By Cary Springfield, International Banker
Cross-border payments sit at the heart of the global economy. They facilitate international trade, support investment flows, connect multinational supply chains and enable millions of people to send money across the world every day. Despite years of technological progress, however, cross-border payments continue to face distinct hurdles, especially when compared with the domestic payment space. It also appears that interoperability—that is, the ability of different payment systems, regulatory frameworks, standards and institutions to work together effectively—now represents the industry’s biggest obstacle, rather than technology.
In a globalised world, the challenges preventing efficient international payments have only become more glaring. The scale of these flows is enormous, with the value of cross-border payments projected to exceed $250 trillion annually before the end of the decade.
At the same time, expectations have changed dramatically. While consumers in many countries can now transfer funds domestically within seconds, international transactions often remain slower, more expensive and less transparent. “In domestic transactions, consumers experience payments that are largely instant and fully traceable,” Citigroup noted in a September 2023 report. “Increasingly, these same expectations are being applied to the more complex cross-border space. This is driving a ‘consumerization’ of corporate expectations, increasingly underpinned by a focus on speed, transparency, and cost efficiency.”
For much of the past decade, the industry’s response has been to focus on innovation, largely on the assumption that better technology would ultimately solve the industry’s long-standing inefficiencies. For instance, financial institutions have invested heavily in cloud infrastructure, application programming interfaces (APIs), real-time payment capabilities, distributed ledger technology (DLT), tokenisation and stablecoins.
The growing consensus among the cross-border industry’s leaders, including central banks, regulators and payment-industry participants, however, is that beyond technology, a crucial part of the overall challenge lies in the fundamental structure of the global payment system, with many underlying frictions affecting cross-border payments persisting. While domestic payments typically occur within a single legal jurisdiction, under a common regulatory framework and through a shared payment infrastructure, cross-border payments must bridge multiple countries, currencies, legal systems and financial institutions.
Even a simple international transaction is likely to involve several participants before the funds reach their final destination, including the sender’s bank, one or more intermediary correspondent banks, foreign-exchange (FX) providers and the recipient’s bank. It is also highly likely that all or most of those participants will be mandated to perform their own compliance checks, validate transaction data, manage liquidity balances and apply local regulatory requirements.
Anti-money laundering (AML) controls, sanctions screening, know-your-customer (KYC) obligations and fraud-prevention measures are applied throughout the transaction lifecycle, with multiple entities often performing similar checks for the same transaction using their own systems and risk models. While these safeguards are essential for financial integrity, they nonetheless incur significant operational complexity and cost. False positives, inconsistent data and varying regulatory interpretations frequently result in delays and manual intervention.
Transparency—or lack thereof—is another persistent challenge, as users still struggle to consistently ascertain the exact costs, timing and status dynamics of international transactions. With multiple intermediaries deducting fees along the payment chain and with foreign-exchange rates varying considerably between providers, payment tracking along certain corridors remains decidedly opaque.
Each payment system will also operate on its own schedule, use its own messaging formats and follow its own operating standards. Indeed, variations in data quality, field lengths, language requirements and information structures can create pronounced inefficiencies throughout the payment chain.
On the liquidity front, moreover, traditional correspondent-banking models rely heavily on maintaining set minimum balances, most commonly in pre-funded nostro and vostro accounts. Maintaining these balances can tie up capital, thereby creating cost issues and inefficiencies that can prove particularly challenging for smaller institutions that need to operate across numerous payment corridors and thus manage liquidity across multiple currencies and jurisdictions.
Has any progress been made in solving these bottlenecks? Several definitive gains have undoubtedly been made, perhaps none more significant than the launch of the G20 Roadmap for Enhancing Cross-Border Payments in 2020. Coordinated by the Financial Stability Board (FSB) and the Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI), the roadmap has sought to tackle the longstanding speed, cost and efficiency gaps between domestic and international payment systems. In doing so, it has shifted the industry’s focus away from isolated infrastructure upgrades and towards a broader programme of international coordination.
One of the roadmap’s most important implementation priorities has been the industry’s migration towards ISO 20022.
