PROJECT NEXUS

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:

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.

SOURCE: https://indianexpress.com/article/explained/explained-economics/what-is-project-nexus-that-rbi-has-signed-up-for-9427023/

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