For release on delivery
2:00 a.m. EST (9:00 a.m. local time)
February 15, 2024
Advancing Cross-Border Payments and Financial Inclusion
Remarks by
Michelle W. Bowman
Member
Board of Governors of the Federal Reserve System
at
19th BCBS-FSI High-Level Meeting for Africa
Cape Town, South Africa
February 15, 2024
Introduction
Thank you to the Financial Stability Institute of the Bank for International Settlements
and especially to its Chair, Fernando Restoy for the invitation to speak about these important
topics.1 I'd also like to thank the South African Reserve Bank for hosting this gathering. It is a
pleasure to join you in Cape Town, and I am delighted to speak with you about advancing cross-
border payments and financial inclusion. I find great value in engaging with and learning from
our international colleagues on these international and domestic issues.
We are all participants in a global and interconnected financial ecosystem, and payments
are a vital component of this system. The payments landscape continues to evolve, through
infrastructure upgrades, innovation, changing consumer preferences, and advancements in both
the public and private sectors. Faster, cheaper, more transparent, and more inclusive cross-
border payment services offer widespread benefits for citizens and economies around the world,
with the potential to support economic growth, international trade, global development, and
financial inclusion.
This global ecosystem is comprised of individual jurisdictions, each with its own history,
public policy objectives, payment infrastructures, and regulatory environments. Within these
independent economies exist a wide range of businesses and consumers, all with vastly different
needs and requirements. As policymakers, we must consider not only how to foster safe,
efficient, and accessible payment and settlement infrastructures to support the broader financial
system but also how those same systems and infrastructures can support the needs of consumers,
businesses, and financial service providers. This includes support for responsible innovation and
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enabling providers, such as banks and other nonbank financial service providers, to meet the
evolving needs of their customers.
In many cases, the policy tradeoffs we face domestically are amplified in the cross-border
context. To foster safety and efficiency in the payment system, it is imperative to seek
improvements that support an accessible and inclusive system that works for the broad spectrum
of different participants, while still maintaining rigorous risk, fraud prevention, and compliance
standards that are critical for protecting participants and the overall system. It is also important
to note that these issues are complex and will not be resolved through advances in technology
alone. Rather, changes in technology must align with the evolution in individual behavior and
market conventions, and when this does occur, it does so only over time.
Today, I will share my views on the evolving cross-border payments landscape, discuss
how financial inclusion is framed within this broader context, highlight the roles that both the
public and private sectors play, and identify actions that the Federal Reserve is taking to improve
payment system infrastructures and support responsible innovation. Throughout, I will highlight
the key challenges and public policy tradeoffs that we, as policymakers, should consider.
Complexity and Challenges of the Cross-Border Payments Landscape
Cross-border payments face a number of challenges, including high costs, low speed,
barriers to access, and limited transparency.2 Today, cross-border payments are carried out
through a diverse, multilayered set of networks and are inherently more complex than domestic
payments as they involve multiple participants, infrastructures, currencies, time zones,
jurisdictions, and legal and regulatory frameworks. These challenges add complexity and create
frictions in the cross-border payments process, leading to higher transaction costs and slower
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processing times for consumers and businesses. To help address these frictions, the G20
countries agreed in 2020 to a multiyear roadmap to identify and develop improvements to cross-
border payments.3 The G20 Roadmap for Enhancing Cross-Border Payments is an instructive
example of collaboration across jurisdictions, engaging in international dialogs and working with
the private sector to identify how best to ease unnecessary frictions.
As one who values efficiency, I am generally supportive of opportunities to address
unnecessary frictions. However, when considering frictions related to cross-border payments,
some are necessary while others may not be necessary. Any discussion of these frictions must be
nuanced and properly contextualized since there are public policy tradeoffs and operational
realities that must be considered. Some frictions may be the result of intentional policy choices
and safeguards implemented to protect the parties involved in a transaction while also protecting
the financial system as a whole. Other frictions may result from consumer or business
preferences. As policymakers, we must consider all of these frictions within this broader
context.
Let's take compliance requirements as an
example. Banks play a critical role in
implementing compliance and reporting requirements that support public policy objectives,
including the deterrence of financial crimes and countering terrorism finance. In the United
States and other jurisdictions, banks balance this need for transparency to deter crime with the
need to protect the privacy of consumer financial data.4 While regulatory compliance
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requirements add complexity, particularly in cross-border payments, it is a complexity that
results from the discretion to apply various compliance frameworks in different jurisdictions.
