Guidance for Improving Cross-Border Payment Infrastructure Efficiency

Global Remittances Working Group
IMPLEMENTING THE CPSS–World Bank GENERAL PRINCIPLES FOR
INTERNATIONAL REMITTANCE SERVICES
THE WORLD BANK GROUP
Encouraging Payment Systems
Infrastructure Development
to Provide More Efficient
Remittance Services
Guidance Note
2011

The Global Remittances Working Group (GRWG) was created in February 2009 in response
to multiple calls for coordination in the area of remittances received by the World Bank. The
GRWG is a multiyear initiative aimed at increasing the efficiency of the remittances market
and facilitating the flow of remittances by providing guidance and policy options to the global
community.
The GRWG is composed of representatives nominated by the participating countries and
chaired by the World Bank Vice President for Financial and Private Sector Development. Its
coordinators and a small secretariat facilitate the initiative, and an International Advisory
Committee of global experts ensures quality and provides technical guidance.
Four thematic areas covering different aspects of remittances have been established around the
seven G8 recommendations. These address data; interconnections with migration and develop-
ment, and policy; payment and market infrastructure; and remittance-linked financial products
and access to finance. The GRWG coordinates discussions in these thematic areas and allows
stakeholder organizations and governments to participate in the dialogue through outside spe-
cialists. This permits the inclusion of a broad level of expertise in analyzing the identified topics.
This document has been prepared by the GRWG Secretariat in consultation with the members
of the Public and Private Partnership on Remittances (Thematic Area 3), and with the contri-
bution of the GRWG’s International Advisory Committee.
The document is published as a Guidance Note, and is intended to provide guidance to reform
efforts in the remittances arena both nationally and globally. The findings and interpretations
presented are those of the GRWG Secretariat, and do not necessarily reflect the views of the
World Bank and the GRWG.
Janamitra Devan
Vice President and Head of Network
Financial and Private Sector Development
World Bank – International Finance Corporation

1
Payment Systems
Infrastructure
Development
T
his document looks at cross-border remit-
tance payments in terms of various retail
payment infrastructures and cross-border
linkages through which remittance pay-
ments are transferred from origin to destination. It
proposes some structural changes in current arrange-
ments that could better facilitate retail payment trans-
fers from sending to receiving countries. It focuses
primarily on the second general principle of the Com-
mittee on Payment and Settlement Systems–World
Bank’s “General Principles for International Remit-
tance Services,” which calls for “Improvements to the
payment system infrastructures that have the potential
to increase the efficiency of remittance services.”1
The
proposed recommendations are aimed at enhancing
the efficiency and security of cross-border remittance
services between sending and receiving countries
through reforms, where necessary, in the infrastruc-
ture arrangements for retail payment systems and re-
lated cross-border payment linkages.
1
The general principles are available at www.worldbank.org/
paymentsystems. The present document also draws on several
recent publications and projects of the World Bank including
the following: Payment System Development Group, Payment
Systems Worldwide: A Snapshot—Outcomes of the Global Payments
System Survey, Financial Infrastructure Policy and Research Series
(Washington, DC: World Bank, 2008); M. Cirasino and J. A. Garcia,
“Measuring Payment System Development,” Working Paper,
Financial Infrastructure Series (Washington, DC: World Bank,
2008); and Payment System Development Group, “Remittance Prices
Worldwide,” e-document (Washington, DC: World Bank, 2009).
The next section of this document provides informa-
tion on the recent flow of remittance payments among
countries and regions, and on the basic infrastructure
arrangements that provide the payment services that
support these flows. Following this, the document
takes a closer look at the retail payment infrastructure
arrangements for the principal sending and receiving
countries in order to identify where reforms might be
most effective in achieving safer and more efficient
flows for both sets of countries. The main challenges to
enhancing the efficiency and security of cross-border
remittance payments are presented next. The docu-
ment’s final section presents recommendations for ac-
tions to take in meeting some of these challenges.
Overview of Remittance Payments
Cross-Border Payment Flows
Remittance payments are defined as person-to-person
payments from senders in one country to recipients
in another. Often, such payments are originated by
family members working in one country to depen-
dents in the receiving country. In the 2010 Remittance
Prices Worldwide Database, the World Bank identified
29 countries as major remittance sending countries.2
2
The Remittance Prices Worldwide Database is available at
remittanceprices.worldbank.org.

