These two global money transfer ideas are worth a shot

The European payment system recently carried out a test linkup with Malaysia and Singapore under the Bank for International Settlements’ Nexus protocol, which is designed to transfer money between bank accounts in different countries in under 60 seconds. Meanwhile, monetary authorities in Israel, Norway and Sweden are testing a separate BIS-backed initiative that achieves the same goal of faster cross-border retail payments. Project Icebreaker uses central bank digital currencies, or CBDCs, instead of bank accounts.

There are no prizes for guessing which of the two is going to go first. Five countries in Southeast Asia, with a combined population of 490 million and a GDP of $2.6 trillion, have already decided to link their domestic instant payment systems. Nexus is the clear blueprint. Furthermore, CBDCs are mostly still undergoing pilot runs, or being evaluated for speed, scalability and privacy. The icebreaker cannot begin before tokenized versions of fiat currencies are widely available.

Still, consumers paying an average of 6.3% on a $200 transfer will welcome the options. Sending payment instructions via the SWIFT messaging system can take – a few minutes on the fastest routes – over two days on some of the slowest routes. The technology of correspondent banking in the late 18th century with the help of those messages is anachronistic in today’s world. In 64 countries, individuals are increasingly pulling out their smartphones to make payments from deposit accounts, expecting results in real time. According to the latest report by Fidelity National Information Services Inc., by 2026 bank account to bank account payments will account for 24% of e-commerce in India, 28% in Peru, 35% in Brazil and 45% in Thailand. ,

However, those transactions would take place in purely domestic settings. International borders complicate things by introducing barriers to exchange rates, sanctions lists, and money-laundering safeguards, among other constraints. Still, retail users and small businesses are tired of paying through their noses for money transfers, as are countries that rely on remittances sent back home by their overseas diasporas. According to the World Bank, a 5 percent reduction in prices could save $16 billion annually.

Nexus seeks to do just that. This would not be an app, but a normal language, such as the standard hypertext markup used in documents designed to be displayed in a web browser. This will eliminate the current barriers to communication between the two national payment systems. If I give someone my phone number, e-mail or Virtual ID in a country other than the one I’m used to receiving local money transfers, they currently won’t be able to use it to pay me because my information different for them. Edge. With Nexus, the protocol will look me up for the sender’s bank app, and display my full or partially masked name, so they have the certainty of paying the right person.

Banks shall display only their currency conversion quotations to the customers. Nexus will receive buy/sell offers from multiple providers. Fees will be disclosed upfront. The icebreaker will be similar to that of the Nexus, although it will not work with deposit debits and credits. When a transfer is made, fewer digital tokens will be left in the payer’s wallet; The recipient will have more. This would be analogous to a cross-border cash transaction, except that the icebreaker hub would be routing instead of covert “hawala” operators, who have offered this service in the Middle East and the Indian sub-continent since medieval times.

The cryptographic technology of hashed time-lock contracts, which effectively set up a digital escrow account, will ensure that the payee’s money either reaches the payee or does not leave the wallet at all. The fund won’t get stuck somewhere in the maze for a silly spelling mistake.

Icebreakers will need to do more to allay money-laundering fears from national authorities and make the new system easier for legitimate users. As the project’s researchers note: “How does someone in one country get the wallet address of someone in another country?” IBAN is an international standard for bank account numbers. Having something similar for digital wallets would be a great help.

The icebreaker advantage is that countries exploring a CBDC for domestic use will not have to worry that their distributed ledger technology of choice will get in the way of cross-border payments. The way the project has been designed, the money will not physically move abroad; Mutually incompatible technical systems can still participate in the exchange of value as long as each can connect to the Icebreaker Hub individually.

When it comes to money crossing borders, roughly $1 trillion each year is due to individuals and businesses paying each other. McKinsey & Co. According to , financial institutions charge them between 140 and 380 basis points. Small businesses are not robbed as badly as retail customers, although they still pay 35 basis points on their $6 trillion. Only large corporations, with an annual inflow of $90 trillion, have been able to flex their muscles and limit banks’ margins to 5 basis points. Technology can level the playing field. Whether it’s Nexus, Icebreaker or something completely different, the pace of experimentation in this area is an encouraging sign: cheap transfers that never came to a bank near you are finally coming to the smartphone in your pocket.

The text of this story is published from a wire agency feed without any modification.