Nexus fast payment system could be the bank’s next big innovation


In over 60 countries, including many developing countries, it has become incredibly easy to send money in real time to someone else over the internet, knowing nothing more than their cell phone number.

However, 24/7 fast payment systems, a technology that is starting to work quite well for low value transfers in domestic situations, has no equivalent when money has to cross national borders. .

In order for a bank to transfer funds from one country to another, it must either be present in both or keep unused funds to maintain “match” relationships with other financial institutions in the middle. Payments take at least a few hours and sometimes get stuck. for days because of a typo in the recipient’s name, address or account number. That’s when we want to be able to just take out our phones and pay an individual or merchant in another part of the world on the spot using just their phone number.

This is why, in the months and years to come, we will probably hear more about Nexus, currently a blueprint developed by the innovation hub of the Bank for International Settlements.

Transfers are expensive. The global average cost of sending $ 200 was 6.4% in the first quarter of 2020, according to the World Bank. Fintech companies like Wise Plc (formerly TransferWise) and crypto players like Ripple Labs Inc. have, in their own ways, tried to solve the problem of high costs. One of the reasons to welcome the next official digital currencies is that several of them can share a technical bridge and allow participating central banks to clear each other’s IOUs. Users will benefit from instant settlement. Even in cross-border situations.

But there is another way: connect the smartphone-oriented home payment systems that are already growing in popularity. The problem is, with two countries, you need one link, and with three, you need three. Expand the network to 20 economies, and you need 190 connections. This is where “Nexus: A Model for Instant Cross-Border Payments” comes in.

Nexus will not be another application. Think of it as a global payments network, a set of rules – the Nexus Scheme – that any country can adopt. Then, it is a question of setting up payment gateways, the software. The banks on the gateway will compete with each other to offer foreign exchange. Once payment companies know what is expected in terms of compliance, currency conversion, and message translation, they will rush to provide additional services.

The sender will simply select “Make an international payment” on their existing application for domestic money transfers. He will then choose the country, define the amount and choose the most convenient address format for the recipient. For example, if it is possible to send money to Australia to an email address, cell phone number or business registration number, the Nexus protocol will allow the same for any payment to overseas to an Australian recipient. Once the sender enters this minimum required information, they will display the exact amount to be paid, along with the recipient’s full or partially hidden name to confirm that the money is going to the right person. A click on the “Send” button will see the funds appear in a bank account on the other side in a minute or less.

It’s an approach worth exploring. Domestic fast payments are now virtually free. Using the smartphone to cut most of the costs of a conventional international transfer would save huge amounts of money from the $ 540 billion received by low- and middle-income countries last year in remittances officially registered. Add the benefits to small online businesses that work with margins that are too low to accept cards or services like PayPal. The globalization of fast payment systems would mean that even family outlets can deal with customers anywhere and get paid in real time. This would have a democratizing influence on world trade.

This is the number one reason why the BIS report is taken seriously. The second is that it is backed by the Monetary Authority of Singapore and the National Payments Corporation of India. Singapore-India is a busy corridor for remittances. The MAS is a credible and pro-innovation regulator, and the NPCI oversees a strong national network. Known as the Unified Payment Interface, the mobile system cleared 4.9 trillion rupees ($ 66 billion) in May, five times the value of card transactions. Alphabet Inc.’s Google has recommended UPI to the Federal Reserve as a possible model for FedNow, the instant payment system the United States wants to put in place by 2023.

It’s still early days, but if India agrees to become the third pillar of Singapore’s recent mobile payment systems merger between Singapore’s PayNow and Thailand’s PromptPay, it may not be long before their rules of engagement are transformed. in Nexus Scheme, an international standard.

None of India’s three biggest digital wallet operators is a commercial bank: Google Pay, Walmart Inc.’s PhonePe and Paytm, the soon-to-be public Indian fintech. Facebook Inc.’s WhatsApp is tweaking its own competitor product. If the Indian-inspired architecture becomes the Nexus prototype, international transfers will no longer be the preserve of finance. Mainstream Internet businesses can dominate, with banks passively receiving and sending funds. Less fat costs.

With Nexus, it will be possible before pressing “Send” to determine if the payment will be successful. For example, by validating that the recipient’s bank account is operational and by verifying compliance with anti-money laundering rules. The uncertainty associated with one-way communication – filling out a paper or digital transfer form and waiting for confirmation from the other end – will become history. “Can you wire me the money?”

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for The Straits Times, ET NOW and Bloomberg News.

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