As digitization deepens, the need for seamless cross-border transactions becomes critical, which is also the entry point for the integration of regional payment infrastructure, aiming to establish connections between the financial arteries of different countries.

The Bank for International Settlements (BIS) recently released a compelling study titled “Regional Payment Infrastructure Integration: Insights from Interconnected Faster Payment Systems.” The report illuminates the historical significance of public sector support in driving successful integration efforts, highlighting the potential of new shared platforms to streamline these connections while acknowledging the complexities that arise when theory meets the messy realities of the real world. Here, the public and private sectors find themselves at a crossroads, with the choice to collaborate or forge their own paths. Ultimately, the paper argues, it is policy rather than technological constraints that determine the degree of fragmentation or integration.

More than just a technical activity

It’s about establishing a common language for how transactions are processed, cleared and settled across borders. Additionally, strong governance structures are critical to ensuring the security and financial integrity of these interconnected systems. Building cross-border trust and adapting regulatory frameworks can be a time-consuming and complex process.

The global popularity of FPS

The report warns that even these innovative systems will struggle to attract users in a single country, underscoring the potential of publicly owned FPS models. Focusing on inclusivity and competition, these systems can meet the needs of a wider range of users and cultivate a more dynamic financial ecosystem.

But public ownership is no panacea. The report acknowledges the importance of including non-bank financial institutions in the integration process to improve access for underserved users who may not have traditional bank accounts. Additionally, incorporating cross-border capabilities into FPS expands its utility and opens doors for businesses to participate in global markets.

While the BIS report paints a picture of the potential benefits of integrating regional payments infrastructure, it also hints at some potential pitfalls. A key point of contention is collaboration between public and private actors – public entities driven by social good may prioritize different goals than private actors focused on profitability, potentially leading to system design, pricing structures and differences in risk management approaches.

The balance between competition and interoperability

Healthy competition can drive innovation in the FPS field. However, unfettered competition can lead to a fragmented landscape where different systems do not work well together. The ideal situation would be to promote competition among FPS operators within a system that ensures smooth interoperability. Users should be able to seamlessly transfer funds between different systems without unnecessary roadblocks.

Standardization of cross-border payment systems

Establishing common standards is critical to efficient operations, however a one-size-fits-all approach may not work in all regions. Local regulations, cultural preferences and existing infrastructure all play a role, and finding the right balance between standardization and regional adaptability is critical for successful integration.

In summary, regional payment infrastructure integration offers a promising path towards a more connected financial world. The BIS report reveals the key factors that contribute to the success of these initiatives. By promoting public-private collaboration, fostering healthy competition within interoperable systems, and adopting a nuanced and standardized approach, the dream of seamless cross-border transactions can become a reality. This, in turn, could pave the way for stronger regional economies and a more inclusive financial landscape for all.