One of the roadmap’s most important implementation priorities has been the industry’s migration towards ISO 20022. Often described as payments’ “common language”, ISO 20022 enables financial institutions to exchange significantly richer and more structured information than legacy payment formats. Rather than relying on truncated or inconsistent payment instructions, ISO 20022 accommodates more detailed data on payers, beneficiaries, remittance information and transaction purposes to be transmitted alongside the payment itself.
The standard thus improves straight-through processing (STP), reduces manual intervention, strengthens sanctions screening and anti-money laundering checks, and enhances payment tracking and reconciliation. As such, it represents a major breakthrough for cross-border payments, creating a foundation for interoperability across different payment systems, jurisdictions and institutions. Major market infrastructures such as CHAPS (Clearing House Automated Payment System) and Fedwire Funds Services have already migrated, while many financial institutions continue to progress through their own transition programmes.
Adoption of ISO 20022 remains uneven across jurisdictions and institutions at this stage. While major payment systems have largely embraced it, many banks continue to operate a mixture of legacy and ISO 20022-based infrastructures. As a result, the industry remains caught between old and new operating models, limiting the full interoperability benefits that the standard was designed to deliver.
“Following publication of the harmonised ISO 20022 data requirements in November 2023, the CPMI [Committee on Payments and Market Infrastructures] has continued its engagement with market stakeholders to promote their implementation by end-2027,” according to the “G20 Roadmap for Cross-border Payments: Consolidated progress report for 2025”. “To support consistent implementation as the payments landscape evolves, the CPMI will maintain the harmonised data requirements at least until end-2027, during the current phase of the G20 cross-border payments programme.”
Recent assessments also suggest that many of the G20’s ambitious targets for speed, cost, transparency and accessibility are unlikely to be fully achieved within their original timelines. This does not reflect a lack of innovation; rather, it highlights the reality that improving cross-border payments requires coordination among numerous institutions, jurisdictions and infrastructures.
If interoperability has emerged as the industry’s defining challenge, it is because the payment ecosystem is becoming increasingly fragmented rather than increasingly unified. Payment systems must be able to exchange and process information efficiently, with standards such as ISO 20022 playing a critical role.
Regulatory interoperability is equally important, requiring institutions to navigate differing AML, sanctions, KYC and data privacy requirements across jurisdictions, while operational interoperability presents another hurdle, as payment systems operate under different business hours, settlement cycles and liquidity frameworks.
Finally, governance interoperability is becoming increasingly important as more infrastructures become interconnected, raising questions around rulebooks, liability allocation and dispute resolution. The main challenge facing the industry, therefore, is no longer simply building better individual payment systems, but ensuring that those systems can work together seamlessly across all four dimensions.
A notable response to this challenge has been the growing effort to link domestic real-time payment systems across borders. The last decade or so has seen countries invest substantial resources in instant-payment infrastructures, including India’s Unified Payments Interface (UPI), Brazil’s Pix, Singapore’s PayNow and the United Kingdom’s Faster Payments System (FPS). Bilateral arrangements such as the PayNow-UPI linkage between Singapore and India and the PayNow-PromptPay connection between Singapore and Thailand have demonstrated how domestic payment infrastructures can be extended internationally to deliver faster, cheaper transfers.
Broader initiatives such as the Bank for International Settlements’ Project Nexus aim to create a common framework through which multiple domestic instant-payment systems can connect without requiring each jurisdiction to establish direct links with every other participant. The project has progressed from a proof-of-concept initiative to an implementation programme, with participating jurisdictions targeting live deployment in 2027, thereby demonstrating how interoperability can be achieved without wholesale infrastructure replacement.
Taken together, these developments point towards a future payment architecture that is likely to be more interconnected than centralised. Rather than any single platform dominating global money movement, the industry appears to be moving towards what many describe as a “network of networks”, one of multiple payment ecosystems that include correspondent-banking networks, domestic instant-payment systems, card schemes, stablecoin networks and future tokenised-settlement platforms, all coexisting and serving different use cases.
The critical task, then, becomes ensuring that all networks can interact efficiently through shared standards, interoperable infrastructures and common governance frameworks. With fragmentation unlikely to be eliminated, success should be achieved by reducing friction across systems while preserving the strengths that each network brings to the broader payment landscape.