MAS’ Ravi urges Fintechs to solve two fundamental problems

The two challenges in financial services where fintech can potentially play a positive transformative role are cross-border payments and settlements as well as high-quality and reliable ESG data, said Ravi Menon, CEO of the Monetary Authority of Singapore (MAS) during a keynote. speech at Sibos 2022 yesterday.

He called these fundamental issues that must be addressed before broader progress can be made.

First challenge – Cross-border payment and settlement

Ravi had presented three possible ways to solve the challenge of cross-border payments:

1. Connect faster payment systems

Singapore began linking its PayNow payment system with Thailand’s PromptPay, with a bilateral link launched last year, and is now completing links with India’s Unified Payment Interface and Malaysia’s DuitNow.

However, MAS found that such bilateral links are time-consuming and expensive to implement. For example, three countries would require three bilateral links, but 20 countries would require 190 bilateral links.

To remedy this, a multilateral solution is needed to effectively connect the countries’ faster payment systems.

Currently, the BIS Innovation Hub’s Singapore center is developing a central platform for multilateral linkages to build on the countries’ existing faster payments infrastructure called Project Nexus.

Through Project Nexus, transactions can be cleared in 60 seconds on a 24/7 basis with lower costs of less than 3% of the transfer value. Users will have wider access as the model includes banks as well as non-bank financial institutions. with greater transparency and security.

Ravi shared that the ASEAN countries have a common vision of a multilateral network of payment links by 2025, and Project Nexus can be an important enabler for this.

However, Ravi admits that linking faster payment systems solves the problem of cross-border payments but not settlement, as the settlement process for such payments only happens sequentially.

This is where the second solution comes in: a multi-CBDC common platform.

2. Building a multi-CBDC common platform

Wholesale CBDCs, which are direct commitments to central banks, are well suited to be used on distributed ledger technology to support simultaneous settlement, or the exchange of two linked assets in real time.

The BIS Innovation Hub conducts various multi-CBDC platform experiments across its Swiss, Hong Kong and Singapore centres.

• Project Jura in the Swiss Center explores the direct transfer of Euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger platform operated by a third party.
• Project mBridge in the Hong Kong Center explores cross-border, multi-currency payment opportunities built on distributed ledger technology, where multiple central banks can issue their own CBDCs and distribute them to participants.
• Project Dunbar in Singapore Center is a collaboration between MAS, the Reserve Bank of Australia, Bank Negara Malaysia and the South African Reserve Bank.

3. Expand blockchain-based payment networks in the private sector

Securely backed stablecoins or tokenized bank deposits issued by private sector players can also be used to enable cheaper and faster cross-border payments and settlements.

Unlike private cryptocurrencies, whose prices fluctuate wildly, these digital currencies are suitable as payment instruments on distributed ledgers, as they combine the benefits of tokenization with the reliability of fiat currencies.

These private sector-led cross-border payment and settlement initiatives are starting to scale:

• Securely backed stablecoins such as USD Coin and Pax Dollar issued by fintech players Circle and Paxos, respectively, have expanded their networks and partnerships with traditional financial firms. They have achieved near real-time 24/7 settlement and lower costs.
• Visa has integrated popular stablecoins into its payment services, allowing users to make international payments in USD Coin.
• Partior – a commercial joint venture between JP Morgan, DBS and Temasek – has been able to achieve reductions in settlement time from days to mere minutes for Singapore Dollar and US Dollar exchanges, using a blockchain-based multi-currency platform for clearing and settlement across national borders.

Second challenge: High quality and reliable ESG data

Ravi argued that good ESG data is fundamental to the climate agenda as it facilitates effective management of climate-related risks, enables robust sustainability reporting and helps catalyze green and transition finance flows.

However, there is a significant gap between ESG data needs and ESG data available.

There is a need for good data on companies’ carbon footprints, historical carbon emission trends and compliance with their respective transition targets. In addition, data on the climate-related risks their physical assets are vulnerable to is also important.

But the ESG data collection process is often manual, tedious and expensive. ESG data verification is at a nascent stage, and this affects the credibility of the reporting.

To stimulate the growth of the green fintech ecosystem, MAS has launched an ESG Impact Hub that provides a physical location to facilitate the discovery, scaling and deployment of technology solutions that support the financial sector’s ESG needs, particularly on the data front.

In addition, to leverage green fintech to build a credible ESG data landscape, MAS has launched a collaboration with the financial industry called Project Greenprint.

Project Greenprint seeks to build digital tools that streamline the collection, access and use of climate and sustainability data.

The initial phase of Project Greenprint focuses on four digital tools:

• ESG Disclosure Portal titled ESGenome
• The ESG register entitled ESGpedia
• Data Orchestrator to be launched next year
• The Digital Marketplace will also be launched next year

Ravi said Project Greenprint and ESG Impact Hub are not MAS projects, or even Singapore projects.

They are open collaborative platforms for financial institutions and fintech players from around the world to connect, collaborate and co-create innovative solutions to advance the sustainability agenda.

MAS’ aim is to foster a vibrant ESG fintech ecosystem that spans countries.