BASEL, Switzerland—The Bank for International Settlements has published a report it says highlights the benefits of interlinking arrangements and application programming interfaces (APIs) to enhance cross-border payments, while also highlighting the challenges that payment operators are facing.
Both interlinking of payment systems and harmonizing API protocols for data exchange are important elements of the G20 cross-border payments program, the BIS said in the report.
“This topic is now attracting increased attention due to recent trends in the payment system landscape, especially the introduction of fast payment systems around the world. Interoperability among payment systems is necessary to process and execute cross-border payments from country A to country B without requiring a company in country A to be registered also in country B,” Pymnts.com explained in its report.
‘More Interoperable’
According to Pymnts.com, the BIS stated in releasing the report that while payment system interoperability is not strictly dependent on APIs, the use of APIs, and particularly harmonized APIs, can make payment systems more interoperable.
The report says an element that may facilitate the adoption of API and reduce frictions on cross-border payments is the continued migration of many payment systems to the ISO 20022 messaging standard. In the coming years, the adoption of the ISO 20022 messaging standard will generate further momentum toward API adoption, given the potential use of a common ISO 20022 data dictionary for APIs.
System Being Adopted
According to the BIS, that system has already been adopted by the Bank of England, the European Central Bank and the Federal Reserve to some payment systems like Fedwire and FedNow. Therefore, the increasing adoption of ISO 20022 and APIs may significantly reduce frictions in cross-border payments, the BIS said.
“However, the adoption of APIs, and in particular harmonized APIs may be a challenge for many payment operators,” noted Pymnts.com. “In 2021, the BIS conducted a dedicated survey to understand the planned implementation of APIs by payment system operators around the world. The survey was completed by 55 respondents, from a wide range of payment system types, jurisdictions and levels of economic development. The survey found that a large majority used APIs (65%) or plan to use APIs in the future (20%).”
One Issue: Lack of Standardization
And there is also another issue, according to pyments.com: a lack of standardization (i.e., protocols, formats, data dictionaries and security features) has created the most significant challenge both for payment system operators and for the industry at large contemplating the adoption of APIs (79% of all respondents).
This suggests, according to the BIS, that greater international collaboration to prevent fragmentation of standards at the global level is needed, Pymnts.com said.