TAG: GS 3: ECONOMY
THE CONTEXT: The Reserve Bank of India (RBI) has joined Project Nexus, a multilateral initiative aimed at revolutionizing cross-border retail payments by interlinking domestic Fast Payment Systems (FPSs).
EXPLANATION:
- This strategic move will integrate India’s Unified Payments Interface (UPI) with the FPSs of Malaysia, the Philippines, Singapore, and Thailand, with potential expansion to other countries in the future.
What is Project Nexus?
- Project Nexus is an initiative spearheaded by the Innovation Hub of the Bank for International Settlements (BIS).
- The primary goal of Nexus is to enhance and streamline cross-border payments by connecting multiple domestic Instant Payment Systems (IPSs) on a global scale.
- This project is the first in the BIS Innovation Hub’s payments area to progress towards live implementation, marking a significant milestone in the evolution of international payment systems.
- Nexus aims to standardize the interconnection of various IPSs, allowing payment system operators to establish a single connection to the Nexus platform rather than building custom connections for each new country.
- This unified approach facilitates seamless and instant cross-border payments, reducing the transaction time to mere seconds in most cases.
RBI’s Role and Bilateral Collaborations
- The RBI has been actively collaborating bilaterally with various countries to link India’s Fast Payments System (FPS), UPI, with their respective FPSs.
- These collaborations support cross-border Person to Person (P2P) and Person to Merchant (P2M) payments.
- The integration with Project Nexus is a natural progression of these efforts, aiming to further enhance the international reach of Indian payment systems.
- While bilateral connections have been beneficial, a multilateral approach like Project Nexus offers a more scalable and efficient solution.
- It accelerates the growth of instant cross-border payments, enabling seamless transactions across multiple countries with a single connection to the Nexus platform.
Benefits of Project Nexus
- Project Nexus is designed to standardize the connectivity between IPSs.
- This standardization simplifies the process for payment system operators, allowing them to connect to multiple countries through a single integration with the Nexus platform.
- This approach significantly reduces the complexity and cost associated with establishing multiple bilateral connections.
- By connecting IPSs from different countries, Project Nexus enables near-instant cross-border payments.
- In over 70 countries, domestic payments already reach their destination in seconds at near-zero cost.
- Nexus extends this efficiency to cross-border transactions, ensuring that payments from sender to recipient are completed within 60 seconds in most cases.
- Nexus could significantly accelerate the adoption and growth of instant cross-border payments, fostering greater economic integration and cooperation among participating countries.
- It simplifies the payment process, making it more accessible and efficient for businesses and individuals alike.
Participating Countries
- The founding members and first mover countries of Project Nexus include four Association of Southeast Asian Nations (ASEAN) countries—Malaysia, the Philippines, Singapore, and Thailand—and India.
- An agreement formalizing this collaboration was signed by the BIS and the central banks of these countries on June 30, 2024, in Basel, Switzerland.
- Indonesia is also slated to join the Nexus platform in the future, indicating the project’s potential for further expansion and inclusion of more countries.
- This growing network will enhance the platform’s utility and reach, making instant cross-border payments a reality for a larger portion of the global population.