2 Encouraging Payment Systems Infrastructure Development
In figure 1, the arrows representing 200 remittance
payment corridors emanate from the 29 sending coun-
tries to the 86 receiving countries.
Most of the receiving countries are located in Africa,
East Asia and the Pacific, Europe and Central Asia,
and Latin America and the Caribbean. Countries in
these regions generally receive remittance inflows
from several sending countries; some inflows originate
from sending countries within the same region. For
example, South Africa is a major sending country to
other countries within the South African region; Bra-
zil to other South American countries; Australia, New
Zealand, and Japan to countries in the Pacific region;
and the Russian Federation to countries in Eastern Eu-
rope and Central Asia. Canada, France, Germany, the
Netherlands, and the Gulf countries send payments to
countries in several regions; the United Kingdom and
Figure 1: Country Pairs
Source: Payment System Development Group, World Bank.
the United States send remittance payments to coun-
tries in virtually all regions of the globe.
For many of the receiving countries, remittances are a
major source of personal income and make up a sig-
nificant proportion of cross-border payment inflows.
In some small receiving countries, for example, remit-
tances can account for as much as 40 percent of na-
tional income. For most sending countries, such pay-
ments are generally a much smaller percentage of the
value and volume of their cross-border payments, even
in terms of cross-border retail payments. In this regard,
note that remittance payments are classified as retail
payments and are transferred using retail payment in-
frastructures in both sending and receiving countries.
Since the majority of total retail payments in virtu-
ally all countries are domestic payments, cross-border
remittance payments are in the tail of retail payment

To Provide More Efficient Remittance Services 3
flows in most countries. The importance of cross-bor-
der remittance payments as a source of private income
in many of the receiving countries is, therefore, not
matched to the importance of their share of overall
cross-border payment volume and value. With only a
few regional exceptions to date, there has been little
incentive to harmonize and integrate national retail
payment systems among countries to facilitate efficient
and secure cross-border retail payments.
Asymmetry in Retail Payment Systems
The World Bank identifies 29 remittance sending coun-
tries; of these, at least 13 are major sending countries.3
In a 2009 World Bank study on payment system de-
velopment, all but 1 of the 13 were rated as having
well-developed retail payment systems.4
These coun-
tries have retail payment infrastructures in place that
have been developed largely to support domestic retail
payment flows but can, and do, support the sending of
remittance payments.
Conversely, of the major receiving countries surveyed
by the World Bank, only a few—located mainly in
Eastern Europe and China—have well-developed re-
tail payment systems, which do not necessarily provide
low-cost remittance payments. The vast majority have
poorly developed retail systems.5
This largely reflects
the fact that most of these receiving countries have
relatively large unbanked populations, most notably in
rural areas, and rely on cash payments and barter for
retail payment transactions within their own locali-
3
Major sending countries are here defined as those having a min-
imum of five remittance corridors in at least one region. If corridors
in two or more regions were required, the number of major sending
countries would drop to 10.
4
Cirasino and Garcia op cit.
5
Ibid.
ty.6
Receiving remittance payments in these countries
can be problematic, as virtually all remittances involve
some form of electronic funds transfer at some stage in
the payment process.
Efficiency and Security of Remittance
Payments
In the context of payments, the practical notions of effi-
ciency and security (or safety, more generally) are mul-
tidimensional. For example, for the individuals who
originate the remittance payment in the sending coun-
try and those who obtain it in the receiving country, effi-
ciency refers principally to access to a variety of possible
remittance payment instruments and services, conve-
nience in acquiring the preferred service from a par-
ticular remittance payment service provider, the speed
of the delivery of the payment to the final receiver, and
the end-to-end user costs of that service. For the direct
providers of remittance payment services to end users,
efficiency typically implies a low cost for producing the
service at the retail level and low payment processing
costs at the wholesale level for payment processing and
transfer. It also generally implies the capability of cross-
selling other financial products and services to remit-
tance payment service users as a means of lowering
operational costs and generating additional revenues.
Even at the retail level, remittance payment services are
typically one set of services in a suite of payment and
other financial services a provider will offer customers;
and customers may demand more than remittance pay-
ment services from a single provider.
For cross-border payments, the cross-border transfer
mechanism is considered most efficient when the vari-
ous service providers from front- to back-end in both
countries (that is, through the value transfer chain
6
Financial sector development has not been a priority for many
of these countries, even though the development of an effective
financial sector, including financial sector infrastructure such as
banking and payment systems, has demonstrated value in overall
economic development.

