments area) payment rails for international instant credit transfers.

There are still some steps to me made

The rise of fintech has led to a range of innovations that offer faster, more secure, and cost-effective cross-border payment solutions, and mobile payment technologies have also made cross-border transactions more accessible and convenient. The missing ingredient is not innovation, it’s collaboration, particularly when it comes to addressing payment system interoperability.

A core issue is that, while cross-border payments are global by nature, regulation is enforced locally, so to drive interoperability, regulatory alignment is needed, for example, with respect to rules of anti-money laundering (AML), countering financing of terrorism (CFT) and data governance.

As yet, the goals of the Roadmap are not backed by regulatory or legal mandates, which raises concerns, and the ISO 20022 migration is a good example. In areas where central banks are mandating the use of ISO 20022, every single participant is working on the initiative. Where it is not mandated, the opposite is often true. Without clear and consistent consequences for not meeting the KPIs, and if local regulators fail to incorporate the Roadmap’s essentials, it’s possible that results may emerge at a later stage in favor of other activities.

Existing data frameworks that conflict with financial regulations with respect to data privacy and data sharing need to be resolved so the payments industry can drive the innovative solutions needed to meet that bold 2027 target.

The G20 goals will have a profound impact on end-users at a time when more people than ever need seamless cross-border payments. Now is the time to fill the lack of formal mandates and make the G20 Roadmap part of the action plan of all players – governments, regulators, banks and technology providers. Only then can we make the Roadmap a reality as collaboration is key to achieving G20 goals for cross-border payments.