There are a number of issues that need to be considered before implementing accessible cross-border transactions. These include cost, time and complexity. In addition, more complex transactions may require multiple correspondent banks, resulting in additional costs and delays. For example, each bank in the chain has fees and requirements for foreign exchange and payment processing. Each bank must also verify payment messages against local financial crime rules. Lastly, each bank has to update the balance of the payee’s account using domestic payment systems that operate only during normal business hours.
Interoperability
Payment systems used to conduct cross-border transactions must be compatible to operate smoothly. This includes technical compatibility, semantic compatibility, and business-system compatibility. To illustrate the concept of interoperability, four stylized models are presented below, in increasing complexity and cost. While these models have some similarities, they are not exactly equivalent in terms of functionality.
Interoperability is vital for the future of global finance. As new forms of digital payments emerge, such as crypto-currencies, stable coins, and Central Bank Digital Currencies, these systems must be integrated into the global payment system. To remain competitive, no nation can remain an island in the digital world, so value must flow securely and quickly around the world.
One way to make cross-border transactions more convenient for consumers is to use an end-to-end interoperable platform. Such a platform can provide seamless access to cross-border payment services and improve the user experience through ease of use, digital KYC, and customer onboarding.
Transparency
Providing better transparency in cross-border transactions has become a necessity for global businesses. Transparency is vital for smooth, frictionless transactions. Banks, as intermediaries of global payments, have been the mainstay of this process. But the current model is less than optimal and has a number of disadvantages. These disadvantages include long settlement periods, high transaction costs and poor transparency.
Transparency in cross-border transactions has become increasingly important for businesses and consumers alike. With the advent of technology, companies can make transactions faster, easier, and cheaper.
As for CRS, voluntary reporting is one option. For example, Vodafone has committed to adopting the OECD standard from 2019, and its fellow ‘B Team’ alliance members have also signaled an interest in adopting the new standard. Moreover, the new Global Reporting Initiative (GRI) standard is likely to be widely adopted in 2020. While voluntary approaches can improve transparency, they can be challenging. Voluntary reporting focuses on relative superiority to less transparent competitors.
Profit allocation mechanism
In order to implement an adequate profit allocation mechanism for accessible cross-border transactions, governments need to adopt measures and rules that are consistent with the principles of international accounting. This includes a methodology for determining the value of profits and a taxing regime. In addition, a profit allocation mechanism should include the key factors that influence profitability, such as sales, assets, and users. Ideally, it would integrate with existing transfer pricing rules.
A profit allocation mechanism is critical for the sustainability of a business. It should ensure that each participant is compensated consistently and should reward positive behaviors. It should also be easy to implement and understand. Hence, government regulators should be involved in the process. A simple example of a profit allocation mechanism is the profit sharing mechanism between the banks and other entities.
Modernized trade agreements
Two countries have recently agreed to modernize their trade agreements to make them more competitive. Canada and the United States have increased their de minimis thresholds from $20 to $40, and they now allow duty-free shipments of certain goods up to C$150. Mexico will also maintain its de minimis threshold at USD $50 and will provide duty-free shipments up to a C$117 value. These changes will greatly benefit new traders who want to enter the Canadian and Mexican markets.
Governments have the power to support and advance digital trade, especially through the expansion of existing trade agreements. They can bolster their commitments to protect consumers and ensure the free flow of data. They can also support obligations to protect data privacy and grant access to regulatory bodies. One of the most successful examples of such support is the USMCA, which grants national treatment to financial services.
The agreement contains provisions on digital inclusion, which ensures that consumers and enterprises benefit from technological advancements. In addition, the agreement is aimed at facilitating end-to-end digital trade. This means that it allows for trusting data flows, a more transparent and efficient financial system, and better online consumer protection. The agreement also prohibits data localization and guarantees the transfer of electronic files between two countries.