Alberto Di Iorio, Emilie Fitzgerald, Thomas Lammer, Antonio Perrella, Tara Rice, Federico Semorile and Stefano Siviero
Introduction
Safe and efficient crossborder payments can offer benefits to all, through lower costs, faster speed, greater transparency and improved access. These enhancements could be especially beneficial for emerging markets and developing economies (EMDEs), for example, through improved international remittance services or in reducing frictions to further encourage regional trade.
In 2023, the G20 endorsed a prioritised crossborder payments roadmap, building on the foundations laid by the public sector through analyses, stocktakes and guidance in the first years of the programme. As part of the prioritised roadmap, three priority themes have been put forward: payment system interoperability and extension; data exchange and message standards; and legal, regulatory and supervisory frameworks (FSB (2023)).
Improving crossborder payments and reducing the risk of fragmentation through greater integration of payment infrastructures was identified as a key priority of the Italian G7 Presidency in 2024. G7 members discussed and welcomed initiatives to take forward the G20 roadmap and have reaffirmed their support for international cooperation within the G7 and beyond, in particular with EMDEs1. The support from jurisdictions beyond the G20 is a critical success factor in enhancing crossborder payments for all, particularly those that depend on remittances from family and friends.
Improving crossborder payments should contribute to financial integration and counter the risk of market fragmentation. The G7 supports responsible innovation that enables interoperability among new and existing crossborder payment systems, a level playing field for private sector competition and innovation, and the observance of relevant international standards.
As such, the G7 has emphasised that such solutions should embed values that are widely shared across the international monetary and financial system, including appropriate transparency, the rule of law and sound economic governance.
Among those solutions, payment system interlinking arrangements may deliver significant improvements in a relatively short time. Interlinking arrangements allow banks and other payment service providers (PSPs) of different jurisdictions to transact safely and efficiently with each other, without requiring them to participate in the same payment system, and they can reduce the need to use intermediaries (eg. correspondent banks).
Such arrangements can shorten transaction chains, reduce overall costs and increase the transparency and speed of payments. Building on the findings from engagement with public and private sector stakeholders, the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), together with the G7 Presidency, organised a conference to expedite the interlinking of fast payment systems (FPS) in July 2024. This CPMI Brief summarises the high-level findings of the conference.
Current state of FPS interlinking
Linking FPS has been identified as a priority action to enhance crossborder payments by the G20 and a number of FPS operators have shown interest in establishing links. Progress on technical interoperability and governance are paving the way to establish safe and efficient links among FPS at scale.
Successful FPS links have certain design principles in common, including commercial viability and scalability. Additionally, taking a long-run view of possible technological advancements and the future requirements of a digital economy is deemed equally important (CPMI (2023a)).
Several FPS already have a crossborder interlinking arrangement, and these links are predominantly intraregional, such as within the Asia-Pacific region or Europe2. Around half of FPS plan to have at least a first or additional link established by the end of the year. Those FPS that currently do not have any plans to establish interlinking arrangements often want to first prioritise promoting greater adoption of fast payments domestically to reap the benefits of interlinking initiatives in the longer term.
The interlinking model chosen often depends on business case considerations, and the types of currencies and legacy systems involved3. For example, a hub and spoke model may be beneficial to connect regional blocks, whereas common platforms may work well for jurisdictions that want to transact in a common currency. Most of the current interlinking initiatives are through bilateral links.
In the medium term, multilateral arrangements such as hub and spoke arrangements or common platform solutions are likely to gain more traction. However, there is likely to be a continued and important role for bilateral links in facilitating trade over particular high-volume corridors or payment use cases.
Domestic and regional fast payment systems
Designing, implementing and operating an FPS is a complex but surmountable task. The number of FPS continues to grow, but countries have taken different approaches to designing FPS, depending on central bank mandates, societal preferences and technological developments. For example, in some jurisdictions, the public sector – typically led by central banks – plays a more active role by owning and operating the FPS.
In others, the private sector operates the FPS. Some FPS allow non-bank PSPs to be a participant, but others do not. Many interlinking arrangements, for the time being, rely on correspondent banks as providers of foreign exchange (FX) services.
