Wordlwide payments

We can transfer euro amounts between around forty different European countries just as easily, quickly, and cheaply as within the Netherlands. Transfers to and from countries with other currencies outside Europe are more complicated, take longer, and are considerably more expensive. Why is that?

Within Europe and worldwide:
what are the differences?

Within Europe, account-to-account transfer of euro amounts has been extensively harmonized and streamlined. All European payment service providers (such as banks) can efficiently settle accounts with each other in euros via the central T2 and TIPS systems of the Eurosystem of national central banks.

For transfers to and from countries outside Europe, involving other currencies, there is usually no central settlement system. For this purpose, banks in different countries maintain payments accounts with each other. If two banks in different countries do not have payments accounts with each other, additional correspondent banks are required. A correspondent bank is a bank in the country of the payer or the recipient where both the paying and receiving banks maintain their own payments accounts in order to settle accounts between each other.

All orders and confirmations of transfers between Europe and the rest of the world almost always go through the digital messaging network of SWIFT (Society for Worldwide Interbank Financial Telecommunication).

Based on highly secure SWIFT messages between banks, banks exchange amounts of money between different currencies and transfer those amounts within their own account administrations from one payments account to another. So no money magically flies across borders from one bank to another in SWIFT messages. The money is only moved digitally between payments accounts within a single bank or between payments accounts at a national central bank.

Speed

The speed at which the recipient can access the amount paid varies greatly between European and global transfers. For global transfers, it varies greatly from country to country.

Within Europe (between SEPA countries), euro transfers are increasingly arriving in the recipient’s payments account within ten seconds, thanks to so-called instant payments. Traditional euro transfers arrive in the recipient’s payments account by the end of the next business day at the latest.

For a global payment between different countries and currencies, all necessary SWIFT messages are usually sent or received by all banks involved within an hour. All necessary internal payments between payments accounts at the paying and receiving banks, possibly at one or more correspondent banks and at national central banks, can take much longer, sometimes many business days.

Each bank involved must perform various checks on a transaction to comply with local and international laws and regulations. The more banks involved in a global transfer, the longer these checks and all administrative procedures can take.

Cost

The cost of global transfers depends on:

the currencies involved and exchange rate margins;
the number of correspondent banks involved;
the service options of each bank involved;

Global developments

New international initiatives that use Open Banking and EPC standards are reducing the costs of global transfers through direct links, fewer intermediaries, and tighter exchange rate margins.

Despite all these developments, fragmentation and limited interoperability remain challenges. Many systems function well within their own national borders but do not offer good coverage outside them.

G20 roadmap

The G20 has drawn up a global roadmap for more efficient global payments:

faster,
cheaper,
more transparent, and
more accessible.

This roadmap aims, among other things, to ensure that 75% of global payments between different countries and currencies are completed within one hour and that the total costs remain below 1% of the transaction amount. International standards, such as the ISO 20022 messaging standard, and better alignment between market infrastructures are essential in this regard.

SEPA and global transfers

The European Payments Council (EPC) has developed a standard for fast payments between SEPA and the rest of the world: One-Leg-Out SEPA Instant Credit Transfer (OCT Inst).

This standard connects SEPA with other currency areas. Payment service providers (such as banks) in Europe and beyond that voluntarily participate in OCT Inst can quickly settle payments in euros among themselves and have a joint reach to all global participants.