The Italian G20 presidency and the cross-border payments agenda
Piero Cipollone
Deputy Governor of the Bank of Italy
Pushing the frontiers of payments: toward faster, cheaper, more transparent and
more inclusive cross-border payments
BIS - Committee on Payments and Market Infrastructures Conference
19 March 2021
I would like to thank the Committee on Payments and Market Infrastructures
(CPMI) for inviting me to join this conference on 'Pushing the frontiers of payments'. The
Italian Presidency of the G20 greatly values the CPMI's commitment to moving the G20
roadmap forward on cross-border payments. The breadth of topics and speakers at this
conference proves that progress in international payments architecture can only come
from the wide-ranging and collective endeavour of private sector participants, public
authorities and academics.
The Italian G20 Presidency calls on world leaders to safeguard the 'three Ps' - People,
Planet and Prosperity.
'People' represents the view that we have to tackle inequalities and promote
equal opportunities, because no one should be left behind.
'Planet' underlines the idea that it is no longer possible to ignore the risks
our planet is facing, and that we have to make an effort to achieve a safe balance
between people and nature.
'Prosperity' means pursuing economic well-being and a better quality of
life, which implies making new technologies and the digital transformation an
opportunity for all.
The gist of what I am going to say is that enhancing cross-border payments is a
concrete and major step towards achieving robust, sustainable and equitable growth.
And by doing that, we will considerably contribute to each of the 'three Ps'.
Let me briefly explain this in some detail.
First: in this era of FinTech and high frequency trading, we can say that cross-border
payments have lagged behind the rest of the global financial system. As the FSB's and
CPMI's analyses have documented, fund transfers across different jurisdictions can still
be difficult to arrange and remain slow, costly, opaque and less secure.
These inefficiencies are ultimately borne, above all, by individuals and small
and medium-sized enterprises (SMEs). For them, transaction fees (as a percentage
of the payment being made) are normally higher than those borne by larger
corporations, especially for smaller payments, and execution times are slower. The
lack of transparency on costs, speed and security, and the complexity of the legal aspects
(such as compliance checks or dispute resolution) only add to the burden that they have
to bear.
Access to payment services is especially difficult for disadvantaged people, for the
unbanked and for those poorly literate in IT services (i.e. who do not make use of more
advanced IT services). The pandemic crisis has only made things worse. According to the
World Bank, in 2020, the crisis may have pushed more than 100 million people back to
poverty; poverty rates have increased for the first time in the last 25 years, back to levels
last seen in 2017.1 What is worse, it is jeopardizing future prospects for poverty reduction
by adversely affecting longer-term productivity growth.
For migrant workers, a vital financial service is the possibility to send remittances
to their families in the home country. For low- and middle-income countries, remittance
flows are a crucial source of external financing, greater than official development
assistance and more stable than private capital flows.2 Between 2010 and 2019,
remittance flows each year grew on average by more than 5 per cent, reaching $717
billion, of which $548 billion were to low- and middle-income countries.
The cost of sending remittances has declined over the last 10 years, but it still
stands at about 7 per cent on average: this is well above the G20 commitment in 2011 to
reduce the cost to 5 per cent and the UN Sustainable Development Goal target of 3 per
cent by 2030.3
For SMEs, the challenges for cross-border payments are no less daunting.
Transaction costs are proportionally higher for smaller payments. Opacity over execution
times, processing chains and dispute resolution is another major concern. The riskiness
of cross-border payments for small companies is magnified by the inadequacy, or even
lack, of their liquidity management or of foreign-exchange hedging and trade finance
services.
This is my first point: enhancing cross-border payments is vital for People.
Second: in our efforts to redesign the global payments ecosystem, we have to
be conscious of its link with the environment, which goes in both directions. Extreme
natural events may cause breakdowns in single nodes of the payment chain and have an
impact on international trades and funds transfers. Without electricity, it is not possible
to use electronic payment tools, such as credit and debit cards, or mobile services, or
wire transfers, and electronic cross-border payments cannot be replaced by cash. The
exposure of international payments to climate risk can be mitigated by the actions
envisaged in the G20 roadmap, if the payment system community manages to shorten
transaction chains, ease interlinking among infrastructures, increase execution speeds
and extend operating hours.
