Future of Finance


Has reform of cross border payments lost its mojo?

The transcript of the webinar of June 22 2022 entitled Has reform of cross border payments lost its mojo?


0.24 Dominic Hobson: Hello, everybody. I’m Dominic Hobson, Co-founder of Future of Finance. Welcome to our webinar, “CBDCs are poised to administer the coup de grace to the payments business of the banks” or “Has reform of cross border payments lost its mojo?”  Whether CBDC is the answer and probably not, at least in the short term, it’s certainly worth asking whether central banks and other regulators are losing patience with the relatively slow progress on making cross-border payments cheaper, faster and more transparent for everyone. I say everyone, because clearly the current system is working well enough for some people, particularly those in developed markets exchanging value in the top few reserve currencies. It’s poorer people, people paying remittances, for example, and dealing in smaller currencies, which are paying the price of inefficiency. Making cross- border payments faster, cheaper and more transparent for them has support at the highest political level. Indeed, it’s a G20 priority. And rightly not just for poorer people either. Efficient payment is good for all of us. Because it is vital to continuing growth in world trade, particularly as more and more trade moves online. Yet progress does seem to be getting bogged down. When we last visited this topic in September 2021, in a webinar entitled, ”It’s time to fix cross-border payments,” the 19 “building blocks” laid down by the CPMI for making cross-border payments faster, cheaper and more transparent were already more than a year old. They were published first in July 2020. Now they’re almost two years old. And in the latest FSB review of progress that I could find that, published in October last year, against those 19 building blocks, I counted eight surveys, two reviews, two hackathons, one workshop, one proof of concept, one cost-benefit analysis, one promise of technical advice, one deadline extension, and one shrug of the shoulders- that was on CBDCs. We have these four quantitative targets to settle cross-border payments faster, cheaper and more transparently. But all they do really is restate the goals of the programme in the first place. So what’s going on? Why is it so hard to solve this problem? 

To help us understand the issues, we are joined by Daniel Eidan, an Advisor and Solution Architect at the Bank for International Settlements Innovation Hub, which he joined from R3, and where he builds technology for central banks, with a special focus on blockchain and CBDC. Angus Fletcher is Chief Executive Officer of Fnality UK, the first local jurisdiction in which an on-line blockchain payment system owned by 15 global banks is going live; the long term aim is to establish a global network of distributed payments systems capable of settling the cash leg of tokenised transactions. Ankur Sharma is a Product Manager in Payments at BCB Group, a leading crypto business banking partner and provider of payments and trading services for the digital asset economy. Gottfried Leibbrandt is a payments expert, the former CEO of SWIFT, an alumnus of McKinsey, and author (with Natasha de Teran) of this excellent book which I urge everyone listening to read  – The Pay-Off: How Changing the Way We Pay Changes Everything. In addition to our panellists, we do of course also have you – our audience. We want your questions. We want your comments. So send them, and keep sending them, via the Q&A functionality at the bottom of your Zoom screens. As always, rest assured I won’t be saving those up to the end but we will address them as we go along, so you can be, if you choose to be, an integral part of the discussion right from the start. And I speak for all of us when I say we’re going to be very disappointed if we don’t get lots of questions and comments from you. I’d like to begin by asking Daniel if I’m being unfair in saying that things are proceeding too slowly. After two years, as I said, the only concrete progress we really have to show is these four quantitative targets for 2027, which is itself five years from now. One of them is speed:  75 per cent of payments to be settled within an hour, which doesn’t, to me, sound particularly demanding. I don’t know whether the data exists, but I’d be surprised if, particularly in the major currency pairs, we are not at 75 per cent or more already. Secondly, cost: the global average cost of retail payments has to be no more than 1 per cent, and the global average cost of sending a $200 remittance to be no more than 3 per cent. Which, again, is a measure of how far we have to go perhaps. Thirdly, access. The financial institutions’ end-users are to have at least one option for sending and receiving cross-border payments, with more than 90 per cent of individuals who wish to send or receive a remittance payment are meant to have access to a means of cross-border electronic remittance payments. Finally, transparency. All payments service providers have to give a minimum defined list of information to payers and payees – things like the total transaction costs, and how long it will take to deliver the funds, which will, eventually at least – by 2027 we’ll have a kind of floor of transparency right across the global marketplace. 

5.14 Is progress towards cheaper, faster, more accessible and more transparent cross-border payments too slow?

5.14 Dominic Hobson:  So Daniel, my question to you is a kind of two-parter, really. One is, `Am I being unfair by saying that progress on the 19 Building Blocks has been too slow? And secondly, as I look at these four quantitative targets, `Does the data actually exist? How are we actually going to measure performance against those four quantitative targets?’

5.37 Daniel Eidan: Okay, that’s a great opening, and I’ll do my best. I’ll do my best to give some insights. First of all, I mean, thanks for having me. It’s a wonderful to be present, present with such esteemed panelists. I’m looking forward to the conversation. I always need to remind myself to say that the views I represent are mine alone, and not necessarily the views of the BIS. So now that I have that out of the way, I’ll do my best to …  I mean, so there’s two questions. Is progress too slow? Is that a fair statement? And you know, what’s the quality? Are these the right targets? And what’s the quality and the measurability of the targets? You know, being part of the BIS Innovation Hub, I would say that progress is slower than I would like. But that doesn’t mean that progress isn’t being made all the time. You opened the panel [by] saying that, you know, it seems like you know, the G20 roadmap with the 19 Building Blocks came out almost two years ago. And it seems as if progress has been slowed down. I think I would make an analogy to kind of last mile challenges. So you know, when you’re writing a paper, you get to 80 per cent –  you make progress between zero and 80 [per cent] pretty quickly. And then it’s that last 20 per cent that seems to kind of take forever, I think, as we mature, a lot of the technology around this will get closer to the finish line. It’s exactly the same. The finish line almost seems to be getting farther and farther away. And the reason is, we’re asking more nuanced questions. Things get added to the scope that maybe weren’t added before. And it’s a moving target. And the industry around us is also moving. I mean, if we look at, you know, the swings in the value proposition that crypto brings. For example, having this conversation right now versus having this conversation a couple of months ago may have … maybe changed the views of our fellow panellists here quite substantially. So with a moving landscape and a moving target, I don’t think it’s unfair to say that things aren’t moving fast enough but that doesn’t mean that things aren’t moving relatively quickly. So I think we are making very, very good progress. I think some of the challenges, in particular with cross-border payments, is that to a certain degree, they are predicated on advancing national payment schemes, right? So if you want to start talking about cross-border payments, the general notion is that, well, we need to advance our own domestic payment schemes with an eye towards connecting them together in some form, either as a single platform or as a hub and spoke – and there’s many, many, many different models. But you get this kind of uneven and asymmetric tapestry of different jurisdictions. And that causes a very different advance in pace. So the question really is, `How quickly do you move along?’ And you’ve already mentioned that, you know, maybe in some economies, the problem is, for all means  and purposes, and certain currency pairs in some regions, [that they are] already there, right? As for the targets, I mean, I think the targets of speed, cost, access and transparency are the right things to talk about. I think with the quantifiability and measurability of those targets, I think it’s going to be incredibly hard, but any target is better than no target. And until we can produce a more nuanced, measurable metrics, I think that these serve us well in moving towards the general direction. So [with] that I’ll stop there.

