CROSS-BORDER

Michael Salmony 0:12

Hello, my name is Michael Salmony and Javier and Ralf and I want to explore today the topic of cross-border, especially cross-border instant. mean, instant is appearing all over the world, but they're not really connected yet. And of course, what we need at some stage is for everybody to be able to send money to everybody instantly. That happens within Europe, but not so much cross-border. And there several initiatives on that. The G20, as we may have heard, is struggling a little bit. It's been working on that for years.

Javier 0:21

. .

Michael Salmony 0:41

Stablecoins are now coming up to say they solve that. Some people say CBDCs, wholesale CBDCs

do that. Some BIS projects. There are lots of things going on to address that. But maybe we can start with you, Javier, because during your regency at the EPC, ⁓ you created OLO, which I think is something that goes in that direction. Maybe you can tell us a little bit about that.

Javier 1:05

Yeah, okay. Okay. Thank you. Well, yes, OLO was one of the last schemes developed by the EPC, the European Payments Council. And to me, brings

kind of a paradoxical lesson because to me, even if it's now just a green shoot and it's in its early stages, I think of it as a ⁓ sign of maturity, of maturity of SEPA. So one, you have created a true single market, which still is not the case, but we are getting closer to that. Then you realize that for that really to mature, to be solid, you need to dissolve the walls. And one of the walls,

is that of Europe. So you need to make ⁓ that area permeable to the rest of the world. And this is what ⁓ OLO brings onto the table, which is the way to get out and to get into ⁓ SEPA in an efficient manner, using the same method.

Ralf Ohlhausen 2:02

Hang on.

Hang on. have to interrupt you because I had, you know, one of our listeners was complaining that we are using these acronyms and we're not explaining them. So tell us what do you mean by OLO?

Javier 2:12

Okay.

OLO is a one leg out and in fact the scheme is called one leg out credit transfer. So it's a scheme to make possible transactions going outside SEPA, Single Euro Payments Area and getting into SEPA. So it's the way to make ⁓ the area permeable to the rest of the world in both ways, getting out and getting into the area. That's OLO one leg out. One leg out is, yeah, it's a...

jargon and I think this listener is very right in complaining because I personally also hate acronyms. But anyhow, these one-legged transactions, they make that area permeable. in that sense, it's counterintuitive because for one jurisdiction, from one currency area to be mature, it has also to have connections to the rest of the world. So that's

Why I think this is important because it shows that we are moving in the right direction. So once SEPA has matured, yes, there is a need to have links and to have transactions with the rest of the world. And I think that's the way. instead of trying to push the current world as it is, trying to do it faster, more accessible, cheaper even, what we should expect is that

in the different jurisdictions, we reach that stage of having instant payments. And then the next phase would be to connect those areas. That's to me the sensible way, not trying to push current things as they are now, trying to improve them, enhance things that are currently in place, but thinking that what we have to do is to move to real time, really 24 by 7, and then think how to connect.

those areas. And this is the second lesson I get from OLO. OLO is not only a means to make SEPA permeable, but it is also a necessary brick to build pan-European solutions. Because in Europe, we do have the Euro jurisdiction, but do we have many other currencies? And we need to start thinking of how these currencies will work in 10 years or so when we do really have pan-European solutions.

at POI and POS. In that case, we will need something to move from one European currency to another European currency. So OLO has not only this dimension of talking to the rest of the world, it's also a necessary step to really think of truly pan-European solutions, thinking of all the currencies in place in Europe. And that's also what I think the most immediate fruit of the OLO.

that it will make ⁓ Europe really much more efficient if it's well done. Of course, we are in the early stages, so it still has not been adopted massively. I think that would be the first aim to think of ⁓ mass adoption by PSPs around Europe. And then we will be able to think how this works with the outside world and how it works really to design pan-European solutions.

Michael Salmony 5:37

Very good. So just to understand, OLO is in Europe because SEPA only covers the euro area, so it's to tie in the non-euro European countries, but also to connect to Brazil and to China and India.

Javier 5:46

Exactly.

