The Private Sector's Vision for the 'Internet of Payments'

A Report on the IMF Conference on Cross-Border Payments

While the first panel of the recent IMF conference on cross-border payments featured speakers from the public sector and traditional banking, the second one, titled "The Private Sector Steps Up," introduced a very different group of panelists.

The Private Sector's Vision for the 'Internet of Payments'

Featuring some of the biggest private sector players in the cross-border payments space, the talk focused on the innovative solutions private companies can offer to face the current challenges of cross-border payments. The panel also opened up the discussion for key players like the CEOs of Stellar and Celo to discuss what they expect from policymakers and regulators.

The panel's description included a question, "Can innovation be encouraged while preserving a level playing field, and ensuring interoperability of solutions?" The crypto entrepreneurs had 60 minutes to respond to it.

Moderated by the IMF's Deputy Director of the Monetary and Capital Markets Department, Dong He, Panel 2 featured Stellar CEO Denelle Dixon, eCurrency CEO Jonathan Dharmapalan, Mastercard's Senior VP Rory MacFarquhar, and Celo CEO Rene Reinsberg.

To kick off the discussion, Dong He invited the panelists to share their perspectives on cross-border payments and their forecast for the next three to five years. He then mentioned a word that was often used during the panel: interoperability. A key concept for developing seamless digital cross-border payment systems is that interoperability seems to be a top priority for the private sector's most prominent players. The IMF official also asked about the potential role of public-private partnerships to develop efficient and stable cross-border payment systems. He also saw fit to clarify that the panelists’ participation did not imply any IMF endorsement of their companies.

Stellar's Denelle Dixon provided some of the most interesting answers to Dong He's questions. Famous for developing a platform to bridge the world's financial infrastructure, her company vows to make it easy "for regulated financial institutions to set up anchor services, which are fiat on/off ramps for the network. Anchors accept deposits and withdrawals via traditional rails, and convert them to and from digital currency. They also interoperate with one another — and with other Stellar-built applications — to empower users to transact across borders and across currencies." More specifically, "Stellar's Ecosystem Proposal (SEP)-31" is designed to facilitate bank-to-bank cross-border payments, while "SEP-24 specifies how anchors interoperate with wallets to allow users to deposit and withdraw assets."

For Dixon, several factors will play a key role in shaping the cross-border payments landscape over the next five years. "You have to first consider," she said, "how good we are at developing easy use cases for developers to be able to develop on top of our open-source, decentralized network... second... how much we focus on solving real user problems versus focusing on the technology, and then the third area is really this interoperability point and how good we are at enhancing the existing financial infrastructure that's out there versus trying to supplant it."

Stellar's CEO envisions a future of enhanced competition and innovation, cost efficiency, frictionless transactions, and massive benefits for both end-users and developers, which cannot be realized without focusing on interoperability first.

For Mastercard's Senior VP, the problems of cross-border payments can neither be solved by the public sector alone nor by the private sector alone. "It really is going to take a very comprehensive strong dialogue among all stakeholders," Rory MacFarquhar said, "because this is an incredibly complex ecosystem with thousands of stakeholders."

Recently rebranded as a "multi-rail payments technology company," Mastercard has become a pioneer as a traditional credit card company that is successfully reinventing itself for the cryptosphere. MacFarquhar explained that although Mastercard is over 50 years old, it has never 'sat down' to watch others innovate. "We are very central to efforts to innovate in the cross-border arena," he said.

In fact, Mastercard is home to a Fintech accelerator that invests in cutting edge companies and technologies. MacFarquhar emphasized the role of TransferWise, Payoneer, and especially Libra in raising the game "for the entire industry." It is important to note here that Facebook's Libra vows to "build a simple global payment system and financial infrastructure...reinvent money so people everywhere can live better lives," a statement that is not too far from the IMF's stated goals during the conference's first panel. "If it weren't for Libra," Mastercard's Senior VP said, with more than a hint of recognition, "it's not even clear we'd be having this conference today."

