The Federal Reserve recently conducted a review of the current cross-border payments landscape to better understand developments and ongoing challenges. Key findings were discussed on a January webinar entitled Go Global: A Review of Progress and Pain in Cross-Border Payments (Off-site), where nearly 700 highly engaged stakeholders attended, demonstrating rich interest in this topic.
Following the webinar, the Fed is now seeking industry input on the current state of cross-border payments with a short survey (Off-site). If you missed the webinar or would like a refresher on our cross-border payments review, listen to the recording below and read on for key areas of interest that emerged during the webinar.
Technological innovation is underway.
- Many efforts to innovate are underway, both in solutions to allow broader access to cross-border payments and those addressing infrastructure challenges and inefficiencies. Incumbent providers and new entrants are attempting to address pain points, such as speed, cost and transparency. In some cases, new entrants provide front-end overlays that connect to existing back-end arrangements.
- Additionally, emerging technologies and innovation, such as distributed ledger technology (DLT) and digital assets (e.g., stablecoin, central bank digital currency) are being explored to address some of the pain points and challenges of conducting payments across borders. However, the systemic impact of these emerging technologies on cross-border payments remains to be seen.
There’s been a decline in correspondent banking relationships.
- Correspondent banking is the most prevalent mechanism for clearing bank-initiated cross-border transactions, representing an overwhelming share of the value moving across borders. This arrangement relies upon banks holding deposits owned by other respondent banks in order to provide payments and services on behalf of respondent banks. Without an established presence in a jurisdiction, banks rely on this network of correspondent banking relationships to move money through intermediary banks to the final receiver using pre-funded “nostro” (ours) accounts.
- According to 2019 correspondent banking data provided by CPMI, global correspondent network relationships have declined by about 20 percent over the last seven years and country pairs that process at least one transaction have decreased by 10 percent. Legal, regulatory and compliance considerations are cited as the most significant costs and challenges as different jurisdictions may have different regulatory requirements. The decline in correspondent banking relationships could lead to fewer providers for certain corridors.
As the Fed continues to seek a broad and balanced understanding of the cross-border landscape from both the provider and user perspectives, please share your experiences with cross-border payments by completing the survey (Off-site) by Friday, Jan. 31.