So, so yeah, that is true. It's a we tend to think of cross border because that's the the mindset but ⁓ Really? It's about cross jurisdictions. So it's about cross currency ⁓ What really matters is going from one currency area to another currency area. That's probably more Accurate to reflect the reality, but we talk about cross border because we still have this ⁓ 19th century mind but nevertheless it's

Michael Salmony 6:19

which you shouldn't

in Europe exactly. Yeah. But why is it not being adopted? I think it's been out for about two years. What's the problem?

Javier 6:21

Yeah.

Well, I think it's a question of priorities. It is starting to be adopted in Spain. It has been adopted by most banks. So now Spain is kind of an island and there have been the first commercial solutions and there are some transactions coming from Mexico to Spain and being distributed instantly. that's, I think that's also where we should focus on it. We should aim to instant directly, not think of... ⁓

of the old world. And so that has already been adopted in Spain. And I think it will also be the case in other domestic markets in Europe. And eventually it will come to the whole continent. It should be help if needed, because I think it will be good for everybody. Of course, again, we face the problem of...

of adoption of chicken and an egg and the critical necessary critical mass. that's one of the problems. The other problems to connect to the rest of the world is that you need reciprocity. And that's the big word. Because if you want to connect one area to the other, both needs to stand on the same terms. And for that, you need kind of a reciprocity in between those two jurisdictions. But in Europe, we already have that.

So it would be just a question of really nudging the colleagues to adhere to the scheme and make it something general. If not mandatory, something similar that all PSPs in Europe realize that they have to make that move.

Michael Salmony 8:10

So maybe you can take us through some of the other things that are happening in the world.

Ralf Ohlhausen 8:11

tip.

Well,

I want to, sorry, I want first of all, dig a bit deeper here, because I have also maybe on the take up, I mean, I am aware that EBA Clearing has ⁓ an implementation of it as part of RT1. So for the Inst version, I think is there and that's more basically a year already. And, and we just had the

Javier 8:42

you

Ralf Ohlhausen 8:45

the 2025 OCT Inst rulebook going live or being published. so is there anything new coming? Well, I think it's also related to the ISO 20022 switch. I don't know, is there a bit more you can say about actual implementations and CSMs using it, offering it?

Javier 8:46

you

Michael Salmony 9:10

Just to add to that, just because Spain, IBERPAY and EBA have implemented it, it doesn't mean it's being used. Can you sort of differentiate that as well?

Javier 9:18

Exactly.

think I don't think there is a real traffic at EBA Clearing. There is some traffic still marginal at IBERPAY. So it's in production. So it's really commercial transactions, but it's not too big yet.

I think, and I was speaking before of priorities, once we had gone through this Instant Payments Regulation, adoption and VOP and all that, I think now PSPs will want to focus on the next steps. And I hope that by 2026, OLO and this OCT, the one leg out credit transfer will be one of the goals to be achieved if not in 2026.

aiming to have it really in place, adopted and in production, really processing transactions in 2027. But that's my hope. Of course, I think not only IBERPAY, many other CSMs, Clearing and Settlement Mechanisms, as well as EBA Clearing, they are prepared. So it's not a question of infrastructure. And in fact, developing OLO is not a big work. It's...

Ralf Ohlhausen 10:09

And it's this.

Javier 10:28

really simplistic because it's just adding some fields of information and flagging those transactions. So it's not a big change in the process and it's just signaling what transactions are coming out or are going out or coming into. So I think it's not costly to develop it internally in each PSP, but we need a general move, we need the agreement that we all move together.

Ralf Ohlhausen 10:58

Is it the non-instant OLO actually used or is everyone leapfrogging right to OCT Inst?

Javier 11:08

I think in Europe, I think we are all aiming to instant directly, because it makes all the sense. it's, of course, once you do instant, you have to also to bring up the traditional transactions. But that would, I think that's the consequence. I think people are really aiming to implement in instant.

Michael Salmony 11:31

Make sense, yeah. Okay, should we return to try and broaden the horizon? Ralf, why don't you take the switch?

