In Cross-Border Payments, Settlement Type Matters


As recently as two months back, we provided member research on the cross-border B2B payments landscape, which has been one of the hotter topics during the previous six to 24 months. In this research we pointed out that the largest cross-border value transfer category exists to satisfy intra-corporate liquidity and foreign exchange needs, capital market transaction settlements, syndicated loans, and bank reserve transactions. These value transfers are not part of the various B2B cross-border payment market value estimates since they are not directly associated with providing goods and services. In many cases, they are book transfers without foreign exchange involvement, with the value associated on all annual U.S. non-cash funds movement (domestic and cross-border) for all uses, including bank reserves, at more than $1 quadrillion. So, one can see that far more funds movement takes place than payments associated with cross-border commerce, which we estimated at $33 trillion, or 3.0% of the total funds transfer value.  

Even more recently we updated through these pages on the latest endorsement of wCBDCs, this coming out of the BIS through their CPMI committee. In this referenced article posted on Fintech Futures, the author goes more into the BIS report and the settlement differences between a PvP cross-border version and one done by continuous linked settlement (CLS), or a central bank approach.  

In effect a PvP cross-border settlement model is less risky since in its best iteration it allows value transfers to occur simultaneously between banking entities based on their own positions at a specific point in time, not necessarily following pre-funding requirements at central banks. So the BIS version utilizes DLT and stablecoins in the truest sense, meaning less FX interference based on the intrinsic safety of a trusted stablecoin.  

Obviously there are limits now given the lack of available stablecoins and multilateral transfer systems, but that is what has been building quite steadily now for the past six to 12 months. The expectation is that the technology will rapidly evolve over the next few years, and we have already pointed out some of these projects in the referenced prior postings.  

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.



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