Why public-private collaboration is critical for meeting G20 cross-border payments targets

As cross-border payment flow is one of the areas I am responsible for at Mastercard, I am often asked what new technology will be decisive in transforming cross-border frameworks. Technologies I am asked about vary from cross-border distributed ledger technology payment systems to tokenized deposits to the topic of the day, AI.

New technologies are akin to bright shiny objects – they grab our attention and we become excited about their potential to solve the problems inherent in today’s cross-border flows. And advancing technology is clearly one of the areas in which the private sector can make a significant contribution.

But true change, at least in the short- to medium-term, is not likely to come from a technological breakthrough. New technology takes years, if not decades, to scale and achieve appropriate levels of resilience.

The G20 Roadmap for Enhancing Cross-Border Payments, endorsed by the G20 Nations in 2020, sets a deadline for lowering costs and improving speed, access and transparency of payments across borders by 2027. When I look back over the last four years since the Roadmap’s inception, I can see technological advancements are contributing to the private sector’s successes in improving the cross-border payment experience, but true breakthroughs are hard to find.

Change is happening, to put it simply, because payment system participants are applying technology to address pain points. We are looking at the payment chain, identifying frictions and utilizing available solutions to address these issues.

Taking remittances as an example, digital money transfer organizations provide users with a low-cost, transparent and faster option to send money across borders. Based on World Bank data, as of Q3 2023, the cost of sending a $200 digital remittance was 4.84%. Comparatively, the global average for non-digital remittances was 6.77%.

Although this cost of sending a digital remittance is higher than the 3% target set by the G20 Roadmap, it is promising to see the cost of digital remittances steadily declining since 2012 and being below the global average cost of remittances since at least 2016.

The user benefits of digital remittances are made possible by the private sector taking action to digitize remittance initiation, funding and transfer.

Companies like Mastercard have also been at the forefront of modernizing the cross-border payments ecosystem by providing broader networks, foreign exchange and enhanced capabilities, such as highly sought-after Know Your Customer and Treasury services.

Mastercard Move, our comprehensive portfolio of money transfer solutions, offers access to 95% of the world's banked population in 180 countries. Our solutions give end users transparency and choice by enabling trackable payments, visibility of fees and the option to receive payouts to bank accounts, digital and mobile wallets, cards and cash.

Technology’s ability to facilitate faster, cheaper and safer cross-border payments is limited by differences in national regulatory, supervisory and oversight frameworks; central bank operating hours; access to central bank payment systems; and national data protection, privacy and localization requirements.

On data localization, for example, governments across the globe continue to introduce new requirements that mandate data be stored on soil and forbid or severely restrict the transfer of certain data outside of a particular country or region. Privacy and data security concerns are often behind the increase in data localization requirements.

Governments and policymakers rightly feel a responsibility to protect the privacy of their citizens and to ensure high levels of security around sensitive user data. Data barriers, however, slow down the speed of a payment and increase its cost - an example of how the Roadmap’s targets can conflict with other important policy goals.

Political will is needed to address these competing policy objectives, not just domestically but at the global level.

Central banks and other public authorities have stressed that partnership between the public and private sectors is crucial to achieving the Roadmap’s targets. They have, however, in practice raised high expectations on what the private sector should deliver.

Take the linking of instant payment systems (IPSs). This holds promise to improve the efficiency of cross-border payments, but here we are seeing models emerge where the public sector would have full control of the scheme, its product roadmap, the tech stack and IP.

A private sector provider of services would be relegated to the role of a technical provider and would need to accept that arrangement and perform the technology-related activities the public sector is not capable of doing. Is this the private sector’s definition of public-private partnership?

We at Mastercard have spent a lot of time thinking about the delineation of responsibilities between the scheme owner, technical operator and IPSs – specifically, what it would take to incentivize stakeholder participation, promote adoption and facilitate scale and viability. Our views are outlined in a recent whitepaper, but a key point is that there must be a give-and-take of roles and responsibilities and thereby control, between the scheme owner, technical operator and IPSs. To arrive at models that achieve these outcomes, the private sector should be consulted from the very start of the development process, not in the middle or near the end.

Even if a reasonable position can be reached in relation to the roles played by the different sectors in providing the service, there are still numerous difficult commercial considerations. The end product has to be sufficiently differentiated from what is available today in price, features, safety and user experience, to attract banks to do the necessary development to provide the service to their customers and to entice consumers to adopt the relevant form of payment. Certain 'digital' on ledger designs face similar questions on technical development, as well as the costs of transitioning between digital and fiat currencies.

Novel designs, even if underwritten by public sector support, may not translate to adoption in the same way as we have seen with IPSs domestically. Looking at the many bilateral cross-border connections, none of them has yet scaled to the sort of volumes that would justify serious private-sector investment. To succeed, cross-border incentives and commercials have to work.

Mastercard is committed to a world where cross-border payments are fast, simple and secure. We have been a supporter of the G20 Roadmap since its inception. As a member of the CPMI Payment Interoperability and Extension Taskforce, I greatly appreciate the opportunity to engage with the public sector. But almost four years into this process, we need to be clear on what the public and private sectors believe their respective roles should be. With the 2027 target deadline looming, we don’t have time to make assumptions that good ideas will translate into private sector participation or to be distracted by bright shiny objects.