With this in mind, we can consider ways to encourage more consistent implementation of
rigorous international standards and continue to support the development of new technologies
and solutions that help automate processes, reduce costs, and promote effective safeguards across
jurisdictions.
As I have discussed in previous remarks, while conversations on payments innovation
often focus on technological capabilities as the solution to realizing certain benefits, technology
on its own is not always the driver of realizing these benefits since many of these issues are
grounded in policy choices and operational realities.5 However, it is still important to assess
potential opportunities for technological innovation and the benefits technology could provide
within the broader context of a robust, well-functioning global banking and payments system. I
have long supported responsible innovation that solves specific problems and enables financial
service providers to meet the needs of consumers and businesses in a safe and sound manner.
Despite the difficulty and complexity of overcoming cross-border frictions and
challenges, we can work together, through the G20 and in other collaborative settings, to identify
ways to make incremental and tangible progress. There are many tools to consider-such as
infrastructure improvements, sharing best practices across jurisdictions, improving data flows,
and recognizing innovative technologies and business models. This work will likely require a
combination of these tools to reduce unnecessary frictions while still achieving significant policy
goals.
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Payments and Financial Inclusion
I will turn now to discuss financial inclusion, which is an important lens through which
policymakers should consider these challenges.6 Many features of the payment system-such as
access, cost, and speed-have profound implications for financial inclusion. In my view, the
payment system and the broader economy are most efficient and effective when there is broad
participation, when unnecessary frictions are minimized, and when banks, especially smaller
financial institutions, can provide services to meet consumer demand in a safe and sound
manner. An inclusive financial system offers accessible choices that meet consumers' needs and
enhance their financial well-being. From a consumer's perspective, this means the opportunity
to make payments, to build wealth and gain access to credit and other needed financial services
to participate in an increasingly digital and interconnected economy.
Access to the payments system enables consumers to meet financial obligations by
receiving and transferring money safely and in a timely manner. Reliable, cost-efficient payment
services promote financial inclusion by providing consumers with options that meet their various
needs. This is critical because financial inclusion is not a one-size-fits-all solution. In the U.S.,
for example, consumers come from a wide range of economic circumstances; have varied
perceptions of and experiences with the banking system; and, most importantly, have different
needs when it comes to financial products and services.
It is also essential to note that gaps in financial inclusion differ across jurisdictions. In
some cases, these gaps stem from the limited availability of and individual ability to access the
various types of payment and financial services provided in different countries. This varied
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access to services may be due in part to unique regulatory environments and consumer and
business preferences. Thus, policymakers and service providers within each jurisdiction are best
suited to tailor solutions within their own domestic context.
Although each jurisdiction is unique, we as policymakers should be willing to collaborate
and assess opportunities for systemic improvements that could provide widespread benefits,
including the work of the G20 in support of cross-border payments. Minimizing unnecessary
frictions is a worthy goal whether the intended beneficiary is an international financial
institution, a small business or nonprofit managing cashflow with international customers, or a
consumer simply seeking to send and receive payments, needing to do so safely without
excessive fees or experiencing extended delays in receiving funds.
In the context of cross-border payments, global remittances can also play a significant
role in expanding financial inclusion. In some countries, these remittances are an economic
driver by serving as a key source of funding for some households, which can provide a path to a
more inclusive economy. As a result, it is critical that consumers can send and receive these
types of payments safely, efficiently, and affordably. Research has shown that the ability to
receive remittances increases the probability of having a bank account and contributes to
economic engagement.7 Yet, high fee structures for remittance services can have a significant
impact on households sending money abroad. Recent data show the average cost for sending a
$200 remittance from the United States was approximately 5.8 percent of the transaction amount,
or about $12.8 The G20 countries have reaffirmed the United Nations Sustainable Development
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target for reducing average remittance fees to below 3 percent by 2030.9 Encouraging more cost-
effective remittance services could result in a greater proportion of funds reaching the intended
recipients, which could further bolster their economic capabilities.
Roles To Be Played by both Private and Public Sectors
But how might we achieve some of these more efficient and cost-effective payment
systems? Both public- and private-sector participants have critical and complementary roles in
advancing financial inclusion within a given jurisdiction and improving the efficiencies of cross-
border payments and remittances.