Ralf Ohlhausen 11:37

Yeah, well, because, well, you already mentioned

G20. and of course, it's been, ⁓ I guess, the one party that everyone knows around the world on cross border payments is Swift. And so they have ⁓ addressed the G20 requirements there with what's called global payments innovation GPI, which is, well, across border

⁓ I guess messaging system that ⁓ is working faster or shall work faster is more trackable, more transparent and everything. ⁓ whoever is using it, think most of it, they think they claim it's done, most of the payments are done within an hour, I think some say 30 minutes, but in any case within 24 hours. So I think that's sort of the maximum allowed.

Javier 12:37

you

Ralf Ohlhausen 12:38

Yeah, well, it allows tracking. is an identifier for it, the GPI tracker, UETR, talking about acronyms, whatever that stands for. yeah, but it is also about the ISO 20022, I think, use of, and I guess in particular with the address thing. we have

Javier 12:44

Okay. ⁓

Ralf Ohlhausen 13:04

there this ⁓

Well, we have been now in a transition period between the old MT messaging standards of Swift and now, well, coming to the new world, ISO 20022 and deadline being, yeah, now November 25. Do you know about how that is going? Do you have any insights on Swift on that GPI?

Javier 13:07

. .

⁓

I don't have any particular information. I think they are moving not as quickly as everybody would expect or hope, but I think they are progressing step by step, but not too fast.

Michael Salmony 13:50

What I'm hearing is that the transfer, the message, of course, is relayed very quickly. That's not the problem. The receiving bank is the problem. You can send it to the Philippines immediately, but to get the Philippine bank, sorry to pick on the Philippines here, could be anybody, takes sometimes days to sort of do the compliance and the AML and the sanction checking and to book it onto the account. And that's the problem. You've got to get all the receiving banks on board. And on the ISO 20022, I mean,

Javier 13:58

Exactly.

Michael Salmony 14:19

At moment, I get the impression this is still very much a compliance and a standardization exercise. And what I'm really hoping is now that we get end-to-end data transfer, you don't lose data when it goes through several hops from one country to another. And therefore, you can do completely new business models. But I think we're still a little bit off there.

Javier 14:34

.

Ralf Ohlhausen 14:37

Yeah, and but is the I always hear this relating to the address ⁓ fields and having a structured structured address rather than a free, free flow text or free text field there, which would make a big difference. And, and there has been so much going on also inside the EPC around that subject. Can you shed a bit of light onto that?

Javier 15:03

Well, yeah, but that's one of the good examples that it's easier to say than to implement. Because as you are saying, the address should be structured for the ease of every processing, but that can be done very easily at the scheme level. But then you have to adapt all databases. And this applies not only to PSPs, it applies to end users, particularly to businesses.

they would have to modify to adapt their databases of the addresses they hold for their customers or their partners or whatever. So that's the real pain. It's not that you decide that at the scheme level, that would be an easy decision. It's how that goes down to end users and they adopt that and then they, instead of using this fields, this terogeneous fields, they get those structured ones.

That's really where things get difficult. It's moving not thousands of PSPs, but millions and millions of end customers.

Ralf Ohlhausen 16:09

And so there have been delays, right? we've the ambition.

Javier 16:12

That will,

I think that will take time and it will not be an easy task. One good thing is that all people are in agreement. that's ⁓ something that everybody has accepted has to be done. So there is the will, there is the idea that it should be done. And then we will need time for that ⁓ to realize. But there is no obstacle, there's no conceptual difficulty in doing that. It's that probably...

these businesses and users need time to adapt. But it will be done. Eventually it will be done because there is no force against it. There is no disagreement that it needs to be done.

Ralf Ohlhausen 16:57

Right. But I guess it's one of the problems of like the old rails or ⁓ that are well getting upgraded into more structural form so that the data can can be transmitted end to end that I can use not just but that you basically can get the value add out of the data that goes around the message or comes with a message. Sorry, with a payment. And

which of course is the new kids on the block don't have that legacy and but then I'm not sure because if how that would relate like to stablecoins so because there again you also would have to have some identification once you have identification you have names and address and you have all these data so I think they will they can then just profit from

Javier 17:35

Yeah.

