As the global demand for seamless, fast, and secure cross-border payments grows, technology is often hailed as the solution to overcoming inefficiencies in the $156 trillion market.
From distributed ledger technology (DLT) to tokenized deposits, each new innovation brings hope of transformation.
Yet, while these advancements are promising, we believe that achieving meaningful improvements in cross-border payments will require more than just technological breakthroughs – it will depend on strong public-private partnerships and careful regulatory alignment.
Technology’s Role: Promise and Reality
The buzz surrounding emerging technologies such as blockchain and artificial intelligence (AI) suggests they hold the potential to revolutionise cross-border payments.
Yet these technologies are still in their infancy when it comes to scalability, resilience, and broad adoption. Significant change will likely come from gradual evolution rather than overnight technological breakthroughs.
Take, for example, the case of digital remittances. In recent years, digital money transfer services have made cross-border payments faster and more affordable.
According to World Bank data, the cost of sending a $200 digital remittance has decreased to 4.84% as of Q3 2023, compared to the higher global average of 6.77% for non-digital transfers.
Though this is an improvement, it still falls short of the G20 Roadmap’s target of 3% .
Mastercard credits much of this progress to the private sector’s ability to identify friction points and leverage existing technologies to provide more efficient services.
Regulatory Hurdles: The Public Sector’s Role
While technology is undoubtedly a crucial factor, it’s clear that regulatory challenges also play a significant role in hindering progress.
Mastercard points out that differences in national regulatory, supervisory, and data localisation frameworks create barriers that make cross-border payments more expensive and less efficient.
For example, increasing data localisation laws – where governments mandate that data must be stored within national borders – often slow down the speed of payments and raise costs for service providers.
Privacy and data security concerns are legitimate, but they must be balanced against the global goal of making payments faster and more affordable.
Governments and regulatory bodies, including central banks, are under pressure to protect their citizens’ data, but this effort complicates the pursuit of interoperability and efficiency in global payments.
It should be emphasised that political will and global cooperation are needed to reconcile these conflicting goals and streamline regulations.
Collaboration: A Balanced Approach
The G20 Roadmap for Enhancing Cross-Border Payments, recognises that both the public and private sectors have essential roles to play.
However, there is an ongoing debate about what a true public-private partnership should look like. While public authorities stress collaboration, in practice, the private sector’s role often becomes limited to that of a “technical provider.”
In the case of linking Instant Payment Systems (IPSs) across borders, Mastercard points out that public sector entities often control the scheme’s roadmap and tech stack, leaving private-sector providers to carry out technical operations.
Such an arrangement risks stifling innovation and discouraging private-sector investment.
For cross-border payments to flourish, the private sector needs to be involved from the outset of project development, ensuring there is a clear incentive for banks and fintechs to invest in and adopt new payment solutions.
The Road to 2027: A Collaborative Future
As the deadline for the G20 Roadmap’s 2027 targets approaches, the clock is ticking for the private and public sectors to find common ground on how to transform cross-border payments – technology alone won’t deliver the needed change.
A balanced approach to regulatory alignment, operational roles, and commercial incentives will be essential.
Ultimately, while technologies like AI and blockchain are valuable tools in the payments modernization toolkit, the real drivers of change will be collaboration and regulatory reform.
By taking a holistic approach to these challenges, the global community can achieve the G20’s ambitious goals – bringing a world of faster, simpler, and more secure cross-border payments within reach.
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