from retail service to end users through to settlement
services for each leg of the payment involving settle-
ment agents for end users and their banks) are linked
through contract or partnership and technical con-
nectivity. This requires some degree of harmonization
of standards for interoperability and interconnectivity.
The absence of a minimum required degree of har-
monization and standardization in the retail payment
systems of the receiving and sending countries is the
principle source of difficulty in creating efficient cross-
border payment mechanisms for retail payments.
Security or safety of remittance payments implies the
following:
• Retail service providers in receiving and sending
countries are trustworthy.
• Errors in payment transmission are few and readily
remediated.
• Payment information (including electronic iden-
tities, account and routing information, and pay-
ment values) is well protected in processing and
transmission.
• Wholesale payment services in the sending and re-
ceiving countries and in the cross-border transfer
mechanism are operationally and financially sound.
The degree to which the security of remittance pay-
ments—indeed of any retail payment—and the sound-
ness of service provision are verifiable varies substan-
tially with the particular type of payment transfer
service provided and the type of remittance payment
service provider. This variation exists even in some
of the major sending countries, where there may be
a range of alternative service providers for both retail
and wholesale services.
In the World Bank’s survey of remittance services, a
range of service costs was identified for different types
of service providers for the same payment value from
and to the same locations. Different service providers
in both the sending and receiving countries might spe-
cialize in different types of services other than remit-
tance payments; they can provide higher volume and
value in some corridors that lower end-to-end service
costs; they can offer different service quality packages,
with faster and more secure payments generally cost-
ing more than lower-quality services; and they may
use different wholesale payment service channels to
process and transfer payments across countries and
within the two countries involved. Consequently, dif-
ferences in their prices may reflect differences in in-
frastructure arrangements, volume of flows, quality
of payment service provided, and regulated pricing
limits.
Although there is evidence that the user cost of a re-
mittance payment in sending countries declines with
higher aggregate volumes,7
insufficient data exist to
adjust service price differences accurately for these
factors. There is, therefore, no way to determine yet if
one type of remittance service provider infrastructure
arrangement, and cross-border transfer mechanism
dominates the others in all such factors. Thus, at this
point, there is no discernible “best” cross-border re-
mittance system in terms of efficiency and security.
Infrastructure Arrangements:
Retail Payments and Remittances
Three basic issues surround the development of a pay-
ment infrastructure for cross-border remittances:
• What type of cross-border payment mechanisms
might best bridge the gap in the retail payment
7
Payment System Development Group, “An Analysis of the
Trends in Average Total Cost of Migrant Remittance Services,” in
International Financial Corporation, Remittance Prices Worldwide,
Payment and Private Sector Development (Washington, DC: World
Bank, 2009).