Ralf Ohlhausen 17:55

You know, all this upgrade that has happened here over

the years.

Javier 17:59

I think you're touching the real crucial point, which is that, of course, even moving funds is not a difficult task. So you can move funds and PSPs have been criticized for not being able to move funds as fast as telcos were able to move information. That can be done. What is less easy to do is to comply, to comply with Know Your Customer requirements, with AML, with sanctions, with all...

information required at ⁓ every single point in the whole world with local, even local regulations. So that's real difficulty. It's not moving funds. That can be done. And I think Michael was referring to it. That can be done quite easily. Is that then you have to comply with all information requirements having to do with many aspects. And that's where things come much more difficult. It's like ⁓ criticizing the telecom industry.

not because they are not fast enough in moving messages, but when they arrive to the end location, they need to prove it's not a fake news. That's not as easy as moving information. Proving that it's true and that there is no fraud in that information or that news being moved from one point to the other, that's the trick. And I think in that sense, moving funds is more or less the same.

moving funds itself is not that difficult. I wouldn't say it's easily done, but you can do it. It's something accessible. But proving all the rest of conditions is what really is much more demanding.

Ralf Ohlhausen 19:46

Yeah, the other ⁓ noticeable project in this area, I found quite remarkable is this from the ⁓ BIS Bank of International Settlements, ⁓ like worldwide settlement bank, they came up with this ⁓ project called Nexus, where

The idea is to have all these instant payment solutions that are now coming up in all the countries or regions. And of course, we just gone live here in Europe with our instant payments becoming the new normal and the imposing it for receiving and sending instant payments now across all banks in Europe, Euro banks for now, but the non-Euro banks coming too.

Javier 20:23

Okay. Okay.

Ralf Ohlhausen 20:44

⁓ Anyway, so we have this instant payments in Europe, and then there is instant payments in other

countries, many countries. We famously we know about India and Brazil, big ones there, but elsewhere too. So we have almost, I don't know how many, but it's probably dozens, or if not hundreds are already and the idea is to connect all these

Javier 20:59

or

Ralf Ohlhausen 21:13

national or regional instant payment systems into by by well through a hub, so that each one does not need a bilateral connection with every other one where we would have, you know, all these ⁓ just too many connections. So here we when you go through a hub and spoke model, you you well you everyone has only one partner. And so that one partner is supposed to be

Javier 21:22

.

Ralf Ohlhausen 21:42

the ⁓ the BIS project or actually, they they have created a commercial entity, I guess. It's called Nexus Global Payments based in Singapore. And I think that's also where the project is sort of located. And and by the way, so the the initial participants are countries from that region. So it is ⁓

Malaysia, Thailand, Singapore, Philippines, India or Indonesia or both. players from that region which are trialing it and well their ambition is to have this working in less than 60 seconds. So now we're not talking, well we're talking one minute, not many minutes, we're not talking one hour, we're not talking one day.

We're talking reasonably quick international transfer. yeah, so I hope that, sorry, one more thing maybe about that. Of course, it is quite tricky to get these connected because they're all of course, each work differently. So from that hubbing functionality,

Javier 22:43

Minute.

you

Ralf Ohlhausen 23:08

what is needed is a ⁓ mapping between those different functionalities. And I think the way it's, they've approached this, well, it's too detailed now, but I think it's done in a quite clever way that allows this, that basically gives the flexibility and freedom for each solution to have their own implemented, their own way of doing, and they're not required to have

Javier 23:25

Mm-hmm.

Ralf Ohlhausen 23:38

⁓ did to well to then interconnect with each other one in using another different technology, but they all have to just respect the connection with one different technology, which is the one of Nexus. So each one there, there is this hopping, sorry, this hopping and therefore mapping only once. And I guess the same may go for for then in the operational side for currency. ⁓

Javier 23:57

Mm-hmm.