Multi-currency arrangements, which process more than one currency in parallel, or cross-currency arrangements providing FX conversion, are still the exception. This variety of options is also present in the settlement procedures, ranging from deferred net to real-time gross settlement – the type of use cases supported also varies.
The impressive fast payments adoption in many EMDEs can be explained by their service design as a low-cost, user-friendly alternative to cash. Fast payment systems have become an important tool to increase financial inclusion and are a key component of domestic payment system reforms in many jurisdictions.
These developments have the potential to bring many people into the formal financial system, particularly when complemented by broad financial capacity-building initiatives. Learning from the success stories of EMDEs and understanding their requirements will help to raise the bar for crossborder payments overall.
Several regional payment infrastructures are in operation or under development, many of which form part of a broader regional economic strategy. A key success factor has been leveraging the support of central banks and other public authorities and creating trust among participating PSPs by demonstrating consistent performance and reliability.
Some overlaps currently exist between regional initiatives, and others will emerge with increasing integration of payment systems across borders. In many cases, this offers an opportunity to bridge gaps between different regions or cover different use cases and/or corridors. However, overlapping regional initiatives may also present several challenges, such as competing for participation and volumes, or leading to inefficiencies in terms interoperability and liquidity management.
While a certain level of fragmentation is unavoidable due to geopolitical and other reasons, the challenges of regional integration can be minimised by setting up interlinking arrangements that are not restricted to possible further international expansion.
The CPMI is committed to delivering on its roadmap actions and will focus on those actions that can support end users that are most disproportionately affected by inefficient crossborder payments
Interoperability as a facilitator for interlinking
Updating domestic payment systems is also an investment in enhanced crossborder payments, since the first and last mile of these payments is typically processed domestically. Enhancing the safety and efficiency of domestic FPS, in terms of their functionality, use of messaging standards and alignment with compliance requirements, will also contribute to their readiness to join multilateral arrangements if, and when, the opportunities arise.
The growing global adoption of the international financial messaging standard ISO 20022 by payment systems and financial institutions offers the prospect of greater interoperability, with benefits for crossborder payments. Inconsistencies in the implementation and use of ISO 20022 for crossborder payments risks undercutting some of its benefits.
To address this fragmentation, the CPMI published harmonised data requirements for ISO 20022 messages for crossborder payments. These data requirements establish a consistent minimum set of data to be used in a crossborder payment transaction end to end (CPMI (2023b)). Given the rapid transition to ISO 20022 messaging under way, the coming years will be crucial for harmonising its use to fully leverage its potential for crossborder payments.
Application programming interface (API) protocols are arguably even less harmonised than ISO 20022 data models, impeding interoperability and reducing the potential benefits of their implementation. Supporting greater harmonisation of APIs has thus been identified as a priority for achieving cheaper, faster, more transparent and accessible crossborder payments. The CPMI, together with market stakeholders, has developed recommendations for greater API harmonisation (CPMI (2024a)).
Issues of compliance screening and fraud prevention are highly relevant in the realm of crossborder payments. FPS interlinking could potentially reduce the complexity of the payment chain, due to reducing the number of intermediaries required to complete a payment.
However, the real-time nature of FPS interlinking arrangements may heighten the pressure of compliance processing. There are opportunities to leverage new technologies such as artificial intelligence and network analytics for fraud detection, and harmonised data and messaging frameworks to improve transparency in crossborder payment arrangements.
Interoperability can also be achieved by leveraging existing solutions, thus reducing regional and global fragmentation. A notable case is the implementation of a ‘clone’ of the Eurosystem FPS TARGET Instant Payment Settlement (TIPS) by several Western Balkan jurisdictions as their domestic FPS, rather than developing a solution from scratch4.
‘Cloning’ could allow jurisdictions to benefit from a ‘service approach’ without having to technically operate the platform themselves, while maintaining full control of the business side and benefiting from any future enhancements. Due to jurisdiction-specific regulations, technology and other factors, ‘cloning’ may not be feasible in many other cases, but the concept of reusing modules or the functionality of other payment systems could be applied more broadly.