8.56 Are the four quantitative targets for greater speed, lower cost, greater accessibility and enhanced transparency set by the FSB too crude to work?

8.56 Dominic Hobson:  Gottfried, you’ve listened to what Daniel said. He reminds us all that actually, cross-border payments are an amazingly complex, multi-layered industry. And they’ve got, I don’t know, 190-200 jurisdictions on earth, all with their own domestic problems to solve. So what is your reaction to these four quantitative targets? Are they just simply too crude? And would it be better to have a wider range of targets aimed at different payment channels if you’d like?

9.28 Gottfried Leibbrandt:Yes, so thanks again for having me. I somehow sense that I’m the token dinosaur on this discussion, so I’ll happily fulfill that role. 

9.39 Dominic Hobson: You don’t work for SWIFT any more so there’s noneed to describe yourself as a dinosaur.

9.42 Gottfried Leibbrandt: That’s not what I was referring to. It was this whole notion of an expert. The .. I would say, though, that the landscape is complex. And one of the, I think, concerns I have with the approach of the whole roadmap is that it does take a cross-border payment as a cross border payment. And I think it would be fruitful to at least segment the landscape. Because it’s comprised of a whole set of different types of flows that have their own challenges. And I would segment it at least along two dimensions. I would distinguish sort of wholesale versus retail, if you want. And they’re much finer distinctions. You have the higher liquidity, the multi-billion dollar flows, and all the way at the other end you have worker remittances that are maybe $200 – the one that the targets talk about. The other dimension, I think would be by corridor. Cross-border has always been about currency corridors, and there you should at least distinguish mature [currency] to mature [currency], big currency to big currency, from the other ones. So I think it’s fruitful to break that up. I think the focus of the FSB, and thereby the CPMI, has been very much on worker remittances, i.e., smaller flows, and especially those between mature currencies and any emerging markets. And I think they are almost an issue in themselves. And the solutions that you have for those are not necessarily the ones you have for others. So to tick them off, I think the problem of timeliness, for example, in the large flows between reserve currencies [is], as you mentioned, I think [SWIFT] gpi solved a big part of that. Many of those flows are now done. I would be surprised if the 75 per cent target is not being met already. I think most of those are done within an hour, especially if you weigh them by size of payment and by currency pair. So there still are challenges there. There are things like RTGS opening times, and we can get into that. But the challenges are of a different nature than for the smaller ones. Another example – RTGS opening times will be a good one. That problem you can solve in different ways. I think for the smaller currencies, or smaller amounts I should say, the solution that has been found in Australia [with NPP] and in the UK with Faster Payments, where you take essentially a sub-set of the RTGS, that you keep it open overnight for smaller amounts with collateral posted before the weekends, etc. That seems to work. Of course, that only works for smaller payments. It won’t work for large liquidity flows. So again, I think there segmenting the market really adds to the discussions and the solutions you come up with. [It] may also be different depending on what you’re talking about. That would sort of be my [take].

12.31: To achieve the four targets, central banks must invest to change their RTGS systems and widen access to them to include non-banks, and private banks must also invest to interact with changed RTGS systems. To what extent are central banks and private banks ready to do that?

12.31 Dominic Hobson: Thanks, Gottfried. For anyone who doesn’t know, gpi is the transaction management platform offered by SWIFT, which enables those high value cross border payments to be managed actively during the day to speed them up, cut the cost, etc. Angus, perhaps I can come to you next? One of the requirements for meeting these targets is of course that central bank RTGS systems have to change and perhaps become open to a wider range of participants. Now that’s a subject which I’m sure is close to your heart as a non-bank looking to access an RTGS system. Am I right to think there’s very little chance of a sufficient number of central banks actually adapting their RTGS systems to make achieving these targets possible within five years? Or am I again being too cynical and unfair? Maybe there’s better solutions.

13.27 Angus Fletcher: Yeah, yeah. So, the way I would put it is that you know, each of the central banks are very much looking at, and in particular, if you look at [the] Bank of England, if you look at ECB, you know, they’re looking at how to upgrade their RTGS systems as we speak. They have significant programmes associated. You know, they’re looking at different ways of how, within  the different sorts of standard – so [must take account of the ] roll-out of ISO 20022. They’re looking at different ways of connection. So if you look at the RTGS renewal programme in the UK, there’s a whole set of work around API connectivity, for example – so a different way of connecting in. I think the challenge for hours is that, you know, there is a start of the day and an end of a day concept that exists within, you know, within each jurisdiction, understandably. And that does create restrictions around –  in particular when there is restricted access as well into each of those RTGSs – who can access it or not. And that creates restrictions on a cross-border basis as to when settlement can and can’t happen. We, you know, the interesting thing is, again, if you look at what has happened in the UK with the announcement of the Bank of England omnibus account policy, is to create an account that effectively allows an ancillary payment system to connect in. And as long as you pre-fund that account, you can effectively operate a payment system off the back of that RTGS system on a 365, you know, 24/7 basis. That obviously requires the funds in the account to be able to do that. But it creates a new way of being able to, to operate outside of those RTGS hours, I think when you then connect another payment system in a location that connects into another central bank in a similar way, like you can already in Europe, for example, you can then really operate on a cross-border basis. And I’m talking high value here, cross-border basis, outside of those RTGS hours, so creating a separate [and] a different solution. I was also going to pick up on the sort of four points here. One of the other … And what Gottfried said around, you know, you have to differentiate different types of payments. There is also an element of, `What is the payment being made for?’ I … You know, is it to support a settlement of a new type of asset, for example, in a new type of market, that operates on a, you know, on a different timeframe/ time-zone, potentially, as, again, 365/24/7. In order to be able to provide support in that, for the settlement, you need to be able to, you know, have systems that can offer that. And I think, therefore, the industry is going to drive a big degree of a direction around the types of solutions to better facilitate that too. 

16.48 Dominic Hobson: Ankur, you’ve heard what Angus had to say there. I’d be interested in your views on non-bank access to RTGS systems, but also interested in what you think about this question of RTGS systems having to change – simple things like extending their opening hours, for example, but also changing their technical standards. What .. My question really is is [that it is] is not just central banks [that] have to change here. If that happens, private banks have to change as well. So what are your thoughts (a) on non-bank access to RTGS systems? And, secondly, how confident can we be that the private sector banks are going to be enthusiastic about meeting these targets by changing their systems to work with RTGS systems which have themselves changed?