Ralf Ohlhausen 24:07

FX, etc. So I think it is a pretty neat model. And if that works out, well, why do we need any regional interconnections if we have a worldwide one?

Michael Salmony 24:21

I mean, I agree with a lot of what you say, but just to add a couple of things on the BIS. I mean, the BIS is the central bank of central banks, right? It sits above all the central banks. it's just by its definition, it is always doing looking at cross border and global interconnect. So ⁓ my perception is that there are plenty of projects going on at BIS which aim to create global and global instant.

Nexus seems to have the best PR department. They seem to get the most ⁓ attention. But there are a few others like ⁓ Inbridge, which is connecting various CBDCs around the world. There's ⁓ Mariana. There's Ralf that's right up your street, Agora, which is using open banking to try and connect ⁓ trade across the world. So there are actually, I think, over 20 projects at the BIS, which

most of them focus around interconnecting. So that's really, really great. I'm slightly dubious about this hub and spoke model, quite honestly. I mean, obviously it solves the end-to-end problem. If you don't need to connect everybody to everybody, but having a hub, having a central instant has a lot of problems about sort of resilience, about a single point of failure.

So I'm quite a fan of these more distributed models. And I won't say stable coins again, because I'm beginning to get told off for this. But I think there are more modern ways of maybe connecting the world than that. this is surely one of the interesting ones to watch,

Javier 25:57

I think we can derive two lessons from all these projects.

One is that the more standardized the setting, the better. you need really to make things compatible. And the more compatible, the better. And I would say look for simplicity because that's the best way to get the same standards. That's one thing I would focus on. And second one is that we need to focus on those areas and corridors that really make sense. Trying to enhance the whole world just at once.

I think it's too much. And we should be spotting where did the opportunities arise and really try to address them and create something meaningful where there is critical mass or there is a commercial interest or there is something to be gained from the effort that it takes to move a region or a corridor. That I think is the second lesson because when I look into this G20 roadmap, I get a little bit upset because it's, of course they have, they,

published a report last week saying that they will not achieve the goals that were set by 2027 and that they are ⁓ running late and some things are lagging behind, et cetera. And when you look into the actions, one would say, yes, of course, it was all about setting frameworks, giving recommendations, creating a task force. That's not a strategy. And I think they have confused

strategy with setting strategic goals. And there were very precise goals in terms of speed, cost, accessibility and transparency. Those were really strategic goals, but setting goals is not the sign of strategy. It's like, of course, in the example I put always is chess. In chess, it is very easy to learn the strategy. It's capturing the opposite king. That's all.

The problem in chess is how to do that. How can you get the adversaries ⁓ king? And it's a way how to do it. It's not the goal, it's on how to do it. And by creating frameworks and proposing task forces and recommendations, think things are not ⁓ done as we all expect. And the problem with this ⁓ analysis and this report,

is that it acknowledges that they will not get where they wanted to be, but they really don't identify the causes of that mishap. So it's not that they say, well, we were mistaken in doing this or that. Nobody knows why goals are not being achieved, but it is a fact that they will not be achieved. So I think they should be more critical with themselves in how the whole

Michael Salmony 28:51

Mm-hmm.

Javier 28:55

strategy and the whole project was set up.

Michael Salmony 28:59

Well, that's interesting. Today we don't have a guest, so we can argue amongst ourselves. This is really fun. So I'm going to disagree a little bit with you, Javier, if I may, because I think G20 have just bitten off more than they can chew. They are trying to solve the whole global problem of how to make instant payments throughout the world from a commercial point of view, from a legal point of view, from fraud, etc., etc., which means they've created this enormous effort with 17 different

strands, each with 17 different task forces and everything. So I think they are trying to address the problems, but the problem is just incredibly hard. And just maybe, ⁓ you know, tweaking around the edges of a system that's been built over the last 20, 30, 40, 50 years, and trying to make that interconnect and work and even though the legal system in the Philippines to stay with that may be super different to what we have in Europe.

Javier 29:37

Mm-hmm. Exactly.

