As cross-border payments outpace regulatory frameworks, businesses are grappling with the complexities, while banks are looking to innovate against stiff competition from fintechs.
Digital payments are expected to globally catapult to US$290.2 trillion by 2030 from US$190 trillion in 2023.
However, businesses are faced with the barrier of cross-border regulatory friction. The World Economic Forum reported that 75% of businesses struggled with financial performance due to different regulatory frameworks in different regions.
We find out from Michael Carbonara, CEO, Ibanera, what can be done to deal with regulatory complexities and ride on the crest of the cross-border digital payments trend.
The digitization of payments has shrunk the globe into a global village. How has this development contributed to the financial growth of businesses’ global operations?
Michael Carbonara (MC): The digitization of payments created a flurry of technological innovations that aim to make processes more efficient and cost-effective. The Monetary Authority of Singapore (MAS) is a prime example of that in APAC, as it actively prompts fintech innovations such as blockchain and digital payments. For instance, the it promotes tokenized bank liabilities, wholesale Central Bank Digital Currencies (CBDCs), and regulated stablecoins.
There has also been increasing adoption of updated payment architectures to reduce costs and increase efficiency. For instance, at Ibanera, having recently partnered with io.finnet, we are now utilizing solutions such as io.vault for digital asset custody, enabling crypto purchases, next-gen banking solutions, NFT Tokenization-as-a-Service and more to facilitate easier management and transaction of digital assets.
The global village remains separated by walls of regulatory complexity. How have the different regulatory frameworks of different regions affected the financial performance of businesses?
MC: As cross-border payments outpaced regulatory frameworks, businesses are grappling with regulatory friction. For instance, the World Economic Forum revealed that 75% of institutions surveyed struggled with their financial performance due to varying regulatory frameworks in different regions.
The delays and inefficiencies caused by these discrepancies can be likened to the pre-internet era when sending a message across borders took weeks. Today, banks are under pressure to enhance their standards to match the efficiency of digital assets, pushing us toward a more innovative financial landscape.
What measures can businesses take to navigate such complexity?
MC: The navigation of payment’s regulatory complexity is a collective effort between both businesses and regulators alike. Businesses looking to expand and operate in foreign markets must take into consideration the regulatory landscape in the regions they’re looking to enter prior to accepting payments from consumers in those jurisdictions.
This entails thorough research for compliance, while on the other end, regulators must have in place the necessary frameworks that attract market participants so as not to be left behind.
What are some innovations that can create borderless payment and financial inclusion?
MC: With a market cap of US$2.43 trillion, cryptocurrency brings a key resource to financial services that can’t be ignored. Beyond the applications that come with decentralized technologies like security and pseudonymity, people around the world find it easier to make payments in digital assets like stablecoins across borders because it is secure, instant, and cheaper.
APAC markets have taken notice of digital assets’ driving force, with institutions such as MAS exploring the design of a digital infrastructure to host tokenized assets and applications. The infrastructure called Global Layer One (GL1) would enable cross-border transactions by allowing tokenized assets to be traded across global liquidity pools.
Can you share some strategic initiatives that financially took businesses beyond borders?
MC: The Monetary Authority of Singapore’s partnership with the financial industry to expand asset tokenization initiatives stands as a testament to the utilization of digital assets in driving financial innovation. Part of the partnership includes a collaboration between BNY Mellon and OBC bank to trial a cross-border FX payment solution that enables secure and interoperable payment solutions across heterogeneous networks.
Another key collaboration spearheaded by MAS is the development of an Interlinked Network Model aiming to serve as a common framework for exchanging digital assets across independent networks, enabling transactions between financial institutions without the need for a common network.
The whitepaper released by MAS highlights the network as a solution to the fragmentation of markets, whereby blockchain technology provides a single source of record-keeping across different participating financial institutions.
