THE EVENTUAL integration of wholesale cross-border payments in the ASEAN Regional Payment Connectivity (RPC) system will require regulators to monitor and manage capital flows, the ASEAN+3 Macroeconomic Research Office (AMRO) said in a report.
“Cross-border connections facilitating large amounts of payments can also pose a risk from a capital flows perspective. The speed and ease of the transfers can make the capital flows more volatile and in extreme situations, may cause liquidity stress for institutions. These cross-border transfers depend on a chain of participants working seamlessly together, but the system is only as strong as its weakest link.”
As ASEAN RPC technology and regulations develop, AMRO said its scope will expand to integrate wholesale payment solutions such as real-time gross settlement from the current focus on retail payment solutions, which caters to individuals and small- or medium-sized businesses.
“This integration will help generate high-value transactions and further reduce the costs associated with cross-border transactions. The integration of wholesale payment infrastructure can also provide a significant boost to local currency usage,” AMRO said.
However, larger transactions will require tighter risk management, due diligence, proper implementation of anti-money laundering and counter-terrorism financing (AML//CFT) protocols, and capital flow monitoring and management measures, it added.
AMRO added that fraud detection and dispute resolution procedures will need to be strengthened.
“Cybersecurity lapses, platform outages, data security breaches, and process failures at any participant could compromise the integrity of payment systems on either side of the linkage. While these risks also exist in retail payment integrations, the systemic risk is lower due to the regulated transaction sizes, and in many cases, the limited number of participating organizations,” AMRO said.
AMRO said ongoing regional initiatives such as the Bank for International Settlements’ Project Nexus, can speed up the scaling of ASEAN RPC.
In April, the Bangko Sentral ng Pilipinas, along with the Reserve Bank of India, Bank Negara Malaysia, the Monetary Authority of Singapore, and Bank of Thailand, incorporated Nexus Global Payments in Singapore into their domestic instant payment systems.
The five central banks will contribute the initial capital required to build and establish the Nexus platform for its live operation.
“A centralized hub-and-spoke model can offer a scalability solution for the RPC and could be the way forward. Initiatives such as Project Nexus… explore direct linkages between domestic FPS (fast payment system) networks, allowing real-time transactions across borders without significant infrastructure overhauls,” AMRO said.
Emerging technologies such as distributed ledger technology (DLT) could also be adopted to improve transparency, security, and efficiency in cross-border transactions.
Central banks are also looking at Central Bank Digital Currencies due to their application in cross-border payments, allowing for instant, low-cost international transfers.
“However, this innovation can only adapt quantifiable and configurable measures and require a highly digitalized payment system. Private institutions also use DLT technology to develop private stablecoins or private DLT-based infrastructure to facilitate cross-border transactions, although the usage is limited to certain customers,” AMRO said. — Aaron Michael C. Sy