Michael Salmony 29:56

Trying to get all that in one harmonized thing maybe is actually an impossible task. That is why, again, you need to go a different way. You need to break

the mold and do it a different way. That's what I think the G20 have put a valiant effort in, but the task is just too hard.

Javier 30:11

Yeah, but that I would say that I agree with you. So I would say you are much more politically correct in addressing the

Michael Salmony 30:20

So what else do we want to talk about?

Ralf Ohlhausen 30:23

Could I circle this back to Europe and OLO? Because as far as I understand it, so if I look at these three, or let's say four ways, so we have instant payments in Europe, we have ⁓ one leg out for Europe between currencies and beyond Europe, then we have Swift GPI.

And we have Nexus and I guess there are, well, obviously, other stablecoins completely different ways of doing and possibly or many other ways of doing cross border as well. but just looking at those, say the three that we mainly looked at here. ⁓ So I can see how Swift and OLO fit together and if I understand it correctly. So if someone I don't know sends money from

Javier 30:52

the other.

Ralf Ohlhausen 31:17

don't know, US or somewhere. And it goes, it uses Swift GPI, then it arrives in Europe at some point, some bank, some correspondence bank, and, and then it takes it sort of switches over to OLO or

Javier 31:31

.

Ralf Ohlhausen 31:32

OLO Inst or OCT Inst. And then it is so we have, like the, the increased speed and tracking of on the international leg.

Javier 31:36

. .

Ralf Ohlhausen 31:46

And then we have SCT Inst in Europe ⁓ within 10 seconds. therefore, I think those two are like complementary. But

if I now look at Nexus, and that's why I mentioned earlier, it is sort of like an international solution of what OLO tries to do as well for Europe, but also beyond. if I'm connected to Nexus, then

The money goes from the US to Singapore or the message there to the hub and then from the hub, goes straight into SCT Inst or whoever or RT1 or whatever the implementation of the real time or the instant payments is in Europe and it bypasses OLO. that right? Or am I overlooking something?

Javier 32:38

Well, I think that how it works is that you have entry and exit points. For instant, in SEPA, you have an entry point, which is a PSP able to have a connection to the outside world, whatever corridor or area region. And when the transaction comes to Europe,

it is distributed in instant. So it uses the SCT Inst infrastructure with this transaction being flagged as coming from the outside. But you are using the SCT infrastructure to the last mile distribution in Europe or the first mile if you are going out. And I think that's a ⁓ smart use of the infrastructure that has been developed because for that last mile or first mile,

you are using what you have in place and you expect that at the other end, you will have the same conditions. So moving the funds is not ⁓ something difficult. You can use Swift or whatever other means. But then when you come to the destination, you need also that arrangement that you can hit the instant payments system there and it will be distributed in question of seconds. And the way...

it goes from one jurisdiction to the other, I think there can be many ways. the fact is you need to put together to connect those two pieces of those two instant payment systems so that the first mile and the last mile are really instant.

Michael Salmony 34:11

Good. I think we're gradually getting towards the end of our time, unless you have another surprising solution of how we do cross-border instant, which we haven't covered yet. But I think we had a good geek out on that topic. The only other thing I can think of now, I mean, I have a bit of an academic background and you always should end up with a research paper saying further research.

And one further research on this topic is the fintechs. I mean, they are building, what Javier mentioned, individual corridors. I was working with a fintech recently who built a corridor between London and Nigeria because there's actually a very intensive relationship there. And that's one that's dedicated to only that one corridor. So that's another element which will probably lead to more fragmentation, but yet another one of these initiatives. So the field is rich and I think we've...

done a fair stab of doing a first pass over it. So, ⁓ Ralf, Javier, thank you very much for the lovely exchange. Glad we had a of a difference of opinion. I think that's always more fun also for the audience. And I hope everybody who watched this enjoyed it. And please like and support and repost and tell us in the comments anything you would like to hear in the future or anything you want to note. Okay. Thank you for listening and thank you Ralf and Javier.

Javier 35:06

Thank you.

Ralf Ohlhausen 35:12

Thank you.