17.33 Ankur Sharma: Sure. So I think I think let me just first answer the part around the RTGS extension, extended times and stuff like that. But before I answer that, I just wanted to kind of piggyback on Angus’s questions, right? RTGS access and extending that would probably be useful because there are, as we said, certain new markets that are coming up, which need that flow and that liquidity and that access to those settlement [systems] across 24/7/365. Now, the industry, as I said, the industry is already evolving. And I think the private sector is actually, in my view, is surging ahead, rather than the central banks and the RTGS system[s], by creating these networks – fragmented networks across different geographies. For example, in BCB, we have our own payment network that runs 24/7/365. It’s called BLINC, and we allow the people to, you know, counterparties to settle across the weekend as well. And then, within different geographies across the globe, there are these networks that are spinning up. I don’t think the private industry or the private sector is going to wait for that long for the RTGS system. Obviously, RTGS extension and RTGS opening times being expanded will be useful. But I think there is already a parallel process wherein the private sector is gearing up and kind of, probably, I wouldn’t say surging ahead, but almost going side-by-side, trying to resolve this issue, because they can’t wait for the, you know, so many different – 190 or whatever- different authorities to kind of come together and establish this. So I think that’s one thing. On your point around private banks, I think the issue of private banks is the non-banking institutions. When you compare [them] to private banks, their focus is, they are very much – [at least] I feel they’re very much – aligned to a certain kind of a notion or sort of comfort principle to say, they are payment-focused, what they want is to expand into new geographies, or they don’t want or they don’t have this whole burden of regulatory frameworks and the kind of challenges that they face [in] microeconomics and the microeconomic challenges that the banks are facing. And in terms of extending the RTGS, or making cross-border, I feel, personally, it’s not at the higher … at the priority level that it should be. But that’s my view. So I think RTGS will probably get expanded. The RTGS opening times and RTGS functionality will get more and more better. But I think private players, and especially the non-banking, will probably go ahead and will establish a private network.

20.07 Is there too great a choice of solutions available in cross-border payments for banks to make decisions rather than wait-and-see if a consensus emerges?

20.07 Dominic Hobson; Thanks, Ankur.We have an interesting question here from John Falk at Bourse Consult. And I think it’s one really for you to address first Gottfried. It’s, `Given all the flows and channels possible, are there too many options a bank has to consider with their current offerings? Is it a case of watch-and-wait until a consensus solution appears?’ In other words, is there just too much choice and too much complexity here? We were talking to one of our supporters at Future of Finance who was trying to put together a directory of various technologies and payment systems around the world. And I think he reached a total of 20,000 different technologies, techniques, methods, which you could use. So it is a very complex and highly fragmented area. But is …  John’s question is. `Are the banks getting horribly confused here? Were they were given too much choice? Is that fair?’

20.59 Gottfried Leibbrandt: Mmm, yeah, I don’t  … I mean, to be honest, that’s why we have a market to sort that out, right? I would say having too much choice is an easier problem to solve than having not enough choice at the end of the day. So there, I would say we are, the payment landscape is going through faster change at a pace at least I’ve ever seen before. So we’re in a stage where most people are inventing things. So you would expect that, you would hope that, there are things like a Cambrian explosion of species, and you have all these options. And I think it is the task of players like markets and others to sort that out. And I trust they are able to do that at the end of the day. And we’ll see what floats and what answers to the needs. Having said that, it is a complex landscape. And it is precisely … I’ve always learned that the best way to fight complexity is with other complexity. So it may take very different solutions to solve what is inherently a complex problem with all these different flows for different purposes. Great to hear from John Falk, again, by the way, I should say.

22.02 Dominic Hobson:Banks still have to make choices. They have to spend their money on something. They could spend it on, you know, matching technical standards with RTGS systems or something else. So the market may not work as efficiently as we’d like, as quickly as we’d like. But that’s a whole different discussion.

22.18 Angus Fletcher: Dominic, can I just follow on from Gottfried there? I mean, I totally agree with his points, which is, you know, the market will decide what succeeds and what fails, ultimately. There are obviously certain rails that can and can’t be used. But the reality is there is only so much investment to go around. You know, if it’s going to really decide on who puts the funds in to keep these things going, then a whole host of them are going to fall by the wayside. So I think it’s a  … Yeah, it will be market factors that change things. But I’d also agree that what’s important is to see lots of different models and see which ones will play out, and there are learnings that can be taken from, you know, all of the different types of models, different proof of concepts that are being looked at, and that can then I think build into the ones that are ultimately going to survive.

23.19 Could more efficient cross-border payments services reduce the cost of the liquidity buffers maintained by banks in different jurisdictions? 

23.19 Dominic Hobson: One of the one of the drivers here, Angus – before you go – I would have thought is going to be the cost of liquidity. It’s one of the 19 [building blocks] here: it’s trying to arrive at reciprocal liquidity arrangements or building liquidity bridges, because at the moment you’ve got banks who are parking possibly trillions of dollars of excess liquidity in markets all over the world just to make sure that they can meet their settlement obligations. And that obviously has capital costs as well as interest costs, which can only get higher as interest rates go up. And, you know, we’ve got HQLA-x trying to address this question by using, by tokenising different forms of collateral. Is that a model which the payments industry could adopt? Tokenisation of stuff lying around, cash collateral lying around?

24.17 Angus Fletcher:I think it …  You know, again, there are potentially different models that tie in there. I don’t want to sit and plug our solution but I’m going to. 

24.29 Dominic Hobson: I’m bowling you an under-arm ball here.

24.31 Angus Fletcher: Exactly. In essence, you know, the whole … One of the key benefits that [is] around the Fnality solution is the ability to set up peer-to-peer networks in each market, which then inter-operate on effectively the same technology with another … with each of the other peer-to-peer networks. Key is obviously the access in terms of those players. [They] will need to have access to each of the different payment systems in each of those locations. But what … By setting that up, you take out a number of the intermediary flows so that you don’t actually have to park funds with multiple correspondents on a cross-border basis. The second thing is the technology allows a near instant settlement. So again, you can basically … You have far more freedom and options to be able to move funds both intra-day, overnight and, again, outside of normal working hours. And that’s going to be … Well, it’s something that all of the consortium members within the Fnality  initiative, are … have invested in for that very reason – that it gives … It’s going to be one of the key drivers around the changing of their, or allowing them greater options within, their liquidity model.

26.05 Ankur Sharma:Just to add on that, Dominic, if you don’t mind, I think I kind of agree with Angus. And although I don’t want to, but I have to probably, talk about audit, because BLINC kind of offers the same sort of facility, wherein if you’re part of the network, it not only allows you to kind of, you know, do transactions across counterparties, it reduces the risk that you know kind of exists with counterparties, because you are having an instant payment system, you’re getting payments instantly. It also, going back to those four pillars, it reduces the cost because we offer it for free, for that matter. So no matter how big the transaction is, which currency you’re trying to do, whether you’re using a USD or a Euro, it doesn’t matter because we know you as long as you’re on the network. You can move funds across instantaneously. And also it probably will give … talks about the access aspect of it as well. Because right now, as I said, it’s limited to what BCB can offer, but then it’s not going to sit there. We are looking at [it] as an as an atomic network, something similar to what Angus was saying. And that atomic network is self-sustaining. So tomorrow, we can see that network joining across different other networks that are coming up by different geographies in the US, in AsiaPAC, in [the] Middle East, and then that becoming like a big, big network in itself, where in cross-border payments, we could be probably looking at within seconds, and it could be as low as one pound and it could be as big as a million pound[s] moving across the globe.

27.38: Why haven’t the 19 FSB building blocks endorsed digital identities as a replacement for the current expensive and ineffective KYC, AML, CFT and sanctions screening checks – and what chance is there of the banks adopting ISO 20022 in the near future? 