In terms of the environmental footprint of payments, the impact of a single payment
may be negligible, but it has to be multiplied by the sheer size of the number of transactions
that are being made globally on any given day. Studies on the environmental sustainability
of payment tools and systems are still in their infancy but, interestingly, there is evidence
that payments architectures may differ considerably in their energy intensity. Recent
research carried out at the Bank of Italy shows that the carbon footprint per transaction
in 2019 for TIPS (TARGET Instant Payment Settlement), the Eurosystem's platform for the
continuous settlement of instant payments, was a tiny fraction of the amount of CO2
emitted by other distributed-ledger-based networks during 2018.4 The reason is that a
centralized system tends to absorb less energy than a decentralized one, in which a lot of
such energy is spent on generating trust and consensus among network participants.5
In this regard, I also think it was wise of the G20 to decide that four out of the five
focus areas of the G20 roadmap aim to enhance the existing payments ecosystem.
Over the short term, leveraging on existing systems makes it easier for payment services
providers to ensure continuity for their business plans, while allowing them to contribute
to addressing the challenges identified by the Roadmap.
This is my second point: an appropriate design of payment systems is good for
the Planet.
My third and final point is that enhancing cross-border payments is a pathway
to Prosperity, as it clearly raises the potential for the growth of our economies
and for job creation. Easier and less costly access to international funds transfers
improves the participation of consumers in the markets for goods and services and the
integration of SMEs into global value chains and e-commerce platforms. It also facilitates
the management of liquidity and currency risks by large corporations, the international
mobility of workers and the countercyclical role of remittances. The way for public and
private sectors to jointly achieve these goals is to fully harness the opportunities offered
by technology and regulation. The advances in digital and web-based services, as well
as the continuous diffusion of mobile communication systems, will profoundly reshape
the infrastructures of domestic payment systems. Great benefits can be unlocked by a
joint public and private sector commitment to achieving a wider availability of safe and
sound services, a better alignment of regulatory frameworks, a greater consistency in
industry standards and market practices, the enhancing of interlinking facilities and the
development of new payment infrastructures and arrangements.
The agenda on cross-border payment is ambitious and we are fully committed to it
in our G20 presidency. Let me conclude by illustrating those themes that we at the Bank
of Italy are thinking about.
The first is the respective roles of businesses and governments in driving
structural change in the payments ecosystem. This will be one of the themes of the
G20 international conference on cross-border payments that will take place at the
Bank of Italy on 27-28 September 2021. In an ever-changing financial environment, we
need to strike the right balance between the private sector's drive for innovation and the
role of public authorities in safeguarding the public good. The responsibility for ensuring
that infrastructures and arrangements meet the needs and preferences of end-users and
intermediaries lies primarily with private market forces. Nonetheless, the authorities'
role is of the utmost importance: to ensure infrastructures' safe and sound operation,
to counter competitive distortions and market failures, to promote growth-enhancing
innovation and to provide public goods. In the field of payments, this has often led public
authorities to resort not only to regulation and oversight but also to investment in key
infrastructures.
The second theme at the centre of our reflections at the Bank of Italy, which is
also attracting much attention in many international fora, is what type of architecture
for cross-border payments platforms could complement or partially replace the
correspondent banking network. One option is to make 'local' systems interconnected
so that participants can clear and settle payments across systems (in one or more
currencies) without participating in each of them. Another option is to build up
cross-border and/or multicurrency payment platforms allowing each participant to clear
and settle payments across jurisdictions and/or currencies with their counterparties. Our
own thinking is that, while we are debating, we should bear in mind the need to achieve
results quickly. That is why we are investigating how far we can go using the currently
available infrastructure. An example of a payment system that can be used in various
ways for providing quick and safe cross-currency solutions for instant payments is TIPS.
From May 2022, following an agreement between the Riksbank and the Eurosystem,
Swedish banks will be able to settle their instant payments in krona in real time in TIPS.
Moreover, investigations are currently underway to explore the common instant payment
infrastructure in order to provide a cross-currency solution for instant payment.
A further step, currently at the 'Proof of concept' stage, could be a direct interconnection
between two systems for processing instant payments, namely TIPS and the BUNA
platform. This would be an example of cross-currency, cross-continent payment systems
integration, a path that could in the future become a sort of new frontier for central
banks and private systems operators.
Cooperation is key for countering the consequences of the pandemic at a lower cost.
Luckily, it seems that multilateralism is regaining vigour. This is essential as polarization,
distrust and inequalities are still pervasive in our societies. Payments across jurisdictions
are the bread and butter of future growth and prosperity, as they are a fundamental
condition for the international mobility of goods and services, capital, and people. Let us
join forces to enhance them to the best of our ability.
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