Digitalization of cross-border payments

Integration of the international trade and financial systems accelerated and reached historically high levels during the 1990s and 2000s. However, cross-border payments have remained expensive, slow, opaque, and inaccessible to many, especially in lower income and emerging countries. Those hit harder are countries with a higher share of unbanked population, greater reliance on remittances, lower access to correspondent banks, and less liquid foreign exchange markets. Based on a sample of 112 countries, Bank for International Settlements (BIS) (2020) reports that the average total cost of a $200 bank-based cross-border remittance is over 10% of the remittance value. Remittances to developing countries exceeded US$550 billion in 2019 surpassing FDI and portfolio flows. At the same time, the share of adults without access to a bank account stands above 50% in parts of the developing world, such as SubSaharan Africa, North Africa and the Middle East (BIS, 2020). As a result, a majority of the population do not have access to banking services, including cross-border payments. These limitations have been widely recognized for some time, but not enough has been done to date. Countries tend to under-invest in solving issues of interoperability and in creating public goods available across borders – the international version of the collective action problem. We are living through a phase of unprecedented global drive to improve the efficiency of cross-border payments. The Group of Twenty (G20) has made enhancing cross-border payments a policy priority and the Financial Stability Board (FSB) has laid out a multiple stage roadmap to reach specific targets of achievements (FSB 2020a, 2020b; CPMI 2020). This drive in part reflects recent acceleration in the application of digital innovations. New digital technologies leverage the proliferation of cloud computing and mobile devices, explosion of big data on individuals and firms, advances in artificial intelligence, cryptography and the adoption of distributed ledger technology (DLT) such as blockchains. The strong complementarities between these technologies are giving rise to an impressive array of new applications touching on services from payments to financing, asset management, insurance, and advising. The possibility now looms that large technological companies (‘Big Techs’) and fintech startups may emerge as competitive alternatives to traditional financial intermediaries, markets, and infrastructures. The impetus has also come from the rise of digital currencies such as the prospect of Facebook’s Libra, which pledges to improve cross-border payments and promotes financial inclusion of the unbanked population (Adrian and Mancini-Griffoli 2019). The rise of global stablecoins such as the Libra could hark back to an era when the