In an increasingly interconnected global economy, the need for efficient, secure, and cost-effective cross-border payment systems has never been more pressing. Enter Project Nexus, an initiative spearheaded by the Bank for International Settlements (BIS) with the ambitious goal of revolutionizing the way cross-border payments are conducted. As treasury professionals, it’s crucial to stay informed about such groundbreaking projects that have the potential to reshape the financial landscape. Let’s delve into what Project Nexus is, its objectives, and what it means for the future of international finance.
What is Project Nexus?
Project Nexus is a collaborative effort initiated by the BIS Innovation Hub to create a framework for linking multiple national instant payment systems (IPS) into a unified cross-border payments network. The primary aim is to significantly reduce the time, cost, and complexity involved in transferring money across borders. This initiative leverages the capabilities of existing IPS and integrates them into a cohesive, interoperable system that can facilitate near-instantaneous cross-border payments.
Objectives of Project Nexus
The overarching objectives of Project Nexus are:
- Speed: Reduce the settlement time for cross-border transactions from several days to a matter of seconds.
- Cost: Lower the cost of cross-border payments, making them more affordable for businesses and consumers alike.
- Transparency: Enhance the transparency of cross-border transactions, providing greater clarity on fees and exchange rates.
- Accessibility: Improve access to cross-border payment services, especially for underserved regions and populations.
How Does Project Nexus Work?
Project Nexus builds on the existing infrastructure of national instant payment systems (IPS) by establishing a standardized protocol for interoperability. Here’s a simplified overview of the process:
- Interconnected IPS: Each participating country’s IPS is linked to the Nexus platform through a standardized API. This API ensures seamless communication and transaction processing between different systems.
- Centralized Platform: The Nexus platform acts as a central hub that coordinates transactions, verifies compliance with regulatory standards, and manages the currency conversion process.
- Near-Instant Settlement: Through this interconnected system, cross-border payments can be settled in near real-time, significantly reducing the lag typically associated with such transactions.
Real-World Examples and Use Cases
Several pilot projects and collaborations are already demonstrating the potential of Project Nexus. Here are a few notable examples:
1. Singapore-Thailand Linkage
One of the earliest and most prominent examples is the linkage between Singapore’s PayNow and Thailand’s PromptPay. This initiative, facilitated by the Monetary Authority of Singapore (MAS) and the Bank of Thailand (BOT), allows users in both countries to transfer funds using just the recipient’s mobile number. This cross-border linkage offers near-instantaneous transfers and transparent fees, showcasing the practical benefits of Project Nexus.
- Use Case: A small business owner in Thailand needs to pay a supplier in Singapore. With the PayNow-PromptPay linkage, the payment is completed within seconds, with both parties able to see the exact amount received and the fees involved.
2. Europe-Asia Connectivity
Another example is the collaboration between the European Central Bank (ECB) and the Hong Kong Monetary Authority (HKMA) to explore linking their respective IPS. This initiative aims to streamline transactions between Europe and Asia, providing faster and cheaper payment options for businesses and individuals alike.
- Use Case: A European importer purchasing goods from a Hong Kong manufacturer can settle their invoice almost instantaneously, improving cash flow management and reducing reliance on traditional, slower banking processes.
3. ASEAN Region Integration
The ASEAN region, with its diverse economies and high volume of cross-border trade, is a prime candidate for Project Nexus. Efforts are underway to connect IPS across ASEAN countries, facilitating seamless transactions within this economically vibrant region.
- Use Case: An Indonesian family sending money to relatives in the Philippines can do so in real-time, ensuring timely support without the hefty fees associated with traditional remittance services.
Implications for Treasury Professionals
For treasury professionals, the implications of Project Nexus are profound:
- Enhanced Liquidity Management: The ability to move funds across borders in real-time enhances liquidity management, allowing businesses to optimize their cash flow and reduce the need for buffer funds.
- Cost Savings: Lower transaction costs translate directly into savings, improving the bottom line for companies engaged in international trade.
- Risk Mitigation: Faster settlement times reduce exposure to foreign exchange risk, as transactions are completed almost instantaneously.
- Operational Efficiency: Simplified cross-border payments reduce the administrative burden on treasury departments, allowing them to focus on strategic activities rather than transactional processes.
Future Outlook
Project Nexus represents a significant leap forward in the realm of cross-border payments. As more countries and payment systems join this initiative, the network effects will amplify, leading to even greater efficiency, cost savings, and accessibility. For treasury professionals, staying abreast of these developments and understanding how to leverage them will be key to maintaining a competitive edge in an increasingly globalized marketplace.
Insights from Treasury Experts
We thought it would be valuable to get perspectives from Treasury professional, Patrick Kunz, who is also Treasury masterminds board member
Patrick Kunz, CEO and Founder of Pecunia BV Treasury and Finance, Comments
Instants payments are nice but not a need for treasury, more often a nice to have. Besides the obvious savings mentioned in the article.
Instant payments cross border and cross currency would be a game changer. More often problems in payments and settlement arise when it is cross border and cross currency. Settlement times of 1-2 days are still common. even though it’s 2024, not of this time anymore. Especially if money is sent wrongly or “lost in limbo” by the bank. The questions of where my money during the transfer is is solved by connecting instant payment schemes. Treasurers want this now!
Timelines and connectivity between schemes will take time though but every steps towards it is a win. The use cases mentioned are great examples of treasurers cross border payment struggles which would be solved.
In conclusion, Project Nexus is poised to transform the landscape of cross-border payments, making them faster, cheaper, and more transparent. By embracing this innovation, treasury professionals can enhance their operational efficiency, manage liquidity more effectively, and ultimately support their organizations’ global growth objectives.
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