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The trillion-dollar cross-border payments sector is ripe for disruption due to changing customer demands, emerging market growth, and financial inclusion. New specialised players are challenging the dominance of incumbent banks by offering innovative solutions to traditional pain points. Responding to market shifts will require new competitive strategies, which may include acquisitions and collaboration.

Cross-border payments are currency transactions between people or businesses that are in different countries. The money sender typically will choose a front-end provider, such as a bank or a money transfer operator, to initiate the payment. The receiver then receives the payment via the medium specified by the sender. Traditionally, cross-border payments flow via the correspondent banking network (CBN), which most front-end providers use to settle the payment. But, in recent years, we’ve seen new back-end networks emerge to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.

The current challenges in the Cross-border payments:

• Slow speed of transaction
• Higher cost of the transaction (6-8% average)
• Costly low ticket payments
• No transparency on the status of payments
• Opaque dispute management systems
• Driven by Cash

Thus, it is important to work towards these challenges and come up with holistic, cheaper, transparent and reliable solutions which can not only address these challenges but also make a bigger market for Global E-commerce.

In many countries today, domestic payments between bank accounts happen in seconds, at near-zero cost, thanks to the growing availability of instant payment systems (IPSs). In contrast, cross-border payments between accounts in two countries can be slow, complicated and expensive, depending on the service used. IPSs enable domestic account-to-account payments, with the recipient being credited in real-time (or near-real-time) on a 24/7 basis. They are operational in around 60 countries, and underdevelopment in more. Recently, BIS (Bank for International Settlement) along with NPCI (National Payment Corporation of India) and MAS (Monetary Authority of Singapore) has come up with a framework – Nexus. This BIS Innovation Hub project - Nexus explores a framework to build a cross-border payment network leveraging IPS to improve the cross-border payment experience. In this article, just want to highlight the blueprint published for a scalable cross-border payments network.

Nexus overcomes the complexity of linking IPSs on a country-to-country basis by providing a standardised way for domestic payment systems to speak to each other. This enables “interoperability” between payment systems.

Nexus includes two main elements:

• The Nexus Scheme defines the rules and obligations for IPSs, banks and Payment Services Providers who make cross-border payments through Nexus (“Nexus payments”). This is intended to supplement domestic IPS schemes – which do not normally address cross-border payments – with the minimum number of changes required to enable cross-border payments.
• The Nexus Gateway is a software component which coordinates processes such as compliance, FX conversion, message translation and the sequencing of payments between two countries.

So what as an end-user, I can expect if such framework is adopted by global IPS:

• Transaction Speed – When as a user you want to send money to another country either for Fees or buying an item. The transfer of funds or confirmation of Funds can match up the speed of Domestic standards.
• Transparency – As an end-user, we need confirmation on hidden charges, FX rates and time for completion of cross-border transactions, with a new envisaged framework all this information will be available through the Mobile application or Web portal used for transactions.
• Trust, Confidence and Security –Being backed by the domestic IPS which are highly regulated and already have established market, the trust and confidence will be higher to make cross-border payments. Security of transactions can be improved by giving certainty that funds are sent to the correct account through some form of confirmation of payee, wherever possible.
• Improved e-commerce experience and cross-border low ticket payments
• Lastly the customer experience, one can use their existing banking and payments app along with aliases that are valid for domestic payments (e.g. VPAs, phone numbers) will also work internationally.