27.38 Dominic Hobson Thanks, Ankur. Now we’re going to have to talk about correspondent banking and indeed CBDCs. And before we do I’d just like, Daniel, to get your thoughts on some of these other building blocks. I picked some out because they strike me as particularly intractable. One of them is this is this need for consistent customer due diligence – in other words, the KYC, AML, CFT, sanctions screening checks, which are a pretty well recognised obstacle to efficiency in transactions. And the FSB paper talks about setting up data-sharing utilities. We have some of these in existence already. SWIFT has one, for example. But there’s no mention there of digital identities, even though the G20and the FATF themselves have actually endorsed the idea of digital identity. I would have thought that would massively accelerate the efficiency of running those checks. I’d be interested in your thoughts on that. Secondly, the second one of these building blocks is the adoption of ISO 20022, which is, in principle, a very good idea, but it’s an incredibly long-running saga, with multiple versions of it, very patchy adoptions of it, even by the payments industry itself, which is ostensibly undergoing a kind of compulsory move to it. Nobody really expects the entire industry to adopt it. And I wonder whether you think that this project, the engagement of the FSB, and the G20, can actually change attitudes towards ISO 20022, particularly in the light of the experience we’ve had with LEIs, which had full, high level political support but have failed to achieve universal adoption. In fact, it’s another one of the things here. So what’s your thought about the customer due diligence building block? What’s your thought about the chances of ISO 20022 adoption accelerating?

29.25 Daniel Eidan:So the customer due diligence aspect is a really a good one. I mean, if you think about today, where the onus lies for implementation, and what’s the recourse if anything goes wrong, I mean, it really is all on the commercial banks, right? So I think it’s really interesting from a central banking perspective, to understand how to promote global stability, payment systems that are harmonised cross border, but at the same time, understand who are the real experts at implementing KYC, AML and CFT regulations? How do we understand the pain-points and the use-cases there and advance on them? The fragmentation that we see with the implementation there is significant. And I think that it’s going to be a constant challenge, you know. Your point that you make on digital ID is probably one of the reasons that retail cross-border payments are moving much slower than wholesale cross-border payments, because you don’t have to tackle that problem head on [in wholesale payments]. This is one of the last mile kind of components that I mentioned at the beginning of the conversation. Once you get past the technical feasibility, and you think about the user viability, you bump into these things very, very quickly. So, data-sharing techniques, as you mentioned, are an option. Can you align the incentives of all the players to adopt these kinds of techniques, and maybe share some of the requirements around these? I mean, that’s going to be an ongoing challenge of aligning incentives across different jurisdictions. You know, it’s nice that we kind of position these things as very binary, right? You have, you know, traditional payment infrastructure, you have kind of New Age things, you mentioned CBDC ,to begin with. But a more nuanced approach is also to understand, well, even if we can identify the target that we would all like to see, how do we, you know, take incremental steps towards that target, and hit certain thresholds on the way that bring in that network effect, that bring in the adoption, that harmonises some of these broader things. And that’s also a challenge. On ISO 20022, I heard somebody just the other day say that it’s an aptly named standard, because it has taken almost 20 years for some of these to see adoption. I thought that that was entertaining. But again, I think it’s an incentive issue. The onus on adoption is not there. The incentive alignment is problematic. And you mentioned yourself that a lot of the adoption actually happens just to be compliant, and it’s forced by regulation. And, you know, wearing the hat of the Innovation Hub, I think a more   … I think a probably better approach is to incentivise institutions to move towards new standards, in a way that actually promotes their business model. And I think one thing that we don’t talk about enough is, `What new commercial opportunities are there, once we have a baseline that is innovation-friendly?’ So instead of thinking about, you know, thinking about a kind of like zero sum game, you know, `Are CBDCs going to work or are they not going to work?’ [We need to work out] how to look at it as a gradual transition, understand the thresholds and where that tipping point is into new systems where you get the network effects, and spend more time thinking about incentives, and then you get adoption almost for free. So ISO 20022 is a great step forward, but I question its relevance, maybe once we start talking about other building blocks, like new financial market infrastructures, and maybe CBDC more broadly, when we get to that topic as well.

33.17 Is there a risk of damaging fragmentation in cross-border payments networks?

33.17 Dominic Hobson: John Falk has followed up. He says, `I’m hearing from the panel, I think, we’re going to end up with multiple networks. Good old spaghetti. This introduces risk, both systemic and technical. Are the smaller networks going to be up to meeting the requirements of being a critical financial market infrastructure?’ And I guess that’s a reasonable question. You know, as the industry fragments, and payments remain crucial to the functioning of our entire economies, and indeed, the global economy, there is a risk of things starting to fall apart. Do you want to comment on that, Daniel?

33.56 Daniel Eidan: I’m happy to take the lead. I’m sure my fellow panellists have something to say as well. I mean, the fragmentation in the marketplace today is also incredibly significant yet, you know, I think the majority of us would agree that, under normal circumstances, it operates fairly well in most economies. So if we put that as a benchmark, in terms of fragmentation, I think we can absolutely do better than that. And I don’t think that the world ahead of us is more fragmented than the scenario that we’re living in today. So I think we’re very much headed in the right direction. But it’s, again, a balance, right? We want there to be diversity in payments. We want there to be diversity in assets. We want there to be choice to end-customers. Yet, we don’t want that to lead to fragmentation and any of the negative side-effects. So I think we need to balance it carefully. But I don’t see a problem as long as we’re aware of fragmentation and networks and stranded assets as we proceed towards the goal.

34.58: Do the regulators want to displace correspondent banking from the cross-border payments business?

34.58 Dominic Hobson:  Thanks, Daniel. I’d like to talk about correspondent banking now. And I’d like to ask a very specific question about it. As I look at the CPMI building blocks, number 13 says, `Pursue interlinking of payment systems, i.e., decrease dependence on correspondent banking.’ Number 17 says, `Consider the feasibility of new multilateral platforms and arrangements for cross-border payments, i.e., further substitution of correspondent banking by these bilateral or multilateral links.’ And it’s pretty clear from my reading of these documents that correspondent banking, as presently construed, is seen as part of the problem. They’ve got very high capital costs. They’ve got relatively inefficient processes for establishing people’s identities. We were talking about KYC/AML a minute ago. They have funding costs, the liquidity problem which Angus was talking about and, of course, they’ve got very wide, fat FX spreads which they’re collecting, as well, particularly in the less liquid currency pairs, which affect the remittance markets in particular. Now, there are solutions like SWIFT gpi, which Gotfried has brought up, which are helping those correspondent banks to become more efficient in managing those payments and actually get the processing times down and the transparency up and the speed up and so on. But is it … Is there a sense here that the regulators actually wouldn’t mind getting rid of correspondent banks altogether from cross-border payments in the long run? Angus, then Gottfried. 

