Fintechs to transform cross-border payments

5 WAYS FIs CAN PROTECT AGAINST CYBER ATTACKS

INFORMATION TECHNOLOGY

The Monetary Authority of Singapore’s (MAS) Cyber Security Advisory Panel (CSAP) said there are five ways for financial institutions (FIs) to overcome cyber attacks and cybersecurity challenges.

To create a line of defense, CSAP said FSIs should have processes in place to respond swiftly and decisively to new cyber threats arising from adverse geopolitical developments.

In relation, the panel underscored the need for greater cross-border cooperation, including swift information exchange, and carrying out joint exercises to test cyber responses.

The financial sector should also adopt a holistic approach in dealing with digital banking scams.

The panel urged FIs to further fortify the security of their digital banking services by implementing measures such as verifying and restricting the device from which a customer can access digital banking services; using biometrics as an additional form factor to authenticate high-risk transactions; and leveraging artificial intelligence and machine learning for real-time fraud monitoring.

Monitoring cyber attacks

To mitigate cybersecurity risks related to the increasing use of distributed ledger technology (DLT), the CSAP said FIs need to continually monitor for new modes of attacks and upgrade their security controls to protect their DLT- based services.

FIs should likewise monitor the development of international standards on post-quantum cryptography, and begin the process of identifying weaker cryptographic solutions, said the CSAP.

“Developments in quantum computing may compromise presentday encryption protection and threaten data confidentiality,” the CSAP said. Lastly, CSAP said FIs and the financial sector should harmonise cyber resilience standards.

MAS said the current state of cross-border payments is unfit for the 21st century

Fintechs to transform cross-border payments

FINANCIAL TECHNOLOGY

Fintech can potentially play a positive transformative role on two challenges in cross-border payments, Ravi Menon, Managing Director of the Monetary Authority of Singapore, said during a keynote speech at Sibos 2022.

According to Menon, challenges in cross-border payments are ‘foundational issues’ that need to be addressed first before broader progress can be made.

Menon said that currently, the state of cross-border payments is unfit for the 21st century.

“It is slow, costly, opaque, and inefficient, relying on an archaic network of correspondent banks. According to the World Bank, the global average cost for sending remittances is 6.4% of the transfer value. This is particularly painful for the migrant worker who wants to send money home or the small business which wishes to reach overseas markets through e-commerce,” Menon explained.

Menon enumerated three ways to solve challenges in cross-border payments. One is linking up faster payment systems. The second is to build a multi-CBDC common platform and the third is to expand private sector blockchain-based payment networks.

“Linking the faster payment systems of countries is an efficient way to carry over the benefits of cheap, fast, seamless payments from the domestic to the cross-border arena. Singapore has been actively working to connect our PayNow with the faster payment systems of other countries. We started with Thailand’s PromptPay, with a bilateral linkage launched last year, and are now completing our linkages with India’s Unified Payment Interface and Malaysia’s DuitNow. These linkages allow users in Singapore and our partner jurisdiction to transfer funds directly to one another’s bank accounts,” the MAS expert said.

However, such bilateral linkages are time-consuming and expensive to implement. Menon said Singapore is solving this by creating a multilateral solution that can efficiently link up countries’ faster payment systems. They call it Project Nexus.

Project Nexus

Project Nexus aims to address the challenges of speed, cost, access and transparency, in line with the G20 goals set out for enhancing cross border payments.

MAS believes Project Nexus will be a key enabler towards realising the vision of the 10 members of the Association of Southeast Asian Nations (ASEAN) aim to have multilateral payment linkages across the region by 2025.

Linking faster payment systems solve the cross-border payments problem but not settlements. This is where the second solution comes in: a multiCBDC common platform.

“A common ledger utilising distributed ledger technology can potentially act as the global settlement layer for participating banks. Wholesale CBDCs, are well suited to be used on such a distributed ledger to support simultaneous settlement or the exchange of two linked assets in real-time,” Menon said.

The third pathway is through private sector led blockchain-based payment networks. Securely-backed stablecoins or tokenised bank deposits issued by private sector players can also be used to enable cheaper and faster cross-border payment and settlement.

It is slow, costly, opaque, and inefficient, relying on an archaic network of correspondent banks