Settlement involves two things: 1) moving data and information to wherever it’s needed, and 2) moving the actual ‘value’ between two parties.
Domestically, these happen simultaneously because the settlement involves the same currency and the same clearing system, allowing for faster, often immediate, settlement.
Cross-border, this synchronicity simply doesn’t happen. Settlement there is a process fraught with friction, and banks cannot resolve this friction because of the fundamental flaws in the cross-border settlement model.
A borderless banking future is one where cross-border payments are seamless, liquidity becomes easier to hold and move, friction is removed, and payments become instantaneous.
This can be achieved by connecting global banks through a unique settlement fabric, underpinned by public and private sector collaboration.
Solving Today’s Challenges
To be successful in solving today’s challenges, we must address three flaws in the current cross-border settlement model:
1. A Lack of Trust
It’s expensive and risky for banks to ensure the foreign currencies they’ve bought are being held with banks that are in good shape, and who won’t lose their money. If a bank does fail, today’s two-step cross-border settlement model exposes other banks to Herstatt Risk.
2. A Retreat from Opportunity Markets
Banks are acutely aware of the weaknesses presented by legacy settlement methods, including the risk of money laundering and/or sanctions breaches which have led to stricter regulatory oversight of international money movement. These weaknesses have caused banks to pull back from less developed countries, despite these often being markets presenting huge opportunities, because they cannot afford the overheads, controls and risks involved.
3. Currency Concentrations
Most cross-border settlements must pass through a small number of systemic currencies (for example, the US Dollar, the Euro, or the Yen.) This creates enormous concentration challenges, increasing complexity and cost, and forces the global economy into a legacy hub and spoke settlement model.
Opening Up the World
Businesses trading with each other internationally should have the freedom to do so in their respective local currencies, point to point, immediately, and with significantly lower counterparty risk.
This is where RTGS.global comes in.
By replumbing the financial networks that support cross-border settlements, we are fundamentally changing the model upon which the settlement system currently works globally.
And while re-stitching the underlying fabric of that system is not a quick fix, it does create an entirely new approach to moving money around the world and unearths a realm of new possibilities.
Creating a Borderless Future with RTGS.global
Banks must be prepared to embrace the power of digital technologies so they can move value around the world as seamlessly as information flows.
AT RTGS.global we’re connecting banks, as well as the settlement networks of individual countries, into a global web, so that banks in any countries can connect to exchange value across currencies, and send and receive funds instantly, with no delay, minimal risk, and full transparency.
Something as simple as a time-difference no longer has impactful consequences, thanks to what’s known as our ‘atomic settlement’ capability, whereby two counterparties can lock their available liquidity to settle a trade and simultaneously discharge their payment obligations to one another.
By removing risk from cross-border payments, the world begins to feel like a single country.
What’s Next?
For a borderless future, it’s imperative we re-wire the foundations upon which money moves around the world.
By coordinating a financial ledger across multiple markets, the banking system of the future is unrecognisable compared to the one we see today. In pioneering this, RTGS.global will serve a global community of financial institutions, companies, governments and consumers crying out for a system that can successfully power today’s rapidly-moving global digital economy.