36.36 Angus Fletcher: I think there is a role to play for multiple policies in this landscape. You know, in certain markets, I think it makes absolute sense to have correspondent banking relationships. You know, there are more risky markets that, frankly, you know, some of the larger markets do not… would not want directly connected into their own, you know, into their own broader markets based on the fact that it could create financial stability risk issues, for example, for them directly. And they [are] probably quite comfortable that certain commercial banks take the risk and price in the risk associated with those particular markets. But I come back to, you know, the point I made earlier, which is: It’s also about, for me, it’s about what is the purpose of what you’re using a cross-border payment for? And I think on that, you know, on that basis, what’s really important there is, you know, again, what’s the right solution for that? If the intention, say for a wholesale payment is to improve your liquidity, to reduce your cost, to improve your settlement risk by reducing down settlement timeframes, and to increase your options to be able to link, for example, delivery-versus-payment transactions with cross-currency swaps, intraday, the correspondent market doesn’t suit that very well, let’s be clear – and other solutions in the market are going to. So I’m not convinced that central banks necessarily want to remove correspondent relationships entirely from every single flow. I think it’s around, you know, `Where does it make sense to remove them for what purpose?’

38.36 Dominic Hobson: Gottfried, what’s your thoughts on the usefulness of the correspondent banking industry going forward?

38.45 Gottfried Leibbrandt:  First of all, what the central banks want with correspondent banking, you have to ask the regulators. I agree with Angus that it would be …  I agree with the general gist, which is good for some, not so good for others, but I disagree on the segments that he put them in. I think at the low end, we’ve already seen correspondent banking …  First of all, I don’t think it was ever there. And much of the growth is happening on non-correspondent networks, right? Western Union, Transferwise, there’s a whole host of players that serve that market basically by acting as their own correspondent by having accounts in multiple countries, but I wouldn’t call them correspondent banks. So I think there, at the low end, you’ve seen a whole host of solutions. The interesting question is the high end and maybe I wouldn’t focus on the remote currencies; I would actually focus on the on the reserve-to-reserve currencies. And to be honest, one of the key insights is that even the large banks, even the global transaction banks, many of those self-clear only in their own currency and rely on correspondent banks for all the other currencies. So, even for reserve-to-reserve currencies, when you get to the to the highly liquid flow at the top end of the market, correspondent banking is very much the model. And there I think the regulators will be quite hesitant to let that go. It gets almost to the notion of commercial bank money and the model behind it. We rely on these banks that provide liquidity by using their money creation powers at the end of the day, which also underpins their business model, to be honest. And if you look at the regulators, I think they’re very hesitant to get away from letting people clear that they don’t have supervisory oversight over. And for that matter, I wanted to get back to the omnibus account that the Bank of England has introduced that Angus was mentioning earlier. If you read the fine print, you’ll see that the devil is in the detail. And you’ll see that they’ve restricted it to an enormous amount. One, they do not allow overnight positions in it, unless you’re a regulated bank by the Bank of England. Second, you can only be putting money in and out of it if you’re part of whatever they call the monetary supervisory framework, i.e., you’re a UK regulated bank. Now, we can argue how this is going to work in practice, but you will find that they are quite hesitant to let that go for systemic risk, monetary policy, there’s a whole host of things where they sort of like having the correspondent banking model where they have only access to banks that they supervise, that they know meet their KYC. There’s a whole host of considerations there. And I think that’s an interesting one to dive into, because that’s a problem that’s not going to go away if you tokenise it. It gets to the heart of how they run their reserves.

41.42 Dominic Hobson: We have to talk about CBDCs in just a second. 

41.46 Gottfried Leibbrandt: It will come up. That will be exactly the same discussion. Who has access to the CBDC? Well, you will find that will be the crucial discussion. And I will tell you that, unless they’re cowboys, they will not allow any Tom, Dick and Harry to have access to that CBDC. At least not for high amounts.

42.00 Dominic HobsonOkay. Well, one of our … a member of our audience has asked a question specifically about this, which I’ll come to in a second. But- Daniel, I can see you want to say something – but Ankur perhaps just bring you in on that point which Gottfried has just made about the regulators want[ing] to regulate big banks, because it gives them a greater degree of assurance, if you like – I’m putting it somewhat crudely there. So what are the chances of banks being displaced, particularly on the retail side by, I don’t know, social media, telecoms companies, some of these FinTech start-ups, simply because they create a better user experience? Is there going to be a sort of halt on that due to central bank concern about the stability of the system?

42.41 Ankur SharmaI don’t think so. The banks are going to get displaced. I think there’ll be a place for banks, as well as these new ..  whether people talk about FinTechs or other providers. One of the great examples is how in African nations Mpesa, which is being run by I think Vodafone, has kind of [been] given the access. It runs … It basically has become one of the most powerful mechanisms of moving and transferring payments and moving funds across retail, especially because a lot of these players … people in those countries are unbanked and for them to go and access those banking services, they do not have the capabilities or means to do that. Whereas, you know, the telco providers in that case, you know, often that Mpesa route has given them the option. Similarly, if you go to some of the Asian countries  – in India, for example, not everybody probably will have … Some of the most unbanked people … India’s probably at the third or the fourth level, if you look at the unbanked. But then, you know, the likes of PayU have kind of given that ability for people to make the retail peer-to-peer payments. So I don’t think banks are going to get displaced. But I think there’ll be a lot of competition. That is why banks will have to probably innovate a lot more. They’ll have to probably look at how they streamline and use better technology. I still think a lot of the issues that we have been discussing can be resolved using blockchain and distributed ledger in terms of reducing the risks, and, you know, making transactions fairly quickly and in time. And then also banks will probably have to look at how they kind of work together in terms of [inaudible] competition to the private sector.

44.23 Dominic Hobson:Daniel, you wanted to say something, I think,

44.26 Daniel Eidan:I wanted to make a point about the correspondent banking model stuff. There’s a great BIS paper. I’ll do a shameless plug to it – for a BIS  paper called On the global retreat of correspondent banks. I think, you know, at a high level, basically, what the paper shows is that when you look at the world map, and you look at the number of correspondent banking relationships, they are decreasing. And when you look at the number of flows, the value of flows that are going through those relationships, they primarily are also decreasing. And it’s largely a process of de- risking. And if you if you zoom out far enough, you realise that, you know, the cross-border correspondent banking model, at the end of the day, is a private sector, commercially motivated business. And the question for central banks is really, is that okay? Is that okay? Is that okay to rely on the private sector and commercial motivated incentives to connect currencies cross-border? And that’s an open question, and I don’t have the answer. The answer may vary by region. You mentioned two building blocks. You mentioned building block 13 – interlinking payment systems. And you mentioned another building block – 17. I think I just wanted to emphasise that when you look at, for example, interlinking payment systems, one of the projects that’s going on in the Innovation Hub is called Project Nexus, where we’re interlinking two different payment systems. Yesterday, I sat down with [inaudible] from the MAS, and he was talking about interlinking between Promptpay and Paynow in Singapore and Thailand. And he was talking about the process. He said it took three years to connect two faster payment systems. Now they’re trying to connect to another one, and their target is about six months. But the idea here of connecting faster payment systems, well, first of all, it’s a wonderful idea. But it actually, you know, we need to … Project Nexus tries to tackle the problem of how to do them in a way that actually scales. But connecting faster payment systems doesn’t relieve the clearing and settling underneath them. So actually, correspondent banking models and interlinking payment systems are not at odds with each other at all, okay? It is just a messaging layer when you think about interlinking payment systems. That is not the case for [building block] 17 [is a] new system, new FMI that cuts across borders. That indeed is to some degree at odds with correspondent banking. And maybe, when you look at financial stability, for good reason.

