Tokenisation could ease liquidity bottlenecks in next phase of cross-border payments, say panellists

[SINGAPORE] Liquidity has emerged as one of the biggest remaining hurdles in cross-border payments, with tokenisation offering banks a more efficient way to fund transactions.

This comes as the industry moves towards round-the-clock settlement, executives from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), DBS and Standard Chartered said at a panel on Thursday (Jul 2).

Years of investment in payment infrastructure have significantly reduced settlement times between financial institutions, but the industry’s next challenge is improving customer experience by tackling liquidity constraints and delays that occur after payments leave the interbank network, they added.

Around 75 per cent of cross-border SWIFT payments now reach the receiving financial institution within 10 minutes, far exceeding the Group of 20’s target for most cross-border payments to be completed within one hour.

The figures, however, measure only the movement of funds between financial institutions.

A panellist noted that much of the remaining delay occurs after a payment is sent. The session was held under the Chatham House Rule, in which participants cannot be identified to encourage open discussion.

Another panellist shared that about 80 per cent of the total duration of a cross-border payment is spent in the “last mile”. This refers to the period after the funds have reached the beneficiary’s financial institution, but before they are credited to the customer’s account. 

Local regulations, foreign exchange processes, market practices and domestic clearing systems are among the factors contributing to these delays.

To improve the end-user experience, SWIFT introduced a new cross-border payment framework that focuses on delivering faster and more transparent payments rather than improving only the underlying infrastructure.

More than 70 financial institutions across over 25 markets have joined the initiative. Participating banks commit to the fastest possible settlement times, end-to-end payment tracking, transparency over fees, and the delivery of the full payment value without hidden costs.

Liquidity remains the constraint

While faster payment rails have reduced settlement times, they do not solve another longstanding challenge: ensuring that banks have sufficient liquidity available to settle transactions round the clock.

A panellist said this is where tokenisation could make the biggest difference.

Instead of maintaining idle cash balances across multiple markets, banks could mobilise tokenised cash or collateral when needed, improving capital efficiency while ensuring payments can be settled without delay.

“This is what will take payments to the next level,” the panellist said, adding that tokenised money should complement, rather than replace, today’s payment infrastructure, particularly in markets where domestic clearing systems remain less developed.

To support this transition, SWIFT is developing a blockchain-based shared ledger that will allow banks to move tokenised deposits, and eventually other forms of regulated digital assets, across its network.

Instead of replacing today’s banking infrastructure, the shared ledger will connect existing payment systems with emerging digital asset networks.

SWIFT is building the infrastructure while participating banks prepare their own tokenised deposit platforms to connect to the network. 

Avoiding new fragmentation

The panellists also highlighted interoperability as a key challenge, warning that fragmented blockchain networks could create new barriers to cross-border payments if they cannot communicate with one another.

They shared that speed alone is unlikely to define the next generation of cross-border payments.

One panellist said that businesses continue to place greater value on certainty and security rather than instant settlement, particularly for higher-value transactions.

“(Being) instant is not as important as safety, and speed is not as important as certainty,” the panellist noted.

He added that artificial intelligence is already helping banks improve fraud detection, sanctions screening, payment routing and operational efficiency.

“I think these are great technologies, which are really helping to move things forward at a faster pace,” he said.

The executives agreed that the future of cross-border payments will be evolutionary rather than disruptive, with tokenised money integrated into existing payment rails instead of replacing them.

“We are all plugged in through the SWIFT network to bring this together and make it a much more network-dense operation,” said a panellist.

“Without network density, all the innovations in the world fail.”