The G20 Roadmap: a Crucial Step for Cross-Border Payments

In the aftermath of the COVID-19 pandemic, the so-called “decade of action” is unfolding as regions across the globe experience severe economic contraction and go through the recovery process. This is reflected in many ways, including the adjustments in achieving the international sustainable development goals (SDGs) - the strategy countries should follow for a better future for the planet.

The G20 Sustainable Finance Roadmap is a part of the updated course of action that focuses the attention of relevant stakeholders on the key priorities of the global finance agenda. Read ahead to find out more about this document and its influence on the state of cross-border payments and other critical aspects!

The G20 Sustainable Finance Roadmap Background

Besides, the annual SDG financing gap, which was estimated to be $2.5 trillion pre-COVID-19, is set to increase by $1.7 trillion due to global economic uncertainty and the pandemic emergency response².

In order for the global community to get back on track in achieving the SDGs, the G20 leadership had to step in. This intergovernmental forum, composed of 19 countries and the European Union, re-established the Sustainable Finance Working Group (SFWG) in 2021. The SFWG was tasked to develop a G20 Sustainable Finance Roadmap to outline the key actions to be taken in the financial field. Find out what the outcome of this initiative was below!

The Scope of the G20 Roadmap

The G20 roadmap is a multi-year document with a voluntary set of recommendations that has three high-level purposes:

• Determine the gaps where the sustainable finance priorities are not being addressed sufficiently.
• Identify opportunities for the G20 to leverage in achieving the sustainable finance goals.
• Communicate the G20 sustainable finance priorities to a wide array of stakeholders and engage them in working toward those goals.

The roadmap features five main focus areas:

1. Market development and approaches to match investments to sustainability goals
2. Consistent and up-to-date information on sustainability risks, opportunities, and impact
3. Assessment and management of climate and sustainability risks
4. Role of international financial institutions (IFIs), public finance, and policies
5. Intersecting issues, such as digital solutions, transition finance, and capacity building

To tackle all these aspects and achieve the determined goals, the roadmap lists 19 action points that will run in parallel over the course of the plan’s implementation. A lot of these actions are closely related to smoothing cross-border cash flows and are expected to drive significant change in this sphere.

How Will the Roadmap Influence Cross-Border Payments?

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There are five key focal points when it comes to the improvement of cross-border payments, according to the G20 roadmap, namely:

1. Ensuring public and private sector commitment - developing a shared cross-border payments vision and targets, applying global guidelines, and determining common features of international payment service levels.
2. Aligning regulatory, supervisory, and oversight frameworks - applying AML/CFT rules consistently, monitoring the interaction between data frameworks, creating safe payment corridors, and promoting KYC and identity information sharing.
3. Improving the existing cross-border payment infrastructures and arrangements - ensuring active PvP adoption, aligning operating hours of key international payment systems and interlinking them efficiently, and building liquidity bridges between central banks.
4. Harmonizing data and market practices - implementing ISO 20022 for messaging, aligning API protocols for data exchange, and developing unique identifiers with proxy registries.
5. Developing new payment infrastructures and agreements - assessing the feasibility of creating new multilateral platforms for cross-border payments, ensuring the adequacy of global stablecoin arrangements, and introducing an international dimension into CBDC’s design.

This course of action is set to deliver plenty of benefits for individuals and economies worldwide and boost economic growth, international trade, and financial inclusion.

The G20 aims that, by 2027:

• The average cost of making an international retail payment will not exceed 1% of the transaction’s value, with the highest threshold for payment corridor charges equaling 3%.
• Over 90% of the individuals globally who wish to forward or receive remittance payments will be able to do so using digital services.
• Transaction transparency will be enhanced, with all payment providers informing users regarding the total cost of the financial operation, the expected time of the receipt of funds, payment status, and terms of service.
• Three-quarters of wholesale, retail, and remittance payments worldwide will be credited within one hour of payment. The rest of the market is expected to credit payments within one business day.

But is the existing deadline realistic for such major changes?

When to Expect the Changes to Be Implemented?

The implementation of the goals listed in the G20 roadmap is a lengthy process, as it requires coordinated actions from multiple countries across the globe and involves hundreds of entities.

Thus, while some actions were already taken during the course of the pandemic, such as the development of options for the increased adoption of PvP in 2020, other initiatives have only been launched in 2022, like the study of different multi-CBDC arrangement designs and their interoperability patterns.

Overall, it is extremely challenging to predict whether the 2027 goals can be met on time. However, regardless of that, the G20 roadmap presents a grand opportunity for the evolution of the payments industry as a whole and cross-border transactions in particular.

¹ - United Nations - Financing for Sustainable Development Report 2021
² - OECD iLibrary - Global Outlook on Financing for Sustainable Development 2021 : A New Way to Invest for People and Planet
³ - CPMI - Stage 2 Report to the G20 – Technical Background Report