Waller: Linking national fast payment methods does not solve cross-border problems | World News
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According to Waller, not all frictions that slow down payments are unwanted; certain frictions are deliberately built into the global payments system for compliance reasons | Representative image
While the G20 focuses on making cross-border payments less expensive and less time-consuming for consumers and businesses, Federal Reserve Board Governor Christopher J. Waller expressed concern on Wednesday that these goals may not be fully achieved by simply linking arrangements – that is, by ensuring interoperability between or within domestic rapid payment systems.
“Today, consumers and businesses in general can make payments anywhere in the world, but they all want faster and cheaper global payments, just as we want ever faster flights and cheaper airfares. However, I am not entirely convinced that interconnecting these arrangements will necessarily achieve those goals,” he said while speaking at the Global Fintech Fest in Mumbai.
Earlier this week, Reserve Bank of India (RBI) Governor Shaktikanta Das had highlighted that with the emergence of fast payment systems in various countries and experimentation with central bank digital currency (CBDC), new opportunities are opening up to make cross-border payments more efficient. He noted that maximum efficiency gains in such initiatives can be achieved by ensuring interoperability as a key design element.
According to Waller, not all frictions that slow down payments are unwanted. Certain frictions are intentionally built into the global payments system for compliance and risk management reasons.
“Slowing down the speed at which payments are processed will help banks prevent money laundering, counter terrorist financing, detect fraud and recover fraudulent or misdirected cross-border payments,” Waller said.
Waller stressed that the current practice of sending payments through a complex chain of correspondent banks contributes to slower payments that could benefit from efficiency improvements. However, he stressed that there is no silver bullet to increase speed and efficiency without compromise.
“Unless new solutions are found, linking fast payment systems could increase the risk management burden for the banks involved,” he added. Waller noted that legal, compliance and operational considerations are critical to the discussion on the benefits and challenges of linking. In addition, governance, oversight and settlement arrangements, as well as data protection concerns, also need to be carefully considered.
He also stressed that while the promise of interlinking technology, which essentially means interoperability between domestic fast payment systems, may sound simple, the practical implementation of interoperability is not so easy. The technology is probably the easiest part; the legal, compliance, settlement and governance challenges are bigger, he said, adding that new multilateral interlinking arrangements could potentially solve some of these challenges.
While some countries have established bilateral links between domestic fast payment systems, primarily to support remittances, Waller stressed that establishing bilateral links around the world simply isn’t scalable. “Multilateral arrangements might bring some efficiency gains, but they’re not a small undertaking,” he said.
First published: August 28, 2024 | 3:27 p.m. IS
