Cross-border payment services in review by BNM

KUALA LUMPUR – Bank Negara Malaysia (BNM) is in the process of reviewing cross-border payment services with other countries.

Bernama reports that the central bank’s Governor, Tan Sri Nor Shamsiah Mohd Yunus, said that it is critical for economies that are small and highly open, just like Malaysia’s, to have an effective cross-border payment service in order to facilitate trade and commerce with its neighbouring countries as well as other nations worldwide.

She said that the services being reviewed include linking the DuitNow quick payment system with the other ASEAN countries.

She calls the move “a no brainer” as DuitNow is a widely used system within Malaysia that allows millions of individuals and businesses to transfer money quickly and seamlessly.

“So, imagine if we could do the same for the entire region to make cross-border payments much cheaper, quicker, more transparent and also accessible to more than 600 million of us in this region. The economic impact can be substantial,” she stated.

Furthermore, she explained that the economies in ASEAN countries are highly integrated, with intra-ASEAN trade comprising the majority of total trade in the region.

“So, think about how this can bring about a shift to help individuals and businesses in trade and travel,” she added.

Nor Shamsiah made the remarks during one of the casual talk sessions at the recent Digital Economy and Finance Festival, organised by Bank Indonesia. The theme for this event was “Faster, Cheaper, More Transparent and More Inclusive Cross-border Payment to Promote Regional Economic Recovery.”

Among the participants in the session were Perry Warijiyo, governor of Bank Indonesia; Ravi Menon, managing director of the Monetary Authority of Singapore; Felipe Medalla, governor of Bangko Sentral ng Pilipinas; and Ronadol Numnonda, deputy governor of the Bank of Thailand.

Reshaping the cross-border payment services

Apart from that, Nor Shamsiah also stated that with more than 10 million ASEAN citizens living, working, and attending schools within the region, having an integrated fast payment system will reshape cross-border payment services and bring the advantages of instant and low-cost payments typically enjoyed domestically to the cross-border space.

She explained that Malaysia had previously launched QR payment linkages with Indonesia and Thailand and is in the midst of expanding the cross-border payment services to include Singapore and the Philippines as well.

“Our efforts to establish bilateral connections for such a payment system in the ASEAN region is important, but we must also consider how to approach it more efficiently on a regional and global scale,” she said.

That is the reason why Malaysia is participating in the Project Nexus proof-of-concept in order to test the feasibility of developing a more scalable, multilateral network of fast payment systems for cross-border payments, she added.

“Through Project Dunbar, we have also collaborated with the Bank for International Settlements (BIS) Innovation Hub and the central banks in Australia, South Africa, and Singapore to test the use of wholesale central bank digital currency (CBDC) for international settlement via a common shared platform,” she continued.

Cross-border payments beneficial to institutions and users

Additionally, Nor Shamsiah disclosed that BNM is also implementing an industry-wide migration to the ISO20022 messaging standards in the hopes of enabling quicker and more seamless cross-border payments where financial institutions can reap the benefits of data-rich payments in order to improve their risk management and provide more value-added services.

She stated that the numerous interesting developments in cross-border payments will benefit ASEAN economies by increasing efficiency and promoting financial inclusion.

In order to optimally harness the benefits of interoperability, the arrangements for cross-border payment should include features like neutrality, parity, and inclusivity.

When speaking about neutrality, she elaborated that the arrangements must be technology-agnostic in order to support diverse connectivity and payment models through ensuring the linkages are flexibly designed to support newer connectivity models, which could take the form of any potential CBDC systems.

She gave a reminder that different countries are in varying stages of development with some not even having fast payment systems yet at this moment.

As for parity, she suggested the cross-border payment arrangements should seek to provide fair and open access to all banks and non-banking payment service providers. This would foster competition among the players where innovation would flourish whereas collaboration at infrastructure level could also happen at the same time.

On the subject of inclusivity, she stated that it is necessary to accommodate new users while also meeting the needs of the different user groups.

“Malaysia’s fast payment system linkages have been built to enable scalability to accommodate future expansions and business model changes. Equally crucial are the initiatives to address last-mile challenges so that all parts of society are able to benefit from the secure and efficient cross-border payments.

“For instance, to aid migrants who are unable to afford smartphones to send money home, cross-border remittance service providers should also offer transfers using more affordable channels like feature phones and smart cards,” she explained.

She said that payments are all about networks and systems as well as having the involvement of many players, the challenges for cross-border payments are expected to be amplified.

She listed several key challenges which includes getting strong commitment from all parties to ensure the projects are delivered smoothly and on time; ensuring long-term viability for the infrastructure; and identifying an appropriate governance and risk management framework due to how the cross-border nature of the infrastructure is and the likely systemic importance for the countries involved.

“We are still learning, and I do not have any silver bullet solutions. But, in my mind, there are two principles that I believe have helped us work through some of these challenges. First, we must establish a clear value proposition to all stakeholders,” Nor Shamsiah said.

She went on to explain that secondly, there is a need to develop strong collaborations between the public and private sectors, and ideally, the industry should lead cross-border payment initiatives.

“We in BNM have found the setting-up of Project Steering Committees in each cross-border payment initiative which we participate in to be beneficial for fostering strategic alignment and ensuring timely resolution of issues to advance the project.

“Such arrangements also provide a way to ensure that the initiatives are underpinned by an appropriate governance and risk management framework that effectively manages risks in both jurisdictions,” she added.

A critical success component is ensuring that these committees have adequate stakeholder representation to ensure a fair and equitable decision-making process, she continued.

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