infrastructure between a sending and a receiving
country?
• What are the basic retail infrastructure development
requirements the receiving country must satisfy so
the appropriate cross-border payment mechanism
can function efficiently and securely?
• What types of payment system reforms might a
sending country undertake to facilitate development
of cross-border payment mechanisms and the effi-
cient and secure origination of remittance payments
via these mechanisms?
General Structure of Retail Payment
Systems
A country’s retail payment system is a complex net-
work of service providers, products, and services in-
volving a range of contractual and technological link-
ages.8
The individual service providers are integrated
both vertically—from retail service arrangements
through settlement service systems—and horizontally
between providers of specialized services used by com-
peting providers of the same type of payment service.
Figure 2 presents a high-level view of this general set-
up. In this diagram, the thin lines represent payment
information flows from providers of one type of pay-
ment service (transaction services, payment instru-
ments and accounts, clearing services, and settlement
services) to providers of the next level of services re-
quired to transfer payments. These payment informa-
tion services are provided, horizontally, to each group
of service providers at each service level and entail
8
For further description and discussion of the retail payment
systems in many of the remittance sending countries, see Com-
mittee on Payment and Settlement Systems, Retail Payments in Se-
lected Countries: A Comparative Analysis (Basel, Switzerland: Bank
for International Settlements, 1999); and Committee on Payment
and Settlement Systems, Clearing and Settlement Arrangements for
Retail Payments in Selected Countries (Basel, Switzerland: Bank for
International Settlements, 2000).
both data processing and data messaging. These are a
fundamental part of the technological linkages among
the various service providers in the payment trans-
fer chain. The thick lines represent the actual money
transfer links, first between individuals and their de-
posit or credit accounts at their payment service pro-
viders, and possibly via currency transfers; and then
between payment service providers and their settle-
ment agents, often the central bank, in their national
settlement networks.
The individuals originating and receiving retail pay-
ments in the system illustrated in the figure do so
through payment instruments and related services ac-
quired from their banks or other payment service pro-
viders. They use a variety of transaction mechanisms
that banks own individually or collectively or through
third-party vendors that provide access to such net-
works. Global debit and credit card transaction sys-
tems, and some mobile payment systems, are examples
of third-party-owned and -operated transaction sys-
tems. The services of such systems are contractually
acquired by banks and other retail payment service
providers for the use of their customers.
Remittance payment service providers directly—
or through their banking agents—acquire clearing
services from third-party processors and clearing
houses/associations that format, sort, match, batch,
and net individual payments to facilitate payment set-
tlement. Settlement involves corresponding account
transfers for the remittance service providers in the
sending and receiving countries and their agents in
those countries—and, in some cases, a third country
if an intermediate settlement currency is used. Thus,
the retail payment systems in the two countries are
linked through a cross-border mechanism; such a
mechanism is usually operated by private third-party
banks, by cross-border network service providers,
and by the central banks of the sending and receiving
countries.

Cross-Border Linking Mechanisms
Linking mechanisms for transmitting remittance and
other retail payments between two countries can be
constructed at any payment service level shown in
figure 2. The following are the principal cross-border
linking mechanisms:
• Correspondent banks and money transfer organiza-
tions (MTOs) at the payment service provider level
• International payment networks (notably Master-
Card and Visa) at the transaction system level
• Automated clearing houses (ACHs) for electronic
payments at the clearing service level
• Regional networks of national settlement systems
Because each of these service levels is interlinked at
the national level for retail payment transfers, a cross-
border (horizontal) link can exist at any of these lev-
els and make use of the vertical interlinkages among
all the payment service levels in a country’s national
system to complete the transfer of the remittance pay-
ment. Most pairs of countries typically have more than
one linking mechanism in place—each likely with its
own safety and efficiency characteristics for various
groups of paired end users, and with some degree of
variation and potential competition in terms of price
and/or quality of service.
While a broad range of bank and nonbank organiza-
tions can provide payment instruments and payment
transaction, transfer, and acquisition services for end
users, clearing and settlement services are generally
organized to provide services to banks only. Conse-
quently, a cross-border remittance payment will at
some point require the services of banks to provide
payment accounts, clear the payment, and settle in the
local currencies of each country’s retail payment sys-
tem. Even if the end users do not acquire payment in-
struments, accounts, and transaction services directly
from a bank, the organizations that provide those ser-
vices to them will do so, on their behalf, in order to
acquire and manage the funds needed to complete the
remittance payment transfer. Consequently, efficient

Figure 2: Payment and settlement structure
Source: S. O’Connor, “Financial Crises, Payment System Risks and Oversight,” in C. M. Kahn, ed., Effective Oversight for Payment and Settlement Systems: Maintaining
Financial Plumbing, Marketing and Management Collection (London: Henry Stewart Talks Ltd., 2010).