Technical assistance and funding support
Technical assistance and capacity-building play a critical role in helping to achieve the G20 targets and are important to support the development of fast payment systems that would pave the way for future interlinking. The International Monetary Fund (IMF) and the World Bank have developed a multi-year strategy to provide technical assistance and are committed to coordinating and collaborating on initiatives for enhancing crossborder payments wherever possible and appropriate (IMF and World Bank (2023)).
Recent and ongoing technical assistance by the IMF and the World Bank supports the three interconnected priority themes of the G20 roadmap. Having complete and reliable data is important to identify which frictions are most relevant in each jurisdiction, as there can be significant variation in the cost and speed of payments. These data can also assist with attracting the necessary funding, requesting technical assistance and prioritisation by policymakers.
The African continent has been identified as a region for additional focus and support from international organisations. Recent technical assistance has focused on domestic enhancements, mainly on legal and regulatory frameworks, implementing standardised messaging and opening payment systems to non-bank players. These enhancements at a domestic level should lay the foundations for later improvements to crossborder payments.
Roles for the public and private sectors
Public and private sector commitment and recent advancements in technology can help address some of the risks, barriers and challenges. Especially in the start-up phase, integrating payment systems across borders will require decisive leadership. Decision-makers have a variety of options for the development and integration of payment infrastructure and should consider the roles that the public and private sectors can play.
Current initiatives typically involve only a small number of stakeholders. Actions that require more significant coordination, investment and effort have yet to start in many cases. The reasons for this can be resourcing and budget constraints resulting from competing priorities in the payments landscape.
Further, the consultation and outreach required to secure industry buy-in for major initiatives can be slow and require significant effort. The difficulty of finding jurisdictions with which to partner on multinational initiatives and dependency on regulatory and supervisory reforms should not be underestimated.
A strong role for the public sector and cooperation with private sector actors that share the objectives, could be a key enabler for crossborder payment system integration. Central banks are positioned to examine which projects will help to enhance crossborder payments, taking into consideration the initial conditions and constraints.
Central banks may act as a catalyst for development and innovation, and step in when there are gaps or coordination failures in the market, as is done for domestic payments. This role for the public sector is likely to become even more important for crossborder payments due to the number of stakeholders involved.
Cooperation with the private sector is also critical to fast payments adoption and the success of FPS interlinking arrangements. As a prerequisite, there must be adequate market demand for the arrangements. In some jurisdictions, the private sector may lead the development of the infrastructure for a crossborder arrangement, either for its own benefit or due to incentives. If this is not the case and the public sector steps in, maintaining a role for the private sector, such as in FX settlement, can help to ensure the commercial viability and adoption of the arrangement.
Conclusion
As the number of domestic FPS grows, opportunities are emerging to facilitate the crossborder interlinking of safe and efficient FPS. Work is under way in many jurisdictions to enhance FPS readiness to participate in such links, particularly to improve their functionality and align with messaging and compliance standards. Successful links to date have prioritised interoperability and smoothly managed coordination between the public and private sectors and among jurisdictions.
It is expected that FPS links in the near term will continue to be based on bilateral links, while over the longer term, these may coexist with more open and future-proof multilateral arrangements. Over time, the market will likely evolve to link between regional groupings.
High-quality data at the jurisdictional level can help to gain useful insights for the planning and establishment of interlinking arrangements. Having complete and reliable data allows for attracting necessary funds, requesting technical assistance by international organisations and prioritising projects with the greatest potential. Also, learning from the experience of first movers will help jurisdictions to navigate the complexity of establishing interlinking arrangements, particularly while they continue to manage other priorities.
In recent years there has been extensive progress towards interoperability, through the definition of harmonised data requirements for ISO 20022 messages (CPMI (2023b)) and the forthcoming recommendations for greater API harmonisation (CPMI (2024a)).
Similarly, substantial progress has been made to define recommendations that, if implemented, would help to build a sound governance framework as well as applying the right oversight approaches in a multi-jurisdictional scenario (CPMI (2024b)).