The payments industry has long relied upon innovation to meet the evolving needs and
expectations of consumers and businesses. In an increasingly digital economy, these innovations
offer valuable options for consumers and business to send and receive payments in more
convenient and cost-effective ways. Today, the private sector offers opportunities to expand
access to digital payments and other financial services. For example, in the U.S., the Bank On
program promotes a national standard for customer bank accounts that are both low cost and low
risk.10 Other jurisdictions have incorporated improvements in financial access through mobile
money transaction accounts. Some payment service providers have established partnerships to
expand upon the options available to consumers and businesses for sending and receiving funds.
Other private sector initiatives are exploring technology enhancements to offer more
convenient digital options for consumers and businesses to send remittances or make payments
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across borders. These private sector developments complement ongoing public sector cross-
border initiatives, including the G20 work. Continued collaboration like these efforts across the
public and private sectors must support responsible innovation, including a well-defined
regulatory perimeter that protects consumers and the broader financial system.
I'd like to
take a moment to highlight two instances in which the Federal Reserve has
provided clarity to support financial inclusion within a framework of responsible innovation.
First, the Fed issued an interagency statement in support of banks engaging in small-dollar
lending.11 This guidance underscores the importance of financial institutions offering small-
dollar loan products to consumers and small businesses that support successful repayment
outcomes and that avoid continuous cycles of debt due to rollover and reborrowing.
Additionally, the statement recognizes that these products can help borrowers transition into
other types of credit-based financial products. Second, the Fed also issued an interagency
statement on the use of alternative data in credit underwriting.12 This guidance clarifies that with
a customer's consent, a bank can use alternative data, like checking account balance activity, to
help evaluate the creditworthiness of a potential borrower who might not otherwise qualify for a
loan. In both cases, timely guidance has sought to support responsible innovation and leverage
customers'
the cashflow information on deposit accounts to meet their needs.
While I have highlighted a few examples that illustrate the connection between payments
and financial inclusion, the Fed supports and participates in several initiatives to broadly enhance
these efforts. These efforts will continue to work toward fostering a U.S. economy that works
for everyone.13
Payment System Improvement and International Collaboration
Finally, I would like to highlight some recent Federal Reserve activities that support
domestic and international payment systems improvement and responsible innovation. The U.S.
financial and payment systems currently support the effective transmission of funds, and our
work will continue to evaluate opportunities to improve upon an already safe and efficient
system. The recent introduction of the FedNow® Service, our new interbank system for instant
payments, and our commitment to adopt the ISO 20022 messaging standard for the Federal
Reserve's wholesale payment service
by March of next year demonstrate this ongoing effort.14
Over the longer term, the Federal Reserve will continue to conduct research and assess
innovative technologies and business models to better understand their potential role in the future
payments and financial ecosystem. This analysis must include a consideration of potential
opportunities, risks, and tradeoffs primarily for cross-border payments and secondarily for
financial inclusion.
The Federal Reserve also works closely with our international counterparts on payments
innovation and related topics. This includes work with multilateral institutions including the
Bank for International Settlements, the G7, and the Financial Stability Board, as well as bilateral
engagements with other central banks. As I've discussed today, continued collaboration among
public-sector institutions and across the broader payments community will be essential for
fostering progress toward a more inclusive, effective, and efficient cross-border payments system
that works for everyone.
Conclusion
The payments landscape is complex, and it continues to evolve in response to consumer
and business needs. Policymakers must continue to consider opportunities to improve domestic
and cross-border payment and settlement infrastructures and seek to further broader access to the
financial system. At the same time, we must recognize that these challenges present
opportunities to refine public policy decisions understanding the tradeoffs and the distinct needs
and circumstances across jurisdictions and among consumers and businesses. Opportunities to
discuss these issues, as we are today, are essential for creating opportunities to learn and
collaborate.
Our progress will likely be incremental and slow, requiring a longer-term view. The
safety of our financial system requires that we get this right, and our pursuit of improvements in
the payments system must avoid the temptation to rely on new technology alone. This will
require us to thoughtfully consider the many policy choices that lead to these improvements.
Thank you for the opportunity to share my views on these issues, and I look forward to
examining them further during the upcoming panel discussion.