Needed: Seamless international payments

India must use G-20 to push for a global rule book to propel economic growth, financial inclusion

In an age when the world’s economies are more interconnected than ever, the need for seamless and efficient cross-border payments cannot be overstated. Cross-border payments today primarily rely on a network of financial institutions like banks and technology systems.

In India, cross-border payments are regulated by the Foreign Exchange Management Act (FEMA), with individuals utilising the Liberalised Remittance Scheme (LRS) for permissible overseas remittances. Payment Service Providers (PSPs) play a pivotal role by facilitating secure international money transfers, providing foreign exchange services, ensuring regulatory compliance, and offering customer support for cross-border transactions.

Leading the charge are platforms like Paytm, PhonePe, and Google Pay, which have transformed the way individuals and businesses handle money. These PSPs offer convenient and secure options for mobile wallet payments, UPI transactions, and bill payments, making them the go-to choices for millions. With government-backed initiatives like BHIM, the Indian digital payments landscape is also gaining official support.

Traditional methods for cross-border payments involve correspondent banking relationships and the use of SWIFT for secure communications. International wire transfers, though a common practice, are often slow and costly. PSPs like PayPal offer alternatives with lower fees and quicker transfers. Some also turn to cryptocurrencies and blockchain for faster and potentially cheaper transactions.

However, several challenges remain like high costs, slow processing times, a lack of transparency, exchange rate fluctuations, complex compliance regulations, security concerns, and a lack of standardisation. To address these issues, efforts are underway to create more efficient and inclusive international payment solutions through real-time fast payment systems, blockchain, and regulatory reforms.

There are instances of collaboration between Fast Payment Systems (FPS) to enhance payment speed and efficiency: Singapore and Thailand (PayNow and PromptPay) and India and Singapore (UPI and PayNow). The Central Bank of India and the UAE signed two MoUs for using local currencies for cross-border transactions earlier this year. Also, India and Indonesia have signed an MoU to link their FPS. There are pilots underway across jurisdictions to ease cross-border payments. Interlinking the FPS is also beset with challenges like governance, rights and liabilities of participants, sanctions screening, certainty and promptness in settlement finality, and so on. 

India is hosting the G-20 summit this week in New Delhi under the theme Vasudhaiva Kutumbakam, which emphasises global interconnectedness. Cross-border payments have been a topic on the G-20’s agenda since 2020. This presents an opportunity for India to connect this principle with the creation of a common rule book for cross-border payments. It will involve establishing standardised guidelines and regulations to ensure fairness, consistency, and efficiency in global financial transactions. Such a rule book might encompass regulatory harmonisation across borders, data standardisation to reduce errors, robust regulations to counter money laundering and financing of terrorism, and the integration of cutting-edge solutions like blockchain technology and central bank digital currencies.

There are examples and developments that India can draw upo. The European Union’s Single Euro Payments Area (SEPA) stands as a shining model of regional cooperation, making euro transactions within member states as seamless and cost-effective as domestic payments. Additionally, Swift’s Global Payment Innovation initiative has demonstrated the potential of real-time tracking and faster settlements in cross-border transactions, showcasing the synergy between technology and payments. The exploration and testing of Central Bank Digital Currencies, exemplified by India’s Digital Rupee, offer promising prospects for faster and more secure international transactions. Furthermore, blockchain technology and cryptocurrencies, notably Ripple’s RippleNet, have shown potential to streamline cross-border payments by offering speed, affordability, and transparency.

The G-20 Summit and Global Fintech Festival can serve to catalyse the creation of a global governance framework for cross-border payments by addressing issues like high costs, governance, and regulatory challenges. Such a global governance framework for cross-border payments would also align with the G20 theme of unity and trust in fostering a more equitable and interconnected global financial ecosystem.

As we venture into the future, global leaders must remain resolute in pursuit of a more seamless, efficient, and inclusive international payment system. The collaborative efforts towards cross-border payments signify not only convenience but also progress and global cooperation.

(The writer is with Vidhi Legal Centre)