Speed, zero cost to the consumer, and practicality – these three qualities explain the adhesion of millions of Brazilians to Pix – an instant payment system launched almost two years ago.
A similar initiative wants to take this payment experience to different places around the globe.
The initiative has been named Nexus and is under the Bank for International Settlements (BIS) umbrella, an institution known as the “Central Bank of central banks”.
In Brazil, the new system has earned the nickname “Pix International”.
Headquartered in Switzerland, the BIS leads the project that, if approved, can connect more than 60 countries that already provide an instant payment system.
The project is currently in its “Proof of Concept” (POC) testing phase. In this phase, simulations have been made to verify the feasibility of large-scale transactions.
This initial phase is expected to last until the end of this year.
In the POC stage, the first Nexus prototype currently connects three payment systems: those of Singapore, Malaysia, and the Eurozone, the latter represented by the Bank of Italy.
The experiment currently processes simulated payments without the use of real money.
The whole Nexus project is being developed by the BIS Innovation Hub, which has held 30 workshops with operators of instant payment systems around the world, central banks, and large banks active in the foreign exchange and international payments markets to define the characteristics of the new system.
InfoMoney consulted an expert, the Central Bank of Brazil, and the BIS to answer everything already known about the Nexus project. Check it out:
#1 WHY HAVE AN INTERNATIONAL PIX?
Nexus seeks to streamline the transaction process between individuals by uniting the payments infrastructure of the world’s central banks on a single platform.
“This makes sense so that transactions can occur directly between the different systems, allowing greater efficiency in operations, with more speed, transparency, and fewer costs,” says Pedro Barreiro, leader of expansion in Brazil at Wise, a company specializing in international remittances.
But three challenges impose themselves: the exchange between different currencies, checking information to avoid illicit payments and the different languages of the countries’ payment systems worldwide.
#2 HOW WILL THE INTERNATIONAL PIX WORK?
The Nexus is supposed to connect the sender and recipient in real-time, for 24 hours, seven days a week, within 60 seconds.
Although in little detail, the BIS report highlights two primary purposes:
(a) To connect multiple payment systems from different countries on one language standard:
Instead of a payment system creating custom connections for each new country it connects to, it will be able to make one connection to the Nexus platform.
This single connection will allow a payment to be made to any of the countries in the network.
It is as if the Central Bank connected its systems to Nexus, and any Brazilian with Pix could send money to another country plugged into the platform.
(b) Coordinate the exchange between different currencies:
The platform itself could do the exchange between different currencies more agilely than today’s international transfer format.
The project will focus on retail transactions, including transfers between individuals and businesses, from individuals and businesses to e-commerces and even card machines.
With Nexus up and running, it will be possible, for example, to send money to a friend with an account in another country in seconds or to buy a product in a foreign e-commerce store.
#3 WILL NEXUS COST ANYTHING?
It is not yet known exactly how the charges for using the system will work.
Nexus will not be responsible for defining costs, so banks using the system can determine whether the service will be free or paid.
According to the BIS report, possible fees tend to be reduced as efficiency and process automation increase.
#4 INTERNATIONAL PIX WILL WORK IN WHICH COUNTRIES?
Nexus is tested by the central banks of Singapore, Malaysia, and Italy.
They were chosen for their extensive experience in building and connecting payment systems.
In April 2021, the Monetary Authority of Singapore linked its domestic payment system with Thailand’s, providing near-instantaneous cross-border payments between the two.
It is now working on bilateral connections with Malaysia and India.
Meanwhile, TIPS (the eurozone instant payment system), which the Bank of Italy operates, already connects to the domestic payment systems of several countries in Europe.
The BIS website states that every country with an instant payment system, such as Pix, could participate in Nexus.
Worldwide, about 60 countries have something similar. In theory, Nexus could reach and connect all of these countries.
#5 WHICH COUNTRIES ALREADY HAVE INSTANT PAYMENT SYSTEMS?
Besides the three test nations and Brazil, countries like India, China, South Korea, Thailand, the United Kingdom, Nigeria, Japan, the United States, and Mexico already have instant payment system initiatives.
A report by ACI Worldwide, an American payments company, estimates that by 2026, real-time payments will account for a quarter of all electronic transactions worldwide.
In 2021, the volume of transactions via instant payment systems was about US$118.3 billion worldwide, up 65.5% from the previous year, according to the report.
The format has been gaining space. And Brazil is highlighted in the study in terms of potential reach: the Pix may represent 56.8% of the total electronic transactions by 2026, according to the estimates of the American company.
#6 WHAT IS THE FORECAST FOR THE INTERNATIONAL LAUNCH OF PIX?
There is still no information about the official launch.
The tests will last until the end of 2022, and in early 2023, BIS will announce the initiative’s next steps.
#7 WHAT ARE THE CRITERIA TO BE PART OF THE INTERNATIONAL PIX?
According to the BIS, Nexus would be able to connect with any country with an instant payment system, provided it is eligible for the project.
It will require, for example, user experience standards, anti-money laundering, and anti-terrorism systems, among others.
#8 IS THE CENTRAL BANK OF BRAZIL PART OF PIX INTERNATIONAL?
The Central Bank of Brazil is following the Nexus project as an observer, according to a note sent to InfoMoney.
As such, it is not yet part of the tests but has already shared information about the development and operations of Pix with the BIS, according to a source close to the project.
#9 IS NEXUS RELATED TO SWIFT?
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global system that provides secure and private financial transactions for its member countries.
Various institutions use Swift, such as banks, corporations, and the capital market.
In this sense, SWIFT’s focus is more institutional.
Nexus is not designed to replace it, as it focuses on instant retail payments, usually composed of smaller value transactions.
#10 WHAT ARE THE ADVANTAGES FOR THE CONSUMER?
For consumers, the main advantages in the creation and development of Nexus are related to costs, speed, and visibility, according to Pedro Barreiro, from Wise.
“The traditional model does not provide transparency in the complete flow, which makes the costs involved less clear to customers. It also does not allow one to know, with certainty, when the money will arrive at its destination,” he says.
Financial institutions will likely offer a more efficient service with an integrated system.
#11 CAN THE EXCHANGE RATE GET CHEAPER?
According to Barreiro, the answer is yes.
“Simply and straightforwardly, an exchange may become cheaper due to the elimination of costs involved in the current flow of sending money,” he says.
The transfer through Nexus would be more direct and eliminate some steps since it would be instantaneous.
Barreiro also warns that financial institutions operating in this market are often not transparent about their profit on transactions, not specifying all the fees included in international trade.
The BIS report on the Nexus stresses that participating institutions must make transaction and exchange fees visible to the sender before payment.
There is also a provision that senders must be sure they send the money to the correct account using some confirmation in the system.
To send money abroad today, an individual must register with international transfer companies with fees and deadlines for sending the money.
With information from InfoMoney