Cross-border payments play a vital role in the seamless operation of the international economy, and their significance continues to rise as the world’s economies become increasingly interlinked through digital means. These payments have been growing at a compound annual growth rate of 5%, and this growth persisted even during the challenging times of the Covid-19 pandemic.

Factors contributing to this growth include:

• The evolution and complexity of global supply chains.
• The rapid expansion of online retail and business-to-consumer transactions.
• Ongoing needs for frictionless workers’ remittances.
• Increasing volumes of international investment.

The G20, leading with Saudi Arabia, has outlined a strategic plan with specific performance indicators to enhance cross-border payment systems by 2027. The objectives are to make cross-border transactions, including personal remittances, faster, more affordable, transparent, and widely accessible, all while ensuring their security and reliability. These improvements are intended to bolster global economic growth, international trade, and financial inclusion.

To reach the G20’s 2027 objectives for cross-border payments, the Financial Stability Board has identified key performance indicators across four primary dimensions:

• Cost,
• Speed,
• Access,
• Transparency,

Key targets include ensuring that 75% of payment types are processed within an hour and the rest within one business day.

Regarding cost, the goal is for remittance charges not to exceed 3% for sending $200, with no payment corridor surpassing 5%, aligning with the United Nations’ Sustainable Development Goal of a 3% charge cap across all corridors by 2030.

In terms of retail, fees should not be more than 3% for all corridors. For accessibility, every user should have at least one option to send and receive payments, and 90% of the population, including those without bank accounts, should be able to access the cross-border payment system.

As for transparency, service providers must disclose the total transaction cost, expected delivery time, and payment status. While some targets have been met, others lag, indicating the need for continued development.

How do we monitor the progress of this initiative?

The FSB releases an annual comprehensive progress report to keep the community informed about the advancements toward these goals.

According to the FSB’s 2023 report:

Wholesale payments: 89% are processed over the Swift network within an hour, however other channels only 54% of payments are credited to the recipient’s account within that time frame globally.

Retail payments: Only 57% of transactions globally inform customers about the cost and speed of cross-border payments, with the target being 100%.

Remittance services: Worldwide, 53% of funds are available to recipients within an hour, short of the 75% target, and 77% within one business day.

The World Bank’s Smart Remitter Target (SmaRT) indicates that the average cost of sending a $200 remittance stands at 6.3%, above the 3% goal.

What are the important challenges to achieving the G20 2027 vision?

Lack of harmonization: Different countries have different regulations and standards for cross-border payments, which can make them complex and expensive.

Limited infrastructure: Many countries do not have the necessary infrastructure to support fast and efficient cross-border payments.

If we dig deeper, we can see the pain areas in cross-border payments as follows.

Friction in payments: Multiple intermediaries can be involved in a cross-border payment transaction, and not all endpoints have full control over the process. This can lead to delays, errors, and increased costs.

Account issues: 21% of payment exceptions on SWIFT are the result of account issues, such as closed accounts, blocked accounts, or account name mismatches. This can also lead to delays and increased costs for banks.

Lack of automation: According to the Bank for International Settlements (BIS), six out of ten cross-border business-to-business payments require some kind of manual intervention, which can take at least 15 to 20 minutes.

Formatting errors: Formatting errors, such as incorrect account numbers or routing codes, can also cause delays in the cross-border payment process.

Visibility, and transparency:  According to a World Bank report, some cross-border payments can take up to 10 days and cost more than 10% of the payment value.

The timing and cost of cross-border payments are often unknown upfront, which can be a major inconvenience for businesses and individuals.

This lack of visibility and transparency is because there are many different service providers involved in cross-border payments, each with its own different time zones, back-end systems, and currencies.

Lack of standardization:  There is a lack of standardization in the way that cross-border payments are processed. Different countries and regions have their own specific payment data formats, which can cause friction and delays when payments are sent between different countries.

What tools do we have to enhance the cross-border payment experience?

Frictionless payment journey: Pre-validation of account status: Using APIs to pre-validate account status before submitting payment can help reduce the number of payment exceptions due to account issues. This can save time and money for businesses and individuals.

Automation: Multi-rail payment platforms: Payment platforms that support multiple rails can help to improve the speed and efficiency of cross-border payments. By using the most appropriate rail for each payment, businesses and individuals can avoid delays and reduce costs.

Straight-through processing (STP): STP is a process that automates the end-to-end processing of cross-border payments. This can help to reduce costs, improve efficiency, and reduce the risk of errors.

New Global payment standards: Initiatives such as ISO 20022 are working to develop common standards for cross-border payments. This will help to reduce costs, improve efficiency, and promote innovation.

Increased predictability & time: Initiatives such as SWIFT gpi and Go have paved the way for cross-industry collaboration to deliver transparency and predictable costs for cross-border payments.

SWIFT gpi: SWIFT gpi is a global payment innovation initiative that provides banks with a set of standardized rules and processes for sending and receiving cross-border payments.

SWIFT Go: SWIFT Go is a new service that allows businesses to send and receive cross-border payments directly from their ERP systems.

Global standardization: ISO 20022 is a global standard for financial messaging. It is being adopted by banks and other financial institutions around the world to improve the speed, efficiency, and security of cross-border payments, a data-rich standard that allows for the inclusion of more information in payment messages.

In Conclusion

The G20’s 2027 vision for cross-border payments is ambitious, but it is necessary to ensure that cross-border payments are fast, cheap, transparent, and inclusive.

Challenges remain, but progress is being made.

The FSB’s annual progress report shows that there has been some improvement in the speed and transparency of cross-border payments. However, there is still room for improvement in terms of cost and access.

New tools and initiatives are being developed to enhance the cross-border payment experience.

These tools and initiatives include pre-validation of account status, multi-rail payment platforms, straight-through processing (STP), and global payment standards.

By adopting these tools and initiatives, businesses and individuals can improve the speed, efficiency, and security of their cross-border payments.

The G20’s 2027 vision for cross-border payments is a worthy goal and as a vendor, our aim to support these initiatives and make them available to your customers. Train our customers about the benefits of these tools and initiatives.