EVOLVING CROSS BORDER PAYMENT SYSTEM

Historically cross border transactions originated in the form of barter system which means mutual exchange of goods and services from one country to the other depending on  the availability and demand for various goods and services in respective countries(for instance wine and clothe between Portugal and England or dates and pepper between Arabs and Malabaris etc). However barter system failed to operate when quantum of goods and services transacted multiplied and gradually financial transactions gathered momentum, and cross border payments became financial transactions between the payer and the recipient who are based in separate countries.Such transactions covered retail , whole sale  and remittances payments as well. Consequently the development of cross border payments also witnessed radical changes from traditional barter system to modern fintech system impacted primarily by  money in  its different variants catering to the needs of primary, secondary and contingent functions , along with industrialisation and the globalisation processes.In addition to barter system, usage of different types of  coins and currencies, currency exchanges, banking and wire transfers  also operated . International  transactions are usually made by individuals, companies or ins thattitutions from one country to another.The financial transactions are made under various heads ranging from - transfer fees, bank charges,local currency, foreign currency conversion ratio, exchange fees, and international credit card, digital payment etc.In India such cross border payments are settled through a bank with offices in other countries where the money is transferred based on existing exchange rates.

 There exist different methods of making cross border payments in India. Infact correspondent banks act as the intermediaries between the financial institutions and the payment across the sellers bank account.For instance when the international purchase is made by the buyer from India he sends payment to the paying branch along with instructions for payment.The paying bank then transfers the money to the corresponding bank in India along with payee or payer information.From these remittance details are sent to the central bank for clearance.If the regulatory standards are met it gets transferred to the recipient country's correspondent bank promptly.The correspondent bank accordingly transfers money and deposit it in the beneficiary's account.

   Cross border payments flow operate through the interdependent network of banking and financial institutions within and outside the country. Since multiple members are involved in the payment process generally it takes upto six business days to complete the payment provided legal scrutiny is found correct and full proof.Similarly  under the SWIFT system payments are made through an intermediary bank that allows one to send or receive electronic payment internationally.Infact SWIFT network does not actually transfer funds instead it sends the orders using SWIFT code.

There are several bilateral and multilateral experiments attempted between countries for smooth cross border payments.It has been observed that under initiatives of Bank of International Settlement(BIS) and Central Banks of different countries that tested newer modes of cross border payments, that relies on global network of correspondent banks which is usually characterised by high cost low speed and. less transparency and some operational complexities.Efficiency of cross border payments as a priority agenda gathered momentum currently.Earlier this year India and Singapore Linked with .Reserve Bank of India and  came up with regulatory ecosystem allowing money transfer operator like Western Union  to participate and deposit money into a bank account through MTSS(Money Transfer Service scheme).RBI is also availing UPI payment ecosystem by collaborating with different countries.For instance the digital payment enabler in India NPCI has already tied up UPI with pay now of Singapore and facilitated fast low cost cross border payments from India to Singapore and Vice-versa. Fast Payment System already interlinked both Singapore through Paynow -and  Thailand with Prompt pay linkage . Study  has also been initiated through a pilot project between India and UAE so as to develop the modalities and framework for cross border transactions of  Indian digital rupee with UAE Dirham digitally.

   Critics admit that  due to different timezones, varying operating hours and distances  settlement can only take place between 2-10 days resulting in risks variation in costs and time.Main impediments pointed out by experts  against smooth cross border payments are absence of uniform rules, divergent legal jurisdiction and legal process etc.Common legal challenges facing Cross Border Payments are differences in Ante Money Laundering laws (AML) and Know Your Customer,(KYC) rules and finally rules for data protection standards followed in different countries.To address similar issues including higher cost and credit risk, countries are exploring methods to allow banks and payment service providers to transact directly with one other without requiring to rely on intermediaries or participate in closed loop system.But this may not be feasible in the absence of uniform KYC and AML regulations However greater digitalisation and adoption of UPI payments system along with multilateral negotiation and Settlement of KYC and AML rules can go a long way in making Cross Border Payments smooth and vibrant.Currently under the Indian stewardship of ongoing G20  summit with appropriate measures and obviously significant cooperation of different countries, prompt and efficient  cross border payments system can be evolved.