Unlocking trade potential: the benefits of improving cross-border payments

Prepared by Massimo Ferrari Minesso, Laura Lebastard and Olga Triay Bagur

Published as part of the ECB Economic Bulletin, Issue 2/2026.

International trade could not happen without cross-border payments. Payment systems are the backbone of the financial infrastructure – the critical “plumbing” that underlies the functioning of modern economies by enabling the clearing and settlement of international transactions. This box aims to evaluate the economic benefits of technological innovations in cross-border payments by considering the case of interlinking fast payment systems between countries.

Many existing cross-border payments remain slow and expensive. Most international payments rely on correspondent banks – a global network that processes cross-border transactions for local banks that lack foreign accounts.^[1] Payments often go through several intermediaries, making them slow and costly, owing to fees, currency conversions and operational frictions across different countries. For example, for nearly one-third of cross-border payments, the costs exceed 3% of the transacted amount, and on average only 40% of international business-to-business transactions are settled within one working day (Chart A).^[2] Moreover, there has been a 20% decline in the global provision of correspondent banking services compared with the mid-2000s, increasing the cost of sending money across borders and, in some cases, leading to the complete disintermediation of certain payment corridors (stable payment linkages between pairs of countries).^[3]

Chart A

Cross-border transaction costs and speed, by region

(upper scale: percentages of transaction value; lower scale: percentages of transactions, weighted by value)

Interlinking domestic fast payment systems has the potential to improve cross-border payments. New technologies have led to the development of a new generation of “fast” payment systems, capable of settling retail transactions in real time and at minimal cost. More than 80 countries have deployed a domestic fast payment system – such as the Eurosystem’s TARGET Instant Payment Settlement (TIPS), the Federal Reserve System’s FedNow Service, Brazil’s Pix and India’s Unified Payments Interface (UPI) – while many more are in development.^[4] Interlinking these systems could reduce costs, increase the speed of cross-border payments and foster transparency; and, indeed, this has been identified as a priority in the G20 Roadmap for enhancing cross-border payments.^[5] If payment systems are connected, banks in two jurisdictions can exchange funds using their respective domestic systems.^[6] This avoids having several layers of correspondent banking that replicate processes and multiply costs, and would be of particular benefit to regions that are underserved by or excluded from correspondent banking.

Globally, there are already around 500 connections between fast payment systems, and more are in development. While TIPS interlinks euro area countries, Denmark and Sweden, interlinked fast payment systems have also been developed across Africa, Asia and South America (Figure A).^[7] These cross-border arrangements vary widely: some support only retail payments, while others include wholesale settlement. Multilateral regional platforms emerged first, while bilateral links developed later and remain limited.^[8] Overall, however, payment systems are still fragmented, and major economies continue to rely on correspondent banking. In line with the G20 Roadmap, and to strengthen cross-border payments and reduce fragmentation risks, the Eurosystem is working on new interlinkages (with India’s UPI) and exploring the potential benefits of connecting with Switzerland’s domestic fast payment system and Nexus Global Payments (NGP).^[9] These initiatives are aimed at improving cross-border payments globally and reducing the risk of market fragmentation.

Figure A

Cross-border connections between fast payment systems

Econometric evidence suggests that interlinking fast payment systems increases trade by about 4%. Iceberg trade costs depend partly on the efficiency of financial transactions.^[10] Interlinking should reduce such costs and, consequently, improve bilateral trade. Including interlinking in a gravity framework suggests that connecting fast payment systems has a positive and economically meaningful impact on bilateral trade, even after accounting for potential endogeneity.^[11] The average estimated effect (about 4%) is roughly half the boost to trade that comes from a formal trade agreement and a quarter of the impact of forming a common currency area (Chart B). Importantly, this estimate does not rely on specific case studies but is averaged across all interlinking initiatives, including those promoted by countries already well connected by global banking (such as the euro area or South-East Asia). This highlights the specific benefits for trade of interlinking payment systems, even when countries already have access to global markets through correspondent banks.

Chart B

Determinants of bilateral exports

(percentages)

The benefits of interlinking fast payment systems are larger in regions with high cross-border payment costs and for systems that allow the settlement of wholesale transactions. Focusing on the heterogeneity of payment systems, aggregate results are driven by payment systems that allow both wholesale and retail payments (Chart C). The benefits tend to be lower for payment systems that link only retail customers. This stems from the fact that aggregate trade is primarily driven by large-scale transactions of major firms, resulting in payment transfers whose values exceed the limits of retail payment systems. Moreover, interlinking is more beneficial in regions where the costs of cross-border payments are higher, suggesting that gains stem primarily from a reduction in fees charged by banks. This result is consistent with the interlinking of fast payment systems acting as a complement or alternative to more expensive payment methods, thereby reducing overall trade costs.

Chart C

Effect on exports by type of payment system and cost reduction

(percentages)

Interlinking initiatives may provide benefits that go beyond market functioning. The policy implications of these results could be substantial. First, they support ongoing international efforts under the G20 Roadmap to interconnect national payment systems, confirming that such initiatives deliver tangible economic benefits beyond their financial inclusion objectives. These gains are likely to be largest for countries that are poorly served by existing global payment networks and are therefore more excluded from international trade. Furthermore, these findings highlight the need for multilateral coordination to ensure the interoperability of technical standards and to address the legal and regulatory barriers (e.g. settlement finality rules, protection of personal data and fraud management) that still impede seamless cross-border settlement, thereby facilitating interlinking.

References

ACI Worldwide (2024), “Prime Time for Real-Time”.

Carlson, A. and Joshi, R. (2024), “Sample selection in linear panel data models with heterogeneous coefficients”, Journal of Applied Econometrics, Vol. 39, No 2, March, pp. 237-255.

Ferrari Minesso, M., Lebastard, L. and Triay Bagur, O. (2026), “Interlinking payment systems and trade flows”, Working Paper Series, No 3202, ECB.

Ferrari Minesso, M., Mehl, A., Triay Bagur, O. and Vanteenkiste, I. (2025), “Geopolitics and Global Interlinking of Fast Payment Systems”, CEPR Discussion Paper, No 20105, Centre for Economic Policy Research, April.

Financial Stability Board (2025), “G20 Roadmap for Enhancing Cross-border Payments – Consolidated progress report for 2025”, October.

Rice, T., von Peter, G. and Boar, C. (2020), “On the global retreat of correspondent banks”, BIS Quarterly Review, Bank for International Settlements, March.