Digital cross border payments are the key to global financial inclusion.

With large swaths of the global population less able to share in the wealth created by greater global commerce, the G20 set out in 2020 to support new technologies that might eradicate poverty and enable income equality by enhancing cross border payments that will encourage financial inclusion.

The Financial Stability Board (FSB) was given the responsibility to help develop cross border payment schemes between countries and systems. The first challenge to address was the incompatibility of systems, and this is where application development comes in. Application program interfaces (API’s) can tie divergent financial software systems, make them compatible, and as a result, improve and expand financial services.

The key to all these early efforts to improve cross border payments and increase financial inclusion is to reduce the digital access gap between countries and within populations. The goal was to make sure digital payments and remittances were fast, cheap, transparent, and accessible to all citizens. It also needs to be safe and secure. Central banks were asked to work with the Bank for International Settlements (BIS) to create a system of interlinking payments. The system of interlinking payment systems is critical for enhancing cross-border payments. At the same time, there are challenges:

• The regulatory environment for money movement across borders can be different country to country.
• Transaction costs for effortless cross-border payments can be high. Banks and other financial institutions involved can have varying transaction costs, depending on the region they are located in. This could impact the cost of digital payments.
• Transaction security has been the top concern with regard to cross-border payments. Securing financial transactions against fraud and cybercrime in correlation with anti- money laundering initiatives is key.
• Lack of standardization and interoperability between different payment system infrastructures and protocols makes it harder to transfer funds seamlessly.

Is the solution to inclusive cross border payments Open Banking?

Open banking can be defined as banking that uses customer data, legally collected by banks, and shared with third-party developers and firms to allow applications that can be developed to provide better services. Services such as real-time digital payments, financial transparency options for account holders, and marketing and cross-selling opportunities are just a few of the services that can be developed. Open banking creates a system where users can share financial data with third-party service providers through an open API. These open APIs allow more industry players to enter the ecosystem while giving a competitive advantage to existing banking institutions. The system can be digitally and technologically democratized, thus eliminating financial exclusion becoming more responsive to populations in need. As with every great initiative, there are drawbacks. Open Banking has the potential to tackle more challenges like reducing transaction costs, increasing transparency and control, and enable customers to make responsible financial decisions. The challenges that remain and must be solved are ensuring shared financial data and educating customers about their own data privacy responsibilities. It is likely that both are solved with the increased sophistication of security systems, and the emergence of generations with the right amount of cynicism when it comes to the use of technology.

The key to financial inclusion in cross border payments are governments that must serve their populations.

Governments are the other necessary partner in the equation that leads to political and social stability. Regulations that prevent versus provide would be a missed opportunity and detrimental to the greater societal good of financial inclusion. This is where standardization comes in. A system that is standardized for one part of the globe must be acceptable to another. Again, the democratization of finance. APIs should enable the implementation of standardization within financial systems.

The International Standardization Organization (ISO) has an international standard for electronic data interchange between financial institutions. It covers a wide range of financial services such as payments, securities transactions, and trade finance, and is clearly meant to ensure that governments act in cooperation with one another, which is the only way global commerce and cross border payments can thrive.

The role of fin-tech in the solution of cross border payments and financial inclusion.

New payment system technologies such as mobile payments and distributed ledger technology to improve efficiency, effectivity, reliability, and accessibility for customers has been recognized by the G20, and through the Digital Economy Task Force, the G20 has been exploring the many opportunities and challenges presented by new payment system technologies.

With the emergence of AI, there must be a commitment to include this technology as it can exponentially and continually evolve all systems of standardization and the continued improvement of the API’s.

The way forward.

The recently adopted G20 roadmap, under G20’s Indian presidency, has given digital technology a special push. With the growth of fintech solutions and investments, it is now a critical to lay out a framework for interlinking payment systems between countries to enable a common API standard to be used as reference. Standards, in conjunction with harmonized APIs for financial services, as explored within open banking systems, can be applied in different regions to execute the roadmap for interlinking payment systems.

Three vital areas to focus on are:

• INTERLINK ARRANGEMENTS: Payment and currency arrangements.
• API’s STANDARDIZATION: Account and financial info aggregation.
• PAYMENT SYSTEM INTERLINK: Wholesale, retail, and fast payment systems.

The technology and the efficiencies of fintech implementation can effectively disrupt the antiquated systems that are hampering the globalization of cross-border payments and slowing financial inclusion.

This is the great challenge and opportunity for all the world’s governments.Howard Davidson is the CMO at AlmondFinTech

Almond FinTech is a B2B technology company making financial services affordable and accessible to people around the world, regardless of income. Through our multi- blockchain cross-border transfer protocol, we remove financial barriers and deliver transfer and credit scoring tools that empower everyone, everywhere. www.almondfintech.com