This work, together with technical assistance provided by the IMF and World Bank, will allow further development and greater interoperability in the payment system landscape and contribute to the readiness of FPS for future interlinking arrangements.
Over 2025, the CPMI is committed to delivering on its roadmap actions – and will focus on those actions that can support end users that are most disproportionately affected by inefficient crossborder payments. The CPMI will redouble its efforts to promote implementation at the jurisdictional level.
In addition, the CPMI will emphasise two strategic initiatives, particularly for regions furthest away from the targets, especially in sub-Saharan Africa. The first initiative will focus on safety and transparency. Confirming the payee before a payment is initiated contributes to transparency and can avoid many challenges down the road. APIs offer the potential to roll out confirmation of payee solutions broadly. The CPMI and the South African G20 Presidency will bring existing initiatives together and identify their commonalities.
The second initiative will seek to gain insights into crossborder payment flows in sub-Saharan Africa, their performance (eg. cost and speed) and underlying frictions (eg. access and transparency), which might also be relevant to other regions. The aim is to identify implementable actions to improve the data quality of crossborder payments.
ABOUT THE AUTHORS
Thomas Lammer is Deputy Head of Secretariat, CPMI, Tara Rice is Head of Secretariat supporting the CPMI, Federico Semorile is a Visiting Member of Secretariat Committee on Payments and Market Infrastructures, and Alberto Di Iorio, Emilie Fitzgerald, Antonio Perrella and Stefano Siviero are all with the Bank of Italy.
Endnotes
1. G7 Finance Ministers and Central Bank Governors (2024).
2. Based on the results of the 2023 CPMI crossborder payments monitoring survey, which covered 45 FPS, 30% of FPS have some form or interlinking arrangement in place (Fitzgerald et al (2024)).
3. The interlinking model can be categorised into four stylised models: single access point, bilateral link, hub and spoke, and common platform (CPMI (2022)).
4. On 7 June 2024 the European Central Bank Governing Council approved the Bank of Italy, acting on behalf of the service-providing Eurosystem central banks, to provide a clone of the Eurosystem TIPS platform to the central banks of Albania, Bosnia and Herzegovina, Kosovo, Montenegro and North Macedonia.
References
Committee on Payments and Market Infrastructures (CPMI) (2022): Interlinking payment systems and the role of application programming interfaces: a framework for cross-border payments, Report to the G20, July.
——— (2023a): Linking fast payment systems across borders: considerations for governance and oversight, Interim report to the G20, October.
——— (2023b): Harmonised ISO 20022 data requirements for enhancing cross-border payments, Report to the G20, October.
——— (2024a): Promoting the harmonisation of application programming interfaces to enhance cross-border payments: recommendations and toolkit, Report to the G20, October.
——— (2024b): Linking fast payment systems across borders: governance and oversight, Final report to the G20, October.
Financial Stability Board (2023): G20 Roadmap for Enhancing Cross-border Payments: Priority actions for achieving the G20 targets, February.
Fitzgerald, E, A Illes and T Lammer (2024): Steady as we go: results of the 2023 CPMI cross-border payments monitoring survey, CPMI Brief, no 5, June.
G7 Finance Ministers and Central Bank Governors (2024): Communiqué, 23–25 May.
International Monetary Fund (IMF) and World Bank (2023): IMF and World Bank approach to cross-border payments technical assistance, Policy Paper, no 62, December.
Knot, K (2024): “Acta, non verba – interlinking fast payment systems to enhance cross-border payments”, speech at the CPMI conference on the “Progress and priorities on the G20 cross-border payments roadmap”, Florence, 11 July.
CPMI Briefs are written by staff members of the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) secretariat, sometimes in cooperation with other experts. The views expressed in this CPMI Brief are those of the authors and do not necessarily reflect those of the Bank for International Settlements, its Committee on Payments and Market Infrastructures, its member central banks, or those of the G7, its Presidency or its members. We are grateful to Anamaria Illes and Ilaria Mattei for excellent research assistance. This article is based on CPMI Briefs|No 7|20 February 2025.