In one corner, the evolution towards becoming a cashless society demands that more banks adopt a digital-first approach towards product development and customer service. Already, 71% of people in Sweden indicate that they could manage their daily lives without cash.
This is of course the direct result of the second major change: the explosion of new (and robust) digital banking services for both consumers and businesses. Crypto assets, e-wallets, acquiring and payment initiation services and instant peer-to-peer payments have only accelerated the demand for faster, cheaper and simpler payment tools.
The G20 focus on cross-border payments
One area that lags sorely behind, however, is cross-border payments. In fact, the G20 flagged cross-border payments as a global priority at its last meeting in 2020.
It’s no surprise why: the process is laden with complexity. Lack of data standardisation and interoperability, various and sometimes conflicting compliance requirements, disparate operating hours and outdated legacy platforms are just a few of the challenges that contribute to high costs, slow transaction rates, limited access and lack of transparency.
Acknowledging that the Covid-19 pandemic has affected the payments landscape by turning many nations’ focus towards domestic matters, the G20 commission has emphasised the importance of taking the long view. Globalisation is a reality, and reducing the friction within cross-border payments is necessary for long-term economic growth.
Today, perhaps due to these challenges, a vast majority of consumer payments are conducted domestically. But there are two problems here:
First, the demand for rapid cross-border payments is rising. Financial institutions must find a way to provide the same level of simple, instant payment services for cross-border payments as they currently offer for domestic payments. If they don’t, they’re sure to be outpaced by third-party, Fintech upstarts.
Second — and perhaps more interestingly — this disproportionately benefits large, single-currency markets such as the US, the UK or the SEPA zone. In a region like the Nordics which has to contend with the increased complexity of multiple currencies and clearing systems, streamlining cross-border payments is vital for commercial growth and competition.
P27: a test and an example
With so much at stake, Nordic banks have joined forces in the form of P27. Named for the 27 million inhabitants of Denmark, Sweden, Norway and Finland, its goal is to build the world’s first multiple-currency cross-border payment system. By establishing a pan-Nordic payment infrastructure, P27 hopes to reduce barriers for trade both within Nordic countries and between the Nordics and the rest of the eurozone.
Martin Georgzén, Head of Strategy and Communication for P27, put it this way when speaking recently at Sthlm Fintech Week: “Today, 25% of all the cross-border trade from the Nordic countries is actually staying in the Nordics. So by solving that you really solve a big part of all these different things when looking at how we can get private persons and corporates to prosper. If we can make that simpler and more efficient, in the same way that we pay domestically, then we will have come extremely far.”