Enhancing Cross-Border Payments: The European Central Bank's Strategic Response
Efforts to integrate payment systems and develop a digital euro aim to reduce costs and improve efficiency in cross-border transactions.
On 1 April 2025, Piero Cipollone, a member of the Executive Board of the European Central Bank (ECB), addressed the Regional Governors’ Meeting in Osijek, highlighting the challenges and strategic initiatives related to cross-border payments in Europe and globally.
The impetus for enhancing cross-border payments has emerged from the dual pressures of digitalisation and rising costs associated with international transactions, which can hinder economic integration.
Cipollone noted the growing frustration among businesses, particularly small enterprises, regarding high fees for cross-border transactions.
For example, a Croatian small business transferring €5,000 to a supplier in the Western Balkans outside the Single Euro Payments Area (SEPA) faces significantly higher costs—up to twelve times more—compared to transfers within SEPA.
Recent expansions of SEPA to include Montenegro, Albania, and North Macedonia aim to reduce these costs and facilitate euro transfers at a lower rate.
Globally, the landscape of cross-border payments is undergoing substantial changes.
Transaction volumes are expected to double, reaching €268 trillion by 2030. However, while domestic payments have typically become faster and more cost-effective, international payments remain notably slow and expensive.
In 2024, approximately one-third of retail cross-border payments took over one business day to settle.
In addition, small and medium-sized enterprises (SMEs) are disproportionately affected, facing costs that are ten times higher for transactions between Western Balkan economies compared to those within the EU.
The issue also heavily impacts migrant workers who rely on remittances.
The cost of sending money to the Western Balkans averaged 6.7% recently, a figure that falls just below the 7.7% average reported in Sub-Saharan Africa.
The World Bank estimates that reducing these fees to align with the Sustainable Development Goal target of 3% could save the Western Balkans approximately half a billion euros annually.
In light of technological advancements and the ongoing geopolitical changes, the ECB is focused on two key pillars to enhance cross-border payments: leveraging fast payment systems and upholding partner nations' sovereignty and stability.
Investments into interlinking fast payment systems globally aim to address existing inefficiencies stemming from a segmented payments architecture.
Rising geopolitical tensions have contributed to the fragmentation of payment systems, with countries such as Iran and Russia developing their own alternatives to cutting-edge global infrastructures.
Initiatives to bypass established systems like SWIFT have proliferated, particularly since the onset of the Ukraine conflict, with countries expressing interest in creating independent cross-border settlement infrastructures, achieving both efficiency and reliability in payments.
In response to these challenges, the ECB and European national central banks are embarking on a strategy to integrate global cross-border payments, which includes several initiatives.
Among them, the interlinking of fast payment systems aims to offer significant reductions in transaction costs and improved processing times by linking existing capable platforms effectively.
The ECB has already initiated interlinking efforts through its TARGET Instant Payment Settlement (TIPS) service, which is designed to facilitate rapid multi-currency transactions, underscoring the need for cooperative frameworks among payment service providers.
Another notable initiative is the exploration of a digital euro, which would serve as a central bank digital currency.
This currency would complement traditional forms of money and is being considered for use in third countries.
Draft legislation is focusing on ensuring that the digital euro is accessible to both residents of the euro area and to visitors or merchants in non-euro countries under specific agreements, while safeguarding against risks such as currency substitution.
As these developments unfold, the alignment between payment systems and geopolitical dynamics remains a pivotal factor influencing financial integration and economic resilience across borders.
The impetus for enhancing cross-border payments has emerged from the dual pressures of digitalisation and rising costs associated with international transactions, which can hinder economic integration.
Cipollone noted the growing frustration among businesses, particularly small enterprises, regarding high fees for cross-border transactions.
For example, a Croatian small business transferring €5,000 to a supplier in the Western Balkans outside the Single Euro Payments Area (SEPA) faces significantly higher costs—up to twelve times more—compared to transfers within SEPA.
Recent expansions of SEPA to include Montenegro, Albania, and North Macedonia aim to reduce these costs and facilitate euro transfers at a lower rate.
Globally, the landscape of cross-border payments is undergoing substantial changes.
Transaction volumes are expected to double, reaching €268 trillion by 2030. However, while domestic payments have typically become faster and more cost-effective, international payments remain notably slow and expensive.
In 2024, approximately one-third of retail cross-border payments took over one business day to settle.
In addition, small and medium-sized enterprises (SMEs) are disproportionately affected, facing costs that are ten times higher for transactions between Western Balkan economies compared to those within the EU.
The issue also heavily impacts migrant workers who rely on remittances.
The cost of sending money to the Western Balkans averaged 6.7% recently, a figure that falls just below the 7.7% average reported in Sub-Saharan Africa.
The World Bank estimates that reducing these fees to align with the Sustainable Development Goal target of 3% could save the Western Balkans approximately half a billion euros annually.
In light of technological advancements and the ongoing geopolitical changes, the ECB is focused on two key pillars to enhance cross-border payments: leveraging fast payment systems and upholding partner nations' sovereignty and stability.
Investments into interlinking fast payment systems globally aim to address existing inefficiencies stemming from a segmented payments architecture.
Rising geopolitical tensions have contributed to the fragmentation of payment systems, with countries such as Iran and Russia developing their own alternatives to cutting-edge global infrastructures.
Initiatives to bypass established systems like SWIFT have proliferated, particularly since the onset of the Ukraine conflict, with countries expressing interest in creating independent cross-border settlement infrastructures, achieving both efficiency and reliability in payments.
In response to these challenges, the ECB and European national central banks are embarking on a strategy to integrate global cross-border payments, which includes several initiatives.
Among them, the interlinking of fast payment systems aims to offer significant reductions in transaction costs and improved processing times by linking existing capable platforms effectively.
The ECB has already initiated interlinking efforts through its TARGET Instant Payment Settlement (TIPS) service, which is designed to facilitate rapid multi-currency transactions, underscoring the need for cooperative frameworks among payment service providers.
Another notable initiative is the exploration of a digital euro, which would serve as a central bank digital currency.
This currency would complement traditional forms of money and is being considered for use in third countries.
Draft legislation is focusing on ensuring that the digital euro is accessible to both residents of the euro area and to visitors or merchants in non-euro countries under specific agreements, while safeguarding against risks such as currency substitution.
As these developments unfold, the alignment between payment systems and geopolitical dynamics remains a pivotal factor influencing financial integration and economic resilience across borders.
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