For eCurrency's CEO Jonathan Dharmapalan, factors like settlement risk, counterparty risk, and the need to hang up a lot of liquidity to execute a transaction make cross-border payments less efficient and more costly. Dharmapalan believes the private sector cannot solve these problems on its own. "By empowering the central banks to provide the balance necessary in cross-border payments," the eCurrency CEO said, "you are actually able to bring down the risks... and you can even eliminate some amount of liquidity risks."

Dharmapalan said eCurrency solves these problems by providing central banks with security technology to underpin cross-border payments. By this time, it was clear that all of the panelists were enthusiastic about public-private collaborations to catalyze efficient cross-border payment solutions.

When the time came for Celo's CEO to speak, he began by highlighting the sheer size of the cross-border payments sector, which is expected to go from a $150 trillion business, in 2017, to a $250 trillion business in 2027. Rene Reinsberg sees this as a huge opportunity, not only for Celo, but for all the innovators in the sector.

Considering competition from Libra, with its 2.5-billion-user base, Reinsberg said he doesn't believe a single company will dominate the market. Instead, he believes it will all boil down to interoperability and user experience. "I'm not convinced," he said, "that there's one solution, one kind of rail that is going to solve all use cases and be the best possible product for all communities." Success, Celo's CEO believes, will reward those who focus on interoperability and integration.

At Celo, Reinsberg explained, there was always a focus on interoperability, even in the platform´s earlier stages. "There's been a lot of focus on interoperability," he said, "and one of the teams that has been building interoperability bridges between Bitcoin and Ethereum just decided to build a bridge between Bitcoin and Celo."

The crypto entrepreneur believes consumers deserve the chance to move seamlessly between a variety of platforms and systems. He pointed to how little cross-border payments have changed compared to other aspects of the digital world. “We live in a world where our phone can get us food delivered to our house," he said, "but the operations of actually getting money from A to B still haven't changed all that much."

The key to the changes we need right now is none other than interoperability, and the panelists continued to address the issue throughout the session. Looking back at her experience at Mozilla, Dixon drew a parallel between the beginnings of the Internet and the moment cryptocurrency systems and platforms are going through right now.

In the early stages of the world wide web, she said, there was "a massive focus on standards and trying to build this ecosystem that anyone could join… and all they needed was to understand how to get onto the Internet, and then they could build their own website, or they could build other engagements and opportunities with end users." According to Denelle, that is exactly what Stellar and others are trying to do for what she called the Internet for payments. "It's basically the same idea," she explained, "an open, permissionless network... easy to interoperate with."

On the other hand, the Mastercard representative responded that interoperability is absolutely necessary, but that a permissionless network does not fit finance, where one has to ensure there is no money laundering or financing of terrorist groups. "The financial system isn't a permissionless world," he said.

It was Reinsberg who provided a fitting summary and conclusion for the panel. Though he acknowledged that open, permissionless systems are critical. He also saw central banks launching central link digital currencies on open, permissionless chains like Celo or Stellar. "I think that's the future," he said, "because so much depends on these being kind of breathing organisms that evolve over time to make sure they can always guarantee the best end-user experience."

Celo's CEO urged regulators to check, acknowledge, and incentivize the development of these open and transparent systems, which will ultimately bring cross-border payments up to speed with the massive transformations we see in today's digitalized world.

In case you were wondering, the panelists said the world interoperability 17 times; we counted. This alone leaves no room for doubt as to what the sector's priorities are right now. The companies that will thrive, it would seem, will be the ones that can create flexible platforms and systems that can equally provide solutions for a woman trying to send a remittance from New York to Kenya, a Latin American central bank looking to enable clients to transfer digital currencies internationally, or a French agricultural worker who is trying to pay a neighbor across the border for a tool he just purchased. The future of cross-border payments will be seamless, affordable, efficient, flexible, permissionless, and yet secure.


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