Singapore to Seattle in seconds: The upcoming reality of cross-border instant payments

Many argue the value to be gained in migrating to ISO 20022 is the enriched data the standard provides, but I believe that best opportunities come from improved interoperability and least-cost payments routing. One of the most promising areas in this regard is the growing field of cross-border instant payments, which are poised to disrupt both the legacy correspondent banking model and traditional remittance services.

While most large international banks have been routing international payments internally for a long time, new payment services such as BIS Nexus, Immediate Cross-Border Payments (IXB), and SwiftGo are joining offerings with the likes of Visa and Mastercard to make cross-border instant payments an exciting space with many opportunities.

Emerging cross-border payment ecosystems

The widespread adoption of ISO 20022 enables these new payment services to move the legacy correspondent banking model up a level—connecting market infrastructures rather than individual banks. BIS Nexus, for example, is a dual-settlement model that bridges domestic real-time systems by moving ISO 20022 messages from one country to another and leveraging foreign exchange (FX) providers to guarantee settlement in each country to maintain the integrity of those systems.

Banks joining BIS Nexus will need to connect a few more APIs to enable Verification of Payee or alias checking, but the payment essentially works as if it were a standard, domestic real-time payment. By keeping cross-border payments economical compared to traditional means, BIS Nexus is a truly viable alternative for remittances, cross-border ecommerce, and potentially point-of-sale payments. All three of these are traditional cost centers for banks, leaving them undercut by fintechs or pressuring them to partner with fintechs to avoid disintermediation.

Swift, clearly hedging its bets in this space, is involved in both the IXB initiative—which connects real-time systems but is reliant on bank participation—and delivering its own SwiftGo solution, which irons out some existing wrinkles in its network. Both rely on ISO 20022 messaging and real-time settlement windows to enable instant availability of funds for customers. The fundamental difference between all three new solutions is the FX and settlement models, which typically echo the philosophy of their creators.

Emerging payment volume markets

With the cross-border payment market rapidly reshaping itself, there are new payment volume markets opening to compensate for the loss of traditional cross-border fees (and costs). However, participating in these initiatives requires banks to:

1. Natively process transactions in ISO 20022—not just translate, as this creates latency and compliance problems
2. Perform real-time sanctions and fraud checks, depending on market regulations
3. Manage liquidity across more fronts (think of the video tape format wars of the early 1980s; cross-border real-time payments will have a number of competing schemes for the next few years)
4. Connect to external APIs to request FX rates, resolve aliases, verify payees and perform a host of other services
5. Accomplish all of this in a 24/7/365 world

While many banks have tackled some of these to join domestic schemes, only a few are truly ready for cross-border instant payments at this point, which is why CGI provides solutions such as CGI All Payments, our API-rich, ISO 20022-native, real-time payments platform and CGI Hotscan360 for real-time sanctions screening and fraud checks. With both these solutions delivered as-a-service, we support banks in getting the most out of cross-border instant payments, regardless of which initiative dominates the future market.

As part of the CGI team that created the recently released technical design for Nexus, it’s been amazing to watch the cross-border instant payments market evolve so rapidly. I look forward to seeing the market continues to evolve. One thing is certain; cross-border instant payments have been ripe for restructuring for a while now, and perhaps now that ISO 20022 is a (nearly) done deal globally, the time has finally come.