46.46 Dominic Hobson: Just so I’m clear on this point, Daniel, that you can’t disentangle hooking up retail instant payment systems from the RTGS systems because those payments have to be netted, and then ultimately settled inside the RTGS system. In other words, actually, instant payment is an illusion.

47.03: Daniel Eidan:That’s exactly correct, yeah.

47.08 What role do CBDCs and Stablecoins have to play in making cross-border payments faster, cheaper, more transparent and more accessible?

47.08 Dominic Hobson: Okay, great. We should talk about CBDCs. We’re into our last 15 minutes and our audience will be very disappointed if we don’t. A member of our audience has said, `Does the panel see a world of CBDCs being used for FX?’ And if we take him to mean that, `What role do they have to play in cross-border payments?’ We have seen with Project Dunbar, they’ve developed these prototypes for a shared platform that allows banks to settle cross-currency, cross-border transactions using CBDCs without correspondent banks. And they’ve done that by actually giving those non-resident banks access to CBDCs to enable them to adhere to the local regulations in each case, which have been some of the obstacles here. So maybe Project Dunbar is a sort of future which we’re looking at. And then in the securities industry, we’re seeing lots of … At least three projects have succeeded in using CBDCs to settle securities transactions across border: Project Helvetia, Project Jura and then this this project run by Euroclear and the Banque de France to settle tokenised French treasury bonds. So, we are seeing CBDCs used to settle both the cash leg both of securities transactions and, you know, currency versus currency. So what is the answer to our audience member’s question? Are CBDCs going to eventually dominate the world of cross-currency, cross-border payments. Angus?

48.40 Angus Fletcher: Yeah. So there are obviously a lot of experiments that have been done in this space, as you talked about. But I think there are still a number of obstacles associated with it. The idea of a single platform – and I’m sure Daniel may have a different view – but the idea of a single platform that all central banks would effectively utilise, is, to me, ultimately something that I just don’t think is going to fly. And the reason for that is it gives away control, around supervisory powers, in essence around the technology that embeds underneath the, you know, the digital currency that will be issued. It’s not a coincidence to me that Bank of England is driving its own RTGS renewal programme, ECB is upgrading its TARGET2 programme. If they seriously were thinking of utilising a single global platform for [inaudible] digital currency, I’d have to ask the question, `Why is that investment happening in that  way?’ So that’s the one side. I think the governance piece that associates on top of that is hugely important. You know, central banks have a mandate to, you know, manage central bank currency, to manage currency policy. Their mandate as well is to ensure financial stability and [there are] other regulators in each jurisdiction to cover consumer protection. Again, one of those focuses within that is around resiliency. And thinking about using a single platform for that on a global basis effectively introduces that potential single point of failure, pro-cyclical risk as well, into the mix, and all of those things. And Gottfried mentioned as well the whole access question as well, as to who can access that single platform and who can’t. So I think, you know, the Holy Grail, obviously, that’s what it looks like. You know, the reason why, for example, Fnality’s gone down the route of individual local payment systems in each market is entirely because, over the course of the years, those discussions have been had with central banks. And, you know, that model we’ve put in place is to address many of those, those challenges associated [with it].

51.22 Dominic Hobson:Angus, this might be a slightly unfair question, but I think I’m right to say Fnaility began as a sort of Stablecoin project, if you like. What’s your thought about Stablecoins being used to complete cross-border, cross-currency payments, so you [inaudible] Stablecoin in one currency and swap it for a Stablecoin in another?

51.41 Angus Fletcher:Let me put to rest any misnomer that Fnality is a Stablecoin  … 

51.51 Dominic Hobson: I said it began .. 

51.52 Angus Fletcher: But the whole point about Fnality and the whole USP that’s different compared with a Stablecoin is, in essence, we are simply, on our payment system, a digital representation of central bank currency, fiat currency. The account that we hold it in is an account on trust – a trust account. So in the event … you have no risk against Fnality in the event that we were to go into resolution, for example. And that is a huge differential compared with a Stablecoin that is in some form or other pegged to a currency or a basket of currencies. You know, there is not that counterparty credit risk that exists around Stablecoins’ set-up. I think the other thing with Stablecoins is, I think, there’s been a lot of conversation, you know, a lot of interest in Stablecoins. But what’s happened over the last few months has really opened people’s eyes to a view that says, you know, a Sstablecoin that’s pegged to the dollar is not necessarily pegged to the dollar in the way people assumed it was pegged to the dollar. That introduces risk and I think the reality is that Stablecoins – and we’re already starting to see this – are going to be regulated as payment systems or under PFMI in one form or another if they’re going to have to be used in a wholesale fashion across the industry. And therefore getting up and running with a coin before you’re regulated … You know, again, we took the opposite approach which was, you know, get regulated first. It’s taken a lot longer to get to market compared with where we’d hoped for, but get regulated first because it’s coming anyway, [and] you may as well meet the highest standards required of a financial market infrastructure. And ultimately, for the banks and participants, utilising an asset on a payment system that has the qualities of fiat currency is going to be far more useful for them across a multitude of use-cases.

54.04 Daniel Eidan: I’m happy to bounce back maybe some ideas against that. I think one thing when we think about …  So, a common platform, it’s a little bit of a misnomer. And you know, unfortunately, we’re working through the taxonomies of these systems. So it’s nice to see where the gaps are and how we can update them. But we need to remember …  remind ourselves that this common platform is a distributed common platform. And that’s super, super important. So, you know, when we think about … You mentioned Project Dunbar, you mentioned Jura and you mentioned Helvetia. There’s also project mBridge coming out of Hong Kong as well, which is very similar to project Dunbar, a little bit of a different participation arrangement. But what we’re starting to see is, if you can have a common settlement layer, right, if you can, if you can just ensure that settlement happens on the platform, then you can open up … in just as thin [a] layer of paths as possible on a common platform. And then everything else modularised to jurisdictions and currency types, you know, there is a fighting chance that something like that can scale. Now it’s really interesting to think about how the scale is one common thing when you look at these platform arrangements. You know, Project Jura and Helvetia  both were Switzerland and France. There’s only two jurisdictions on that platform. But then when you think of Dunbar and M-bridge, we have four central banks and four jurisdictions, and four is kind of a sweet spot, because you can you get the scale of kind of a multi-jurisdictional project, but you don’t have to deal with governance and legal issues that are, you know, beyond – that kind of extend out of the scope of what is possible. So, I think, once we get a handle on, what are the commonalities and how can we run a system that works for four different jurisdictions, I think then we can start tackling the question of, `Do these things converge to a wider system? Do they need to converge? Or is there maybe [a] kind of a sweet spot around certain economic zones? That that can be the primary common system and then, at some point, these things can kind of roll up into another system that maybe looks at it from a little bit of a higher level, like central bank liquidity lines and things like that?’ To answer your question, maybe a little bit about the FX. Will CBDC have an impact on the FX, FX quoting, FX markets and things like that? I think the answer is that it absolutely will. And my hope is that we’ll be able to start seeing corridors and currency pairs that don’t exist today, and maybe liquidity in those pairs and business models around that. That simply hasn’t happened to date because the fundamental technology really hasn’t been there.

