A real-time cross border payment pilot linking the U.S. Dollar and the euro is underway and there’s not a blockchain or central bank digital currency (CBDC) in sight.
The effort, called the Immediate Cross-Border Payments (IXB) pilot service, has been developed by three well-known financial institutions — The Clearing House (TCH) in the U.S., EBA Clearing in Europe and SWIFT.
In a pre-Sibos announcement, the consortium said the service has been developed with the support of 25 financial institutions from both sides of the Atlantic and has been progressing during the past six months. The service that takes advantage of existing building blocks to ensure a shorter time to market and to leverage existing investments, the firms said in their announcement.
Specifically, it will synchronize settlement of The Clearing House’s real-time payment (RTP) infrastructure with EBA’s RT1 real-time payments. Speaking from the floor at Sibos, Rusiru Gunasena, senior vice president, RTP product management at TCH, said the proposed cross-border payments settlement platform had generated a lot of interest from other operators and banks.
Some of the widely touted alternative such as blockchain and digital currencies are not there yet, he said.
“Blockchain from a technological perspective is not mainstream yet,” he added. “A lot of people thought digital currencies were promising, but that got battered and went away as you can see from crypto prices.” Central bank digital currencies are still attracting attention with China pushing at the forefront, he added.
“But when we look at purpose-built digital, that doesn’t transfer across borders.” Financial institutions would still need international cross-border infrastructure to do the currency conversion. Moving digital dollars raises technical issues such as how to settle across multi CBDCs, he added. Tokenization could play in that, but it is still in early stages, he added.
Using existing components makes integration easier for participants, he added.
“We are building in modern technology — cloud-based, AI, microservices — and we want to build for multiple currency corridors. Innovation can come from connecting people together. We are trying to bring existing mature functioning payment systems that operate at scale to do cross-border.”
Another advantage of building with existing technologies is that regulators understand it and are comfortable with it, which also helps improve speed to market and adoption. IXB is looking at other currency corridors, he added.
“We are looking at the Asian subcontinent — you can’t ignore them. We met with UPI from India. It is fascinating what they are doing. We will prioritize based on demand, the commitment of operators and the technical resources.”
One corridor might have greater demand for P2P while another could be more interested in B2B, he added. A payment corridor between the U.S. or Europe and India will enable parents in India to send money to their children studying abroad and make it easy for Indian ex-pats to send money back to families in India. One advantage of real-time is that parents, or business purchasers, don’t have to send a payment a week ahead of time to ensure it arrives in time for a child’s school fees or a manufacturer to ship.
“You can wait until the last moment so you have more liquidity.”
IXB should become operational in 2023, said Petra Plompen, head of new initiatives at EBA CLEARING. “We look forward to the important insights and learnings we expect to gain from this pilot phase,” she said. Gunasena said: “The connection between RTP and RT1 delivers a new way of moving money across borders safely, quickly, and at lower cost. The IXB model is also designed to add additional currency corridors in the near future.”