Is Nexus banking’s next big thing?

In the age of smartphones, international wire transfers belong in money museums.
In more than 60 countries, including many developing nations, it has become incredibly easy to send funds in real time to someone else over the internet — knowing nothing more than their mobile phone number.
However, 24/7 fast payment systems, a technology that’s starting to work pretty well for small-value transfers in domestic situations, have no counterpart when money has to jump over national borders.
For a bank to move funds from one country to another, it needs to either have a presence in both, or keep idle funds to maintain “correspondent” relationships with other financial institutions in the middle. Payments take at least a few hours, and sometimes get stuck for days because of a typo in the beneficiary’s name, address or account number. Which is when we wish we could just whip out our phones and pay an individual or a merchant in another part of the world on the spot by using only their phone number.
That’s why, in the coming months and years, we’ll probably hear more about Nexus, currently a blueprint drawn up by the Bank for International Settlements’ innovation hub.
Transfers are expensive. The global average cost of sending $200 was 6.4% in the first quarter of 2020, according to the World Bank. Fintech firms like Wise Plc (formerly known as TransferWise) and crypto players like Ripple Labs Inc have, in their own ways, tried to address the problem of high costs. One reason to welcome the upcoming official digital currencies is that several of them can share a technical bridge and allow participating central banks to clear one another’s IOUs. Users will gain from instantaneous settlement. Even in cross-border situations.
But there’s another way: hooking up the domestic smartphone-oriented payment systems that are already gaining popularity. Trouble is, with two countries, you need one link, and with three, you need three. Expand the network to 20 economies, and you need 190 connections. That’s where “Nexus: A blueprint for instant cross-border payments” comes in.
Nexus won’t be another app. Think of it as a world wide web of payments, a set of rules — the Nexus Scheme — any country can adopt. After that, it’s a question of setting up payment gateways, the software. Banks on the gateway will compete to offer foreign exchange.

—Bloomberg