56.44 Dominic Hobson We are into our last four minutes, in fact. and I know Gottfried you’ve got to go promptly at 3.00 pm. So we’ve been asked a specific question by Henry Raschen, and he says, `[Inaudible]. But why do large banks still use rival banks for cash clearing outside their home market, even if they have their own office in ,for example, New York or Tokyo? I know of one large bank where the CEO got cross 20 years ago, when he discovered his bank was using Bank of New York in New York to clear US Dollars rather than using his own US operation. Is this a matter of capacity, liquidity, cost, etc?’ And I think you do say somewhere in here Gottfried that there’s like 15 banks ultimately intermediating every cross-border payment, because most banks are just doing local business and then channelling it to into this relatively small set. So what is the answer to Henry’s question? Why don’t banks do more of their own business?

57.36 Gottfried Leibbrandt:It’s a good question. And I think you would have to ask the banks that one. I have asked the banks. You get … a mixture of liquidity is certainly a part. Their own subsidiary may not have as much liquidity as a Bank of New York will have, especially when it gets to dollars. Since the dollar is so crucial for all these flows, it only works if you have deep, deep liquidity which your own subsidiary may not have. Sometimes it’s history. Sometimes it’s reciprocal arrangements where other services are provided. On top of that, as far as the correspondent relationships, such as documentary credit, there’s a whole slew of services that are often included. So I think it is a mixture of liquidity, regulation and custom/commercial considerations. I would want to pick up though, on the CBDC point for foreign exchange. Maybe two remarks. One about the central banks working together. I’m completely with Angus on that one. I would also like to point out that we’re moving into a world where it’s not getting easier for central banks to move together. We’re getting into a geopolitically fragmented world where there’s deep suspicion, I think, between countries. I can only name the US versus China as an example. There is deep suspicion about each other’s CBDC programmes and how it’s going to be used. So for them to provide a common rails, I’m not sure that’s very likely. So it may [not happen] or may happen within blocks. And the other part of my answer would be, I think, the battle for CBDC will not be fought in cross-border [markets]; it will be fought in domestic markets. CBDCs will have to prove themselves domestically. They will have to find use-cases. And then if they are used for those things, then I think they’ll be useful for FX. But the other way around seems a bit like the tail wagging the dog. And then it really boils down to CBDC. Are we talking about retail or wholesale? What are the restrictions around it, etc? 

59.34 Dominic Hobson:  Here’s a good question. On CBDC, which major currency do you expect to do a full launch, not just a pilot first? Or are the big central banks waiting for each other?

59.44 Gottfried Leibbrandt:That’s been answered, right? That’s China.

59.48 Dominic Hobson: Is Renminbi a major currency? It’s not even fully convertible yet. The question is really about euro, sterling, US dollar. What are the major currency pairs? I mean, is there a sensible answer to that question?

1.00.09: Gottfried LeibbrandtWell, the Europeans have shown their hand. They’ve committed that they will do it. We can discuss about the modalities, the timeframe and all these things. But I think they have committed to launch one.

1.00.19 Ankur Sharma:On that, Gottfried, I think they have committed but I still feel – and it’s just my view – that, you know, when it comes out Stablecoins might kind of be so far ahead that [it] will be very difficult for a euro CBDC to kind of compete on. We just heard, and we’ve just seen, Circle, one of the leading providers of Stablecoin come up with a euro coin, which is regulated, which is pegged to the euro reserves. And I think, personally, I think Europe needs to kind of, you know, speed up the game if they want to be ahead, otherwise … And just to go back to the point around Stablecoins, I kind of agree on this, that they need to be regulated. But I think I could see, because CBDC is at a global level, it’s a global interplay. Plus, a lot of these different countries are different stages. Some are very much in the research phase of CBDCs. Some have actually launched it. Some have actually dismissed the idea: they don’t want a CBDC. believe it could actually turn out – and that’s my personal view – that Stablecoins become in place of CBDCs even [inaudible] that chance and that space, with the central banks kind of having a partnership. So they might regulate it. They might say, `Well, we have got this visibility, and we are looking into how the Stablecoin reserves are pegged, and do they have that kind of liquidity?’ And then they use that because that infrastructure is already available, they have proven the concept. And I think that could … that could be something that we see in the future.

1.01.44 Dominic Hobson: We’ve run over time. But I’d like to address a couple of last questions from the audience. Do go if you need to Gottfried but do stay if you can. The question is really, initially for you, Daniel, is, `What’s the difference between a single common platform and SWIFT here? Yes, SWIFT is a messaging layer, but banks have opted to join a single platform.’ That’s one . [Anonymised] has also asked the question, `Daniel, will that single settlement layer have mutualised losses?’ So there’s a couple of questions there about the future you were describing – this decentralised, distributed common platform, if you like.

1.02.22 Daniel Eidan: Yeah. So I think the analogy between .. So sorry, so your first question is?

1.02.29 Dominic Hobson: It’swhat’s the difference between SWIFT and what you were describing? 

1.02.32 Daniel Eidan:Well, SWIFT doesn’t have a settlement layer. SWIFT is only a messaging layer so I think that making the analogy,

1.02.38 Dominic HobsonBut it’s one allthe banks are joining; it’s got 11,000 banks belonging to it. That’s his point really.

1.02.42 Daniel Eidan:Yeah. And that’s fine. But again, I think that a common messaging layer is very different than a common messaging, clearing and settling layer. So maybe a more relevant analogy would be if you took SWIFT and CLS and merged them together and thought about [it] a little bit more like that. 

1.03.03 Dominic Hobson: Good luck with that.

1.03.04 Daniel Eidan: And yeah, good luck is right. It’s no small feat. But then, at the end of the day, when you think about the value proposition of CBDCs, and of digital currencies, that is what is …  that is the vision, right? So that’s my answer to that. Then when you talk about kind of the exposure and the settlement risk … 

1.03.22 Dominic Hobson:Mutualise losses, yeah. Will that single settlement layer mutualise losses?

1.03.26 Daniel Eidan:  Well, the question is, `Would the settlement layer and the operator of the settlement layer be a counterparty on the transaction and have associated risk that it would carry with it?’ And again, I would make the analogy to CLS and say that it likely wouldn’t, the same way that CLS isn’t the counterparty in the transaction either. So I think there is a way of creating a common settlement platform that can scale up to have the network effects of something like a SWIFT, at least from a theoretical kind of on-boarding perspective, and not necessarily have the central platform operator or, dare I say, the distributed group of platform operators incur any financial risk or kind of counterparty risk at the same time.

1.04.14 Assuming the four quantitative targets set by the FSB are met, what will the future of cross-border payments actually look like?

1.04.14 Dominic Hobson:Okay, we need to stop in a minute. But shall we just wrap this up with just a final thought maybe from each of you on what this future is going to look like? I mean, I’m carrying away from this [that], actually, the future is not going to be the rather neat vision which those four quantitative targets portray of sort of a single corridor in which 75 per cent of payments are made within an hour, and we all get to see the costs, and it’s all very fast and efficient; it’s actually going to be a much more complex picture. Am I right, Angus? Am I right to think like that – that actually the future is difficult, fragmented, complex, messy? And how the hell do you regulate that to achieve these four goals?