and sound national banking systems will always be a
necessary ingredient for efficient cross-border remit-
tance payments. Focusing attention only on particular
types of front-end payment instrument and transac-
tion service providers and ignoring the development
of the national retail payment infrastructure and ef-
fective cross-border linkages directly linked to these
front-end systems and instruments, or the converse,
will not optimally facilitate efficient and secure cross-
border remittance payments.
Cross-Border Linkages at the Settlement System
Level
Various types of arrangements link the national settle-
ment systems of individual countries within the same
region to settle intraregional cross-border payments.
For example, the large value settlement systems of
these countries—typically operated by the national
central banks—can be linked together in a regional
settlement network. The national central banks settle
within-region cross-border payments through settle-
ment accounts at a regional settlement bank or through
corresponding bilateral nostro accounts between the
participating central banks. The remittance payments
originated in each country are processed according to
the type of instrument used—usually some form of
credit transfer—along with other retail payments, and
are sorted and batched by each participating bank in
the sending country according to the country in which
they are to be sent.9
The central bank in the sending
country first debits the value of the cross-border pay-
ments to the accounts of the sending banks in the
sender’s local currency. It then instructs the regional
settlement bank, or the corresponding foreign central
banks in the regional system, to debit its settlement ac-
count with them in the regional settlement currency,
and credit the accounts of the receiving banks. Settle-
9
Note that this participating bank may only be acting as a settle-
ment agent for the payment service provider that helped originate
the remittance payment from the sender.
ment agents in the receiving country then arrange for
the processing, sorting, batching, and conversion of
the payments into the local currency equivalent and
pass the credits on to the accounts of the remittance
payment service providers; these providers then make
the funds available in the local currency to the final
receiver.
In practice, such settlement links are few, and those
that do exist are regional in nature. Thus, only remit-
tance payments to countries within the same region
that have such a regional settlement arrangement can
be transferred via this link. At present, few of the cor-
ridors for remittance payments between major send-
ers and receivers, including local regional remittance
corridors, have regional settlement links. The most
well-established such system is TARGET 2 (Trans-
European Automated Real-time Gross Settlement Ex-
press Transfer System), which features the European
Central Bank as its central settlement bank and uses
the euro as its regional currency. While none of the
major sending countries have any identified remit-
tance payment corridors within the Euro region, an-
ecdotal evidence indicates that remittance payments
do flow from the major Western European countries
to member countries in Eastern and Southeastern
Europe. Also, regional settlement arrangements have
recently been established in Africa, one of which is
the Common Market for Eastern and Southern Af-
rica’s (COMESA’s) Regional Payment and Settlement
System (REPSS), which involves 19 African countries.
REPSS, which began operations in mid-2009, is de-
signed to settle all cross-border payments within the
region. While its initial focus is on commercial pay-
ments, it is considering future expansion of its ser-
vices to retail payments, including remittance pay-
ments. South Africa, a major remittance sending
country in that region, is helping lead a project to
establish a regional payment clearing and settlement
system for member countries of the South African
Development Community, which includes several

