As e-payments become more popular, the need for cross-border payments and settlements solutions have become more urgent. Three central banks, the Bank of Canada, Bank of England and the Monetary Authority of Singapore, have jointly published a report which provides an initial framework for the global financial community to assess the issue in greater depth.

Titled, “Cross-border interbank payments and settlements: Emerging opportunities for digital transformation”, the report examines current challenges and seeks alternative models which could improve speed, cost and transparency for users. Importantly, the report discusses how a variety of payment models could be implemented from a technical and non-technical perspective.

Victoria Cleland, Bank of England Executive Director for Banking, Payments & Financial Resilience, said, “The ability to make secure and efficient payments is key to the strength of the financial system, and important for consumers and businesses. Many national payment systems are benefiting from considerable innovation and change. In this context it is important that cross border payments, which totalled 1.8 times global GDP in 2016, are enhanced too. They are at the centre of the international financial system; enabling trade, investment and money transfers. This report, which is itself a great example of international collaboration, provides a foundation that will enable further exploration of how innovation could improve this crucial aspect of finance.”

Insights derived from the report are aimed to achieve, what they call, “future-state capabilities”. In future states, the challenge of coordination and perspective in cross-border payments will be addressed. The insights collected from three different central banks illuminate root causes in cross-border payments and gives an appraisal on the limits of technological innovation.

While there are several initiatives in the financial industry to address present challenges, the report states that these are merely incremental. To drive long term change, a more fundamental paradigm shift is needed to address the problems holistically. New technology platforms are one way this is possible.

Three models of cross-border payments are examined in the report to achieve “future-state capabilities”. The first two models are based on enhancing existing domestic interbank payment systems with current or traditional technology. However, the first two models are limited in meeting all of the future-state capabilities. This leads to the third model.

It draws on experience from the Bank of Canada and the Monetary Authority of Singapore’s research projects in exploring tokenised forms of central bank liabilities for domestic use cases. The third model thus focuses on the use of Wholesale Central Bank Digital Currency and its various applications through Distributed Ledger Technology. It considers three variations based on issuing a wholesale central bank digital currency.

Nevertheless, both industry and regulators need to work together to develop the models further. Future areas of focus may include implementation and policy challenges.

Although no specific recommendations can be made, an overall framework where specific aspects of cross-border payments and settlements can be explored in more depth by interested parties.

Scott Hendry, Bank of Canada Senior Special Director, Financial Technology, said, “There is significant room for improvement in the cross-border payments space. Major changes are being proposed by current service providers as well as start-ups that regulators need to research to better understand. This project was a major step forward in international cooperation and in our understanding of the possible alternatives.”

Sopnendu Mohanty, Chief FinTech Officer, the Monetary Authority of Singapore, said, “Payments infrastructure have rapidly improved over the last few years. Domestic transfers can now be completed almost instantly and at low cost. With this as an aspirational benchmark, there is a huge opportunity to improve cross-border payments. This collaborative effort by the central banks and financial institutions across the three jurisdictions helps us identify gaps and areas of improvements in cross-border payments, and sets the foundation for further technical experimentation.”

It is hoped that the report is a conversation starting point for the global financial community to conduct explanatory projects to deepen the collective understanding of the three models can operationalised.