1.04.57 Angus Fletcher: I think we’ve all discussed it on here to say it: You cannot generalise down to four criteria for every single type of cross-border payment flow. Ultimately, there are different solutions that are going to fit different types of activity. And, yes, that’s going to be existing type of activity and it’s going to be new type of activity that is still emerging. And there’ll be a whole host of things we haven’t even thought of yet that will come out of that too. I think, `Is it messy?’ Yes, there’s going to be, you know, there are those new solutions. There’s new technology that’s being applied, that allows us to think about completely different ways of doing things compared with, you know, 5 and 10 years ago. And it’s right that the industry explores those because there will be, you know …  there’s going to be efficiencies, cost benefits that come out from that, even if there may be in the short-term, there could be potentially greater costs, that allow us to get to where we need to. I think the key is, though, there are standards that can be applied to make sure that, within those new types of solutions, there are still standards that make sense, whether that be, you know, the discussion around AML/KYC, that could be applied, whether that be around ISO 20022.And there are also … I think people have to recognise there are red lines, from a supervisory and regulatory perspective that those types of solutions need to abide by and a recognition that, if solutions are not, you know, are not regulated, they’re going to get  regulated. And therefore, start thinking along those lines and meet  … look to get to the highest standards in order for your business model to work into the future.

1.07.00 Dominic HobsonGottfried, thanks for staying. A last word from you. You were very articulate at the outset about one-size-fits-all isn’t the answer here. You’ve got to distinguish between high value and low value, you’ve got to distinguish between business to consumer and consumer to business, and so on. What’s the future of payments? Is it going to be John Falk’s Spaghettiland that we live in forever? You’re on mute, Gottfried.

1.07.27 Gottfried Leibbrandt:In the longer term, I don’t know. But I think the medium term will indeed be messy. I think we’re going through a Cambrian explosion. With technologies, lots of things still have to crystallise. I’m not sure it’s going to be spaghetti, but it will be fragmented with different solutions for different payments. And it will be messier than now. But I do think the key role here will be the regulators. And they will be the ones to watch because they hold a lot of the responsibility and the powers to do something about it. I do think you should put yourself in their shoes. We are messing, not just with payments; we’re messing with money, which is one of the pillars of society. And if you get that wrong, we know what happens, right? We saw that in Germany in the 20s. And we’ve seen that elsewhere. So they’re keenly aware that they need to keep this thing going because, if it goes wrong, it goes spectacularly wrong. And they’ve been given quite immense powers to live up to those responsibilities. So that would be my view. It’s going to be messy, but I would keep a close eye on the regulators and especially central banks.

1.08.38 Dominic Hobson:Ankur, you’ve heard Gottfried say regulators are not natural risk takers. You hang out with the natural risk takers, the entrepreneurs who want to design and build better systems. Is there a tension between what can be done and what the regulators are willing to allow to be done?

1.08.54 Ankur Sharma:Yeah, I think I kind of agree that there’s going to be in the future, as I see it, that there’s going to be a consolidation. You know, every .. [with] so many different technologies coming out, there’s so many different ways to kind of achieve stuff. So you will probably see a consolidation. Some of these technologies will exist. And some of these technologies will probably get to a point where there is no useful use-case for that. Regulators will probably …  [inaudible] regulators are already trying to kind of come into the crypto world and in the blockchain world and trying to kind of dip their feet in. So I think there is going to be enhanced regulation coming in. As I said, as I said when I spoke about the Stablecoins, these are some of the cryptocurrencies regulators will probably try and get more involved [with] and more closer to that. So I see that happening. And I think the eventual one thing that I see is probably more and more adoption. That’s what I feel around the crypto and the blockchain as we move forward. And there will be a …  I think there’ll be a place where both fiat and crypto exist hand-in-hand. And some of the big players, I mean, you talk about JP Morgan, Citi, Credit Suisse, the moment these guys start adopting crypto mainstream – which I believe will happen – [things] will get even more messier, before it gets better.

1.10.13 Dominic Hobson:  Daniel, a last word from you. I was thinking, listening to you earlier, that you know, you sit down in July 2020, you read the 19 building blocks, you think, `Oh, that makes a lot of sense. That’s a vision of the future which we can all subscribe to.’ But as soon as people start to get into the … trying to implement those 19 building blocks, it suddenly starts to seem a lot less simple than that. And that’s why we’ve ended up with this proliferation of working groups and reviews and technical advice and all the rest of it. You’ve described a very clear vision of what you think the future will look like  –  that decentralised network of networks if, if you like. But that itself is going to require considerable co-operation and collaboration. How hopeful can we be, given the difficulty we’ve had with the 19 building blocks so far, of achieving your vision, in a reasonable timetable, by which I mean maybe not five years from now, but maybe ten years from now?

1.11.10 Daniel Eidan: It’s hard to speculate on dates, but I think the direction of travel is definitely there, and the momentum is definitely there. I think the BIS and the BIS Innovation Hub are playing a significant role in driving this forward. I would urge not to think of private versus public sector at odds with each other in any sense. I think any significant accomplishments are done with public sector backing through private sector capacity, with, of course, proper regulatory oversight. And the regulatory oversight is incredibly important for public trust, not just when things are functioning but, most importantly, when things are not functioning. I think if the markets today show us anything, they show us how important that is. So I think the direction of travel is absolutely there. Again, I would focus on incentives. There are many moving parts. And ultimately, it’s these incentives of the different jurisdictions and the different private sector players within these jurisdictions to move our models forward, and [decide] how we do business with each other, how we co-operate with each other, and how we connect different currencies in different economies together. So I’m incredibly optimistic about the future. And I think, you know, we can benchmark on today and see that we are making significant progress. And the competition and the diversity of players in the space is absolutely fascinating. You know, the title of this event was, `Has cross-border payments lost its mojo?’ I just wanted to kind of circle back to that. You know, in a way, it serves me very well that CBDC and cross-border payments is very sexy and topical. But at the same time, you know, I yearn … I think we will know when we have reached some form of completion when it becomes less interesting to talk about because it just works. And I think that that’s where we are heading: less people talking about blockchain and DLT, and things like that, because people generally understand that there’s a direction of travel, maybe not towards blockchain in particular, but in terms of distributed systems in general. I think, as we think more about crypto and Stablecoins and CBDC and all of these things, there’s less of a question mark of, `Is this feasible?’ because we understand that this is the direction of travel. So you know, maybe it’s a good thing when it loses its mojo because it actually will be working.

1.13.42 Dominic Hobson:We’re looking forward to a future in which payments are boring again. That’s probably a great note on which to end because I think we must stop now. We’ve run over by more than ten minutes. I’d like to thank our panellists, Daniel Eidan from the BIS; Angus Fletcher from Fnality; Ankur Sharma from BCB Group; and of course Gottfried Leibbrandt as himself – he’s sadly had to go as we knew. But I’m grateful to all of them. I’m grateful also to you, our audience, for the questions that you have asked and comments that you’ve made, which have been very helpful to the discussion. Here at Future of Finance our next webinar is on Thursday 14th of July. In it, we’re going to be looking at the impending regulation of the cryptocurrency and DeFi industries. I hope lots of you will join us then. For now, it’s goodbye from the five or four of us. Thank you. Goodbye. 

If you would like more information or we can assist in any way or you would like to join future discussions please email Wendy Gallagher on wendy.gallagher@futureoffinance.biz