In an ideal world, sending an international payment should be as simple as sending a text message. Yet cross-border payments are still hitting snags – such as foreign exchange processes and sanctions screening – and are not as seamless as the experience of sending money on a domestic real-time payment system. Consumers in approximately 60 markets have become used to the benefits of real-time payments, where they can send or receive money instantly from their mobile device. Now there are efforts under way to link these systems so that sending money to another country is as easy as a payment at home.
For treasurers, this means companies will receive funds sooner, make payments quicker – such as reimbursing or refunding customers – and at any time, they can get a more accurate snapshot of their cash positions and make treasury management more real-time in the process.
Project Nexus – an initiative from the Bank for International Settlements Innovation Hub (BISIH) Singapore Centre, with support from the Monetary Authority of Singapore (MAS) and the National Payments Corporation of India – seeks to standardise how national real-time payment systems connect so they form a single network, with payments reaching their destination in less than a minute.
It follows the successful link in April 2021 between Thailand’s PromptPay and Singapore’s PayNow – the first of its kind – which means that customers can send up to S$1,000 or THB25,000 a day to Singapore or Thailand by simply entering in the mobile number of the recipient. And elsewhere, there have been other initiatives to explore how to connect payment systems. For example, the European Central Bank and Sveriges Riksbank, the Swedish central bank, said in June 2021 they were continuing to investigate how TARGET Instant Payment Settlement (TIPS) could be used to support instant payments between the euro and Swedish krona.
Linking domestic payment schemes, however, is complex. With two systems, one bilateral agreement needs to be made. With three, three links have to be arranged; with four systems, six links. By the time 20 systems are connecting, it starts to get out of control with 190 bilateral connections needed. If they are all using different formats and processes, such multilateral arrangements become unmanageable.
Some of the issues that need to be ironed out include different data formats, sequences in payment processes, scheme rules, and functionality – such as whether aliases can be used.
“Country-to-country and regional payment connections already exist,” says Andrew McCormack, Head of the BISIH Singapore Centre. “But they require significant coordination efforts, which increase exponentially with more participants.”
Project Nexus spells out a blueprint for how this can be simplified, which was published at the end of July. The proposals came after a lengthy process of 25 workshops with various instant payment system operators, central bankers and representatives of large banks. Nexus aims to have cross-border payments in under 60 seconds, with lower fees and greater transparency about the charges, and users can send international payments from their existing domestic banking app.
Benoît Cœuré, Head of the BIS Innovation Hub, commented on the proposal: “Project Nexus is trying to achieve the equivalent of internet protocols for payments systems. That means creating a model through which any country can join by adopting certain technical and governance requirements.”
Nexus has two elements: the first is the Nexus Gateways that are developed by the domestic systems and handle the compliance, foreign exchange, message translation and so on. The second element is the Nexus Scheme, which is the governance framework and rulebook for participating in the cross-border scheme. With this in place, each of the national payment systems would only need to adopt the Nexus way of doing things, rather than arranging dozens of bilateral arrangements.