Page 28 - Banking Finance June 2025

ARTICLE

more the number of Correspondent Banks in the chain slower entire countries by way of exclusion, sanctions etc. In short,
and costlier the process will be. An average cross border it has limitations in availing services by users and accessing
payment transaction may take 1-5 business days to settle. payment system and other related infrastructure by the Pay-
ment Service Providers (PSPs).
Further, the charges are not same for every pair of currency.
The charges are usually lower for freely convertible currency These four challenges interact with each other, creating
having high volume of payment. Such currency pairs have newer and more complex challenges such as repeated com-
shorter transaction chains with a smaller number of Banks pliance checks by every jurisdiction, different laws and regu-
resulting in lower charges. lations, legacy technology platforms and weak competition
with limited options for end consumers. They thereby con-
Challenges in Cross Border Payments found an already fragmented system by erecting additional

G-20 Countries had adopted enhancing cross border pay- barriers to cross border payments.
ments as a priority in the year 2020. An important task to-
wards this end was to identify and address the challenges Emerging trends and solutions in Cross
involved. Some of the most serious challenges encountered Border payments
in cross border payments are: With growing emphasis on enhancing cross border payments
i. High costs G-20 came up with a roadmap in 2020 to address the chal-
While most domestic payments are free, the most commonly lenges in cross border payments. The G-20 Roadmap tar-
used Correspondent Banking model is dependent on multiple gets are:
layers and Banks at every layer of such transaction charge
a fee for processing the payment, thereby adding to the Table 2: G-20 targets for Cross border Roadmap
cost. Forex conversion charges, compliance cost etc also Challenge Target
contribute to the costs.
Cost Global average cost of cross-border
ii. Slow speed payments to be no more than 1%, and
The domestic Banks in a jurisdiction are connected to a com- no corridor to be above 3% by end-
mon payments platform which in turn is supervised by the 2027.
National Regulator. This has given birth to instant or fast Adopts the UN SDG target 18 for the
payment systems where the payments are made on real average cost of sending a cross-border
time basis. But in cross border payments no such common migrant remittance payment of US$
platform is available and a system with multiple Banks in 200 to be less than 3% of the value of
different geographies invariably leads to much slower settle- the payment
ment of cross border payments. Delays in any part of the
end-to-end payment processing slows down the transaction Speed 75% of cross-border payments should
settlement such as search, reconciliation, dispute resolution, be completed within one hour, and the
AML/KYC checks etc. rest within one business day
Access All end-users should have at least one
iii. Lack of transparency
option (such as a payments infrastruc-
The current cross-border system lack transparency in the ture or provider available) for sending
sense that there are no real time status updates available and receiving electronic payments
and there is limited transparency about costs, speed, rules,
system and procedures of different countries. This leads to Transparency Defines a list of required information
poor service delivery and lots of heart burn for the users and that should be available to the Sender,
Payment Service Providers alike. including sending and receiving fees, the
FX rate and any currency conversion
iv. Limited access
charges, the expected time to deliver
International payments are marred by poor accessibility. funds, tracking of payment status and
Cross border transactions require different sets of docu- the terms of service.
ments and procedures making it less accessible to common
citizens. Access to international payments is often restricted Source: IMF and World Bank approach to cross border payments
or even denied to several non-Bank players and sometimes technical assistance Paper, Dec 21, 2023

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