G20 finance leaders aim to cut cost of cross-border payments

G20 finance leaders are working to cut the cost of cross-border payments and increase access to the payments system, with Sub-Saharan Africa lagging other regions in terms of high payment costs that weigh on migrants and hinder efforts to implement the continent’s free trade deal.

“When we talk about global financial inclusion it’s not about having a bank account. It’s about being able to send money home,” said Reserve Bank governor Lesetja Kganyago, who chairs the cross-border payments committee that sets targets against which G20 heads of state will evaluate progress at the leaders summit in November.

This is one of the focus areas for the G20’s finance leaders, along with reforming international financial institutions, scaling up infrastructure finance and strengthening international taxation. SA’s presidency this year has also made it a priority to put Africa’s growth and development challenges on the G20 agenda.

G20 finance ministers and central bank governors began their two day meeting at Zimbali on the KwaZulu-Natal coast on Thursday, with hopes that they would find consensus despite high levels of uncertainty and global tensions over US President Donald Trump’s tariffs.

Opening the meeting, finance minister Enoch Godongwana said uncertainty continued to weigh heavily on global growth prospects, pointing to rising trade barriers, persistent global imbalances and new geopolitical risks as significant concerns. The G20 had a critical role to play in revitalising multilateralism and driving action on collective challenges that no one country could solve, Godongwana said.

Kganyago said the “silver lining” in a recent report by the World Bank was that average cross-border payment costs had come down in Sub-Saharan Africa, to 3.7% of the value of a transaction (so a $3.70 charge for every $100). But at that level the average cost was still well above the G20 committee’s 1% target, and the gap had narrowed less than in other regions.

The average also masked the fact that costs could be as high as 10% in some corridors on the continent, Kganyago said.

The Bank is busy modernising SA’s own payments system and announced plans recently to open access to the national payments system up to non-banks, such as mobile phone companies and fintechs. Its work aligns with that in many other jurisdictions, with more efficient cross-border payments relying crucially on domestic payments systems that can mesh with each other.

The G20 put cross-border payments on its list of priorities during Saudi Arabia’s presidency and has set targets for cost, speed, access and transparency. One of the key frictions Kganyago’s committee found was regulatory and supervisory expectations by the private sector — which tends to assume maximum impact of the regulations because the costs of noncompliance are so high and load transaction prices accordingly.

SA banks suspended cross-border electronic funds transfers to neighbouring countries after the Financial Action Task Force flagged cross-border payments as non-compliant with its regulations. Even though there is no exchange control between SA Customs Union countries, whose currencies are pegged to the rand and who are use the same payments systems, banks assumed the FATF flag meant they had to do enhanced due diligence, so it did not make sense for them to do those EFT transactions any more, and they pulled out. Regulators came together to deal with that and the FATF recently released recommendation 16 that tried to smooth the friction, Kganyago said.

The G20 committee is also pushing for countries’ regulators to open their payment ecosystems to nonbank participants, putting guidelines in place to allow this. A further measure to cut the costs, increase the speed and enhance access to payments domestically and cross-border is to set the rules of interoperability between the different technologies in the payments system so that the various fintech systems can talk to each other to effect payments.

“And if you’re going to apply them cross-border, then you’ve also got to sort out your domestic rails so they can be interoperable across the board,” said Kganyago. Sadc was busy with a project on this.

Addressing impairments to cross-border payments was crucial for financial inclusion but the African Continental Free Trade Area (AfCFTA) also depended on traders being able to settle their transactions between different countries. “You need cross-border payment systems that are efficient and cost effective” Kganyago said.

He also responded to calls by the B20 for banking regulators to loosen Basel requirements to support more infrastructure finance, saying the banks must detail what regulatory changes were needed. But he cautioned that if the rules, which were tightened after the global financial crisis too ensure banks were adequately capitalised and liquid, were tweaked for infrastructure there would inevitably be calls for them to be tweaked for other kinds of lending and could become meaningless.

joffeh@businesslive.co.za