What Would Nirvana Look Like for US Cross Border Payments?

The summer FIFA World Cup in the U.S. was a good opportunity to see how the current cross-border payment networks are used en masse. With so many different types of payments happening all at once, FIFA transactions reflected, in scale, the market activity we see every day.

So, what would nirvana look like for cross-border payments in the U.S.? And is it achievable?

Nirvana would be a single payments system that connects to every endpoint and does so quickly, efficiently, and at a cost which ensures a high rate of adoption. However, the unavoidable truth trumps everything due primarily to politics. We can see a historical parallel in the evolution of cellular networks, where incompatible standards once made international calling difficult. It wasn't until the shift from CDMA to the unified GSM standard that global communication became seamless. Payments, unfortunately, have yet to reach that level of convergence.

The good news is that this hardline stance appears to be softening. Industry stakeholders are now exploring ways to bring together technology and central banks to create a unified global payments system that preserves the sovereignty of each nation's currency. Project Agorá is an excellent example which is spearheaded by the Bank of International Settlements (BIS) and the Institute of International Finance. The project uses a unified ledger to bridge the currency ledgers and creates message and service standards to ensure full interoperability. The result is atomic and programmable settlement between currencies and jurisdictions.

Another possibility is an option called Project Nexus (also driven by BIS). Project Nexus is currently being used in Asia (Thailand, Philippines, Singapore, and Indonesia) and acts as an intermediary for local faster payment networks to interconnect. In theory, it enables people in the countries listed to utilize their domestic faster payment networks when moving money 24/7 cross-border. This does so in a clean and efficient manner, limiting the number of intermediaries. Foreign Exchange (FX) is provided by participating licensed FX providers within the payment chain.

Stablecoins offer another potential path, although they approach the interoperability challenge differently. Rather than connecting existing domestic payment systems, stablecoins can provide a digital settlement asset that moves across platforms and jurisdictions. Open USD, for example, is a new stablecoin initiative designed as shared infrastructure for global money movement. While stablecoins do not eliminate the need for interoperability, FX, regulatory compliance, or connections back to traditional currencies, they could become another layer in a more connected global payments ecosystem.

In the current environment, it would be extremely naive to think the industry will be able to build a single payments system that achieves everything. The ideal would be a fully interoperable network of payments systems so that payments can be made to anyone, anywhere, anytime, and in any form. This can be achieved by industry adoption of a set of base rules, standardized messaging, and a multilateral service agreement.

So, is the possibility for U.S. senders to use RTP® or FedNow® to send cross-border payments in seconds 24/7 imminent? The infrastructure is there as long as countries and networks can agree on a path forward. The future looks bright for this being reality.

By Mark Majeske, SVP Faster Payments, Alacriti