COMESA member countries. This regional payment
system is expected to enhance the efficiency of remit-
tance payment services within the region, especially
in conjunction with REPSS.
The principal advantages of cross-border linkage
mechanisms at the payment settlement level are the
extensive use of existing retail payment systems in
both the receiving and sending countries and the
requirement for some degree of harmonization and
standardization in the retail payment messaging,
clearing, and settlement processes to facilitate an ef-
ficient and secure cross-system linkage. The principal
disadvantage is that regional settlement systems have
been slow to develop outside of Europe and parts of
Africa for various reasons, including a limited busi-
ness case and weak regional political ties. Also, they
support only those remittance payments that flow
within the same region, and only as part of a larger
intraregional payment value and volume flow. Many
of the major remittance corridors are cross-regional,
but have lower values and volumes of other types of
payment flows.
Cross-Border Linkages at the Clearing System Level
Presently, most cross-border linkages at the clearing
system level are also regionally based, although there is
at least one cross-regional arrangement—the U.S. Fed-
eral Reserve System’s FedGlobal ACH Payments Ser-
vice—that is now emerging. There are three basic ar-
rangements for cross-border clearing system linkages:
• Single regional currency with multiple ACH plat-
forms, such as those in the Single Euro Payment
Area (SEPA) and SICA-UEMOA in the West Afri-
can Monetary Union (WAMU)
• Multiple currency with distributed common clearing
arrangements, such as those for the global Visa and
MasterCard payment networks
• Multiple currency with multiple ACH platform sys-
tems, such as the FedGlobal ACH Payments Service
Single regional currency with multiple ACH plat-
forms. These regional systems involve highly standard-
ized procedures for cross-border payment informa-
tion processing, message formatting and transmission,
payment settlement, and transfer. These ACH links are
closely integrated with their respective regional settle-
ment arrangements to further enhance the efficiency
and security of cross-border retail payments. In the
Euro region, the high degree of standardization cre-
ates a regional network of harmonized ACHs in the
member countries (that is, SEPA-compliant clear-
ing and settlement mechanisms) that clear and settle
cross-border payments, including within-region re-
mittance payments, in essentially the same fashion as
domestic ACH credit and debit transfers. Settlement
of cross-border euro payments is finalized in Euro 1
or TARGET 2.
The Central Bank of West African States (BCEAO—
Banque Centrale des États de l’Afrique de l’Ouest),
the WAMU regional central bank, operates SICA-
UEMOA, a regional clearing system with a network of
clearing houses in the BCEAO branches in each of the
eight member countries. This system is in effect a sin-
gle-platform system in which all clearing houses use
the same procedures and standards. The central clear-
ing house transmits the final clearing positions for
settlement of intraregional payments to the BCEAO’s
STAR-UEMEOA settlement system for final transfer of
payments from the sending to the receiving leg. About
20 banks in the region participate directly in the sys-
tem, with some acting as clearing agents for other pay-
ment service providers in their countries. Although
no WAMU countries are identified in the Remittance
Prices Worldwide Database as remittance sending
countries, three are remittance receiving countries,
each with a remittance corridor to France. These three
countries (Côte d’Ivoire, Mali, and Senegal) had the

lowest reported average cost for remittance payments
in 2009 of all the remittance corridors from France.10
Multiple currency with distributed common clear-
ing arrangements. International payment networks
such as MasterCard and Visa have been developing a
number of remittance products and services that en-
able both card- and Internet-based payment at the end
user (origination and final acquisition) level through
their global electronic transaction networks. These
networks include the clearing systems for their pay-
ments, which are operated on a highly standardized
platform worldwide but through regional processing
centers. The local currency settlement leg of transfers
is conducted through settlement agents in each par-
ticipating country’s settlement system or in the real-
time gross settlement system (RTGS) of that country’s
central bank. Payment transfer services to sending and
receiving end users are provided by the remittance
payment service providers that participate in the card
payment systems. Global correspondent banks provide
cross-border payment settlement services—usually in
U.S. dollars, euros, or other selected currencies—to the
global card payment organizations.
Multiple currency with multiple ACH platform sys-
tems. The U.S. Federal Reserve System recently intro-
duced the FedGlobal ACH Payments Service, which
links clearing-house arrangements in North Ameri-
can, Central and South American, and European
countries. At the end of 2009, the service was available
to 15 countries in North, Central, and South Amer-
ica, including the United States and Canada. It is now
10
Given the inadequate data on cross-border payments in gen-
eral, care must be exercised in attributing end-to-end user cost
differences in remittance payments to any one factor. While cross-
border linkages between two reasonably well-developed regional
systems can contribute to greater efficiency, overall costs are still
spread over both systems. Cross-border remittances within a given
region may still cost more than those in another region due to
other factors, such as payment volume and efficiency of the bank-
ing system.
being introduced into 22 European countries, includ-
ing the major remittance sending countries of France,
Germany, Italy, Spain, and the United Kingdom. Nota-
bly, Spain and the United States have remittance cor-
ridors to a number of countries in Central and South
America where the service is now available.
The system links ACH members in each participating
country as gateway service providers for their respec-
tive system through which credit transfer payments,
including remittances, can be transferred bilaterally
across countries. Participating members are required
to adopt common formats and procedures as speci-
fied in the International ACH Transaction Protocol or
equivalent.11
The FedGlobal ACH Payments Service
provides cross-border clearing services for account-
to-account payment transfers; it is introducing a new
account-to-receiver service for participating coun-
tries in Latin America which will deliver funds ei-
ther through a receiving bank or a certified nonbank
agent. The cross-border leg of payment transfers are
settled by correspondent banks, either in U.S. dollars
(through Fedwire Funds) or in a specified foreign cur-
rency. The local currency sending and receiving legs of
the cross-border payment are cleared and settled in the
respective national retail payment system and through
remittance payment service providers that participate
directly or indirectly in those systems.
As with cross-border linkages at the settlement level,
the principal advantage of clearing system linkages is
standardization, which promotes efficiency in the pric-
ing and delivery of services and the security of pay-
11
These must be consistent with the ISO (International Organiza-
tion for Standardization) 200022 payment messaging format and
the International Payment Framework developed as international
standards for cross-border ACH payments. Most existing ACHs
can acquire translation interfaces that map their existing formats
and processes into those consistent with the required standards.
SWIFT (Society for Worldwide Interbank Financial Telecommu-
nication) also provides payment messaging services that are con-
sistent with ISO 200022 standards.

