Last December, RTGS.global achieved a major milestone by successfully completing its first instant cross-border payment settlement through its global network, in partnership with Credo Bank and MDO Humo.
In this joint interview, Marcus Treacher – Executive Chair at RTGS.global and Ketevan Khomeriki – Product Development Manager at Credo Bank, revealed the significance of this cross-border settlement and outlined the future for the sector as it continues to evolve.
Firstly Marcus, can you describe the significance of RTGS.global’s first instant settlement and what a milestone this is for the company?
Marcus Treacher: This was a significant moment for RTGS.global in demonstrating how instant atomic settlement can directly solve the historic and emerging challenges associated with cross-border payments and liquidity management.
Successfully facilitating frictionless cross-border payments and settlements between two progressive institutions in rapidly growing markets serves as a powerful proof point for how instantaneous settlement has the potential to revolutionise the way money moves around the world, while driving financial inclusion.
Ketevan, can you describe what the process was like from Credo Bank’s end when completing the cross-border transaction MDO Humo?
Ketevan Khomeriki: The process unfolded as follows: Initially, Credo Bank signed the Participation Agreement for the RTGS.global Pilot. Subsequently, we engaged in multiple working group sessions with the RTGS.global team. Together with our counterpart, MDO HUMO, we prepared and strategized for testing within the RTGS.global Sandbox Environment. Once technical and operational workshops concluded, we established a testing date.
As of November 29, 2023, we entered a pivotal and dynamic phase of the pilot. During this phase, we achieved the execution of our first FX trades and seamless onward payments to our esteemed counterpart, MDO Humo (Tajikistan), utilising the RTGS.global application. The settlement speed of transactions was truly remarkable.
We appreciate the collaborative and responsive approach of the RTGS.global team, making this pilot program a constructive and insightful experience for all participants.
Marcus & Ketevan, can you both briefly explain the importance of instant cross-border settlements in providing liquidity benefits to banks and other financial institutions?
Marcus Treacher: Instant cross-border settlement can directly solve the historic and emerging challenges associated with cross-border payments and liquidity management.
By eliminating the delays associated with cross-border fund transfers, banks and financial institutions can achieve substantial improvements in liquidity management, customer experience and risk mitigation.
Specifically, instant cross-border settlements provide immediate availability and access to funds that would otherwise have been trapped for extended clearing cycles. This enables more efficient transfer and access to capital that can be redeployed or invested. Real time settlements also minimise counterparty risks that emerge from the traditional settlement cycles that we see to reduce the probability of failures. Together, enhancements in liquidity generation and risk management enabled by instant cross-border settlement provide critical balance sheet improvements for banks and financial institutions.
The impacts promise to be even more pivotal especially for smaller institutions who might be more capital constrained and have higher settlement risks, as well as for institutions that operate across vastly different time zones.
Ketevan Khomeriki: Instant cross-border settlements play a pivotal role in providing liquidity benefits to banks and other financial institutions. The importance lies in the ability to facilitate swift and seamless transactions across international borders, which enhances liquidity management and operational efficiency.
Firstly, instant cross-border settlements reduce the need for banks to hold excess capital in foreign currencies to cover settlement risk. This frees up capital that can be deployed more effectively elsewhere, such as lending to customers or investing in profitable opportunities.
Secondly, these settlements minimise counterparty risk by ensuring that funds are transferred and settled in real-time. This reduces the exposure to credit and liquidity risks associated with delayed or failed transactions.
Thirdly, instant settlements improve cash flow management for financial institutions by providing immediate access to funds. This enables banks to optimise their liquidity positions, meet payment obligations promptly, and capitalise on investment opportunities as they arise.
Furthermore, instant cross-border settlements enhance customer satisfaction and competitiveness for banks by offering faster and more convenient international payment services. This can attract new customers and retain existing ones, ultimately driving revenue growth and market share expansion.
Marcus Treacher, what use cases or developments did RTGS.global learn from the first settlement in December in order to make cross-border transactions even more frictionless?
The most important insight for the RTGS.global team is the huge impact our solution has on commercial and consumer payments between countries in the same region; banks, companies and individuals today put up with significant delays and poor experience, all of which the RTGS.global solution has been proven to remove. This is a really big benefit for banks and their customers, living and running businesses across the world.
Ketevan, how has this instant settlement transaction alongside RTGS.global streamlined Credo Bank’s own cross-border capabilities since the first transaction?
Ketevan Khomeriki: As the transaction was completed in a Sandbox Environment to test the application, FX trades and onward trades as a controlled pilot, it’s too early for us to evaluate its benefit.
However, the potential value is clear to see, and we strongly believe it’s critical for banks to implement methods other than SWIFT. The speed at which transactions are settled through the RTGS.global network is truly impressive and reinforces our confidence in the platform. Its functionality aligns seamlessly with the requirements of commercial banks, providing user-friendly management options, real-time notifications for transaction progress, and the flexibility to review and edit transactions before approval.
Marcus Treacher, what are your expectations and thoughts on the upcoming changes when regarding T+1 and how will this impact the industry?
Marcus: The shift to T+1 settlement cycles is a major leap forward considering current settlement cycles can stretch to multiple days. Faster settlements will directly improve liquidity, enabling businesses especially in emerging markets to seize growth opportunities including international trade quicker while reducing uncertainty in managing international payments.
The question for organisations isn’t if they should move towards faster clearing speeds, but how and when they will adapt to these changes. Many banks still do not have the global infrastructure or scale to smoothly transition their back office operations and trading capacity to T+1, especially for cross-border currency trades settling outside of US time zones. The key now for these organisations to find the right solutions.
RTGS.global enables much faster settlement than T+1, creating an opportunity for banks to move beyond the T+1 mandate to offer truly real-time settlement round the clock to their customers.
Ketevan Khomeriki, what would you like to see be discussed at the next G20 Roadmap for Enhancing Cross-Border payments?
I believe that discussions at the next G20 Roadmap for Enhancing Cross-Border Payments should address regulatory harmonisation, interoperability, security, cost reduction, innovation, and financial inclusion to promote a more efficient, transparent, and inclusive global payment ecosystem.
Lastly Marcus & Ketevan, and thank you for your time, what further innovations can we see in the cross-border payment sector that is emerging or will transpire this year?
Ketevan Khomeriki: The cross-border payment sector is poised for significant innovation and transformation this year. Technological progress, regulatory changes, and evolving consumer preferences are shaping the evolution of cross-border payments, emphasising speed, security, transparency, and accessibility.
As we continue to test and refine instant cross-border payment solutions, I anticipate that these innovations will play a pivotal role in shaping the future of international payments.
Marcus Treacher: This year could mark substantial progress in cross-border payment innovations on multiple technology and regulatory fronts. Key impending changes such as the introduction of T+1 settlement cycles and ISO 20022 standard upgrades will accelerate ecosystem-wide modernisation.
Additionally, new ISO 20022 standards will help interconnect payment systems across borders more seamlessly, enhancing end-to-end tracking and reconciliation – a prerequisite for instant settlements.
I see these regulations catalysing further technology innovation. As incumbent banks and payment providers implement these new protocols, it opens the doors for fintechs to help innovate. With customer expectations also rising in tandem around speed, transparency and access, both traditional and emerging players will spur each other to drive operational updates while improving user experience.
The innovation unlocked promises to make cross-border payments faster, more transparent and widely accessible to businesses across developed and emerging economies alike.
