Rapid globalisation and available technological advancements have spurred the demand for more efficient, transparent, and accessible cross-border payment systems. Multilateral payment platforms have emerged as a promising solution to address the needs of increasingly globalised users, who need to send and remit funds across borders for various reasons.
Multilateral payment platforms are by design, operating across regions with the potential to reduce costs while increasing the speed, safety, and transparency of cross-border payments. The G20 Roadmap for Enhancing Cross-border Payments of the Financial Stability Board (FSB) also lists them as a key priority for enhancing such payments.
The Bank for International Settlements (BIS) Innovation Hub‘s Point Zero Forum 2023 roundtable brought together key stakeholders and leaders from both the public and private sectors to discuss opportunities and challenges in cross-border payments. Participants reflected on the progress made to date, discussed potential opportunities and challenges, and shared lessons learned from their respective journeys.
Drawing on the FSB’s Roadmap and efforts to develop a cohesive action plan, the Committee on Payments and Market Infrastructures (CPMI) has outlined priority actions across three interconnected themes: payment system interoperability and extension, legal, regulatory, and oversight frameworks, and cross-border data exchange and messaging standards.
Theme 1: Establishing Optimal Governance and Interoperability Frameworks
Effective governance and interoperability frameworks will be crucial for managing the complexities of cross-border payments. To make multilateral payment platforms work well, there need to be clear rules and ways for different systems to work together.
Some of the suggestions coming out of the Forum include to have a neutral party, such as the public sector, to ensure inclusive participation and that participants are included and treated fairly.
As multilateral platforms scale, the governance framework must evolve to keep up with changes in board participation, voting rules, regional representation, and economic models. Accessible policies that are open, risk-proportionate, and transparent are key to ensuring inclusive participation from all players, including smaller banks and non-bank payment institutions.
Partnerships between governments and the private sector are also important, with businesses providing investment and technology, and governments setting the overall roadmap to drive adoption and interoperability among participants. 
A key model for this in Southeast Asia is the BIS Innovation Hub’s Project Nexus, which seeks to connect instant payment systems across multiple countries via a multilateral linkage, providing a blueprint for a scalable cross-border payments network. A successful proof-of-concept exercise with the Eurozone, Malaysia, and Singapore in 2022 has confirmed the feasibility of a multilateral network of instant payment systems.
Building upon this achievement, ongoing efforts are underway with five countries – Indonesia, Malaysia, the Philippines, Singapore, and Thailand – in 2023 to establish the necessary building blocks for a future production-ready multilateral platform based on the Project Nexus blueprint.
Theme 2: Addressing Diverse Legal, Regulatory, and Oversight Frameworks
Secondly, participants pointed out that different countries have different laws and regulations, which can make cross-border payments tricky, particularly in the areas of anti-money laundering (AML), countering the financing of terrorism (CFT), data protection, payment dispute resolution, and settlement finality. This needs to be sorted out for multilateral payment platforms to fully harness the benefits of interoperability through multilateral payment platforms.
One idea is to have a central system for checking payments against sanctions lists, which could make the process faster and simpler. New technologies like artificial intelligence and special privacy tools could also help make sure payments follow the rules while keeping data safe.
Regional and global data governance frameworks, such as the APEC Cross-Border Privacy Rules certification and Europe’s General Data Protection Regulation, can help overcome challenges in cross-border data flows.
Another important thing is making sure payments are final and can’t be reversed, both within countries and across borders. The BIS’s Project Nexus is working on connecting instant payment systems in different countries to create a blueprint for a payment network that can scale, and has in place mechanisms to mitigate credit, liquidity, and settlement risks.
These concerted efforts are paving the way for the development of a conducive environment for multilateral payment platforms to enjoy enhanced efficiency and accessibility.
Theme 3: Developing a Viable Commercial Model
Forum attendees believe that establishing a viable commercial model will be a key requirement for businesses to want to join these platforms. There needs to be a clear way for them to make money, the costs of running the platform need to be managed, and governments can be encouraged to help by showing how cross-border payments can benefit society.
It’s also important to make sure the benefits are shared fairly between countries sending and receiving money. Balancing incentives between sending and receiving jurisdictions is crucial, and costs should not be passed solely to the end-user.
Revenue sharing will also be essential to ensure mutual benefits for all cross-platform participants, but they’re varied pricing models should be aligned to the payments system objectives and specific needs of the end-users.
Various solutions already exist to address the challenge of managing trapped liquidity in cross-border payments, such as payment versus payment, netting, liquidity optimisers using gridlock resolution algorithms, and distributed ledger technology. These solutions can reduce foreign exchange costs, particularly in markets with illiquid currencies.
The Way Forward
Enhancing cross-border payments requires a comprehensive approach involving both the public and private sectors. Fostering strategic collaboration between stakeholders and utilising modern technology can help ensure the scalability and future interoperability of multilateral payment platforms.
The building blocks critical to the success of a multilateral platform include designing optimal governance and interoperability frameworks, addressing differences in legal, regulatory, and oversight frameworks, and implementing a viable model to earn revenue.
The Point Zero Forum roundtable discussion and BIS Innovation Hub’s Project Nexus serve as key starting points that could pave the way for developing a useful blueprint for other multilateral cross-border payment platforms to adopt going forward.
As these platforms continue to develop and refine these key components, they will be better positioned to unlock the full potential of multilateral payment systems for cross-border transactions..
Featured image credit: Edited from Freepik