ment transfers between systems. The clearing system
linkages are still basically account-to-account service
arrangements that need banks to link the remittance
payment service providers to the clearing and settle-
ment arrangements of the sending and receiving coun-
tries. This is true whether the clearing arrangements
are horizontally linked as in the FedGlobal ACH Pay-
ments Service, or highly integrated vertically with
global transaction systems such as in global card pay-
ment networks or with regional common currency
settlement systems. A disadvantage of these arrange-
ments is that they are available only to countries with a
similar level of national payment system development;
this covers some of the regional remittance corridors,
but only a few of the cross-regional corridors. Also,
they do not deal with the “last-mile” problem of un-
banked final receivers in the receiving countries with
poorly developed payment systems.
Cross-Border Linkages at the Transaction and Pay-
ment Service Provider Levels
Transaction systems are the physical (branch and sub-
agency) and electronic network arrangements that
allow sending and receiving end users to directly ac-
cess payment instruments, accounts, and funds from
the payment service providers in local retail pay-
ment service markets.12
Transaction networks can be
owned and operated by individual service providers or
by third-party organizations. For remittance payments,
the principal third parties are banks and money transfer
organizations such as Western Union and MoneyGram.
Generally, these have partnership, membership, and cus-
tomer contractual arrangements with other organizations
such as local telecommunications companies for cus-
12
For a more detailed discussion of the front-end systems for
cross-border remittance payments and their use by service provid-
ers and end users in the initiation and receipt of payment transfers,
see Committee on Payment and Settlement Systems–World Bank
“General Principles for International Remittance Services,” avail-
able at www.worldbank.org/paymentsystems.
tomer mobile payment and Internet payment services,13
sub-branches or franchised subagents in locations that
are not directly banked, and global and regional card
payment organizations that deploy card payment ter-
minals in locations remote from bank branches. These
arrangements allow end users to receive and initiate
cross-border remittance payments with credit, debit,
and prepaid cards. These “front-end” payment systems
are the focus of much payment innovation for resolu-
tion of the last-mile problem.
A principal cross-border linkage for third-party trans-
action systems is through international payment net-
works such as MasterCard and Visa. As noted, these
transaction systems are highly integrated into the
cross-border clearing system of such networks and in-
volve proprietary cross-border messaging systems for
authenticating and verifying payment transactions at
the points of origination and acquisition. For remit-
tance payments, senders can use their credit or deposit
accounts in their home country to originate a payment
to a deposit account in the name of the receiver at a
service provider in the receiver’s country. The receiver
can access the payment through an automated teller
machine (ATM), bank branch, or—in some cases—
even an Internet or mobile phone device. These elec-
tronic devices allow receivers to maintain a deposit ac-
count at a bank, credit union, or other deposit-taking
institution at a location remote from their home yet
withdraw value in the form of currency from these ac-
counts at their home location. The receivers may ac-
quire these funds through their own mobile phone or
computer, or through devices owned by a local third
party (such as a merchant) certified by the receiving
payment service. The actual cross-border funds trans-
fer is through a clearing or settlement linkage mecha-
13
In some cases (such as in Africa), telecommunications com-
panies that operate in a number of countries in the region provide
a common platform for mobile payment services to end users in
contractual arrangements with banks, MTOs, and other remittance
payment service providers in these countries.

nism involving correspondent banks participating in
the card system.
MTOs also provide an integrated transaction and
clearing cross-border linkage for remittance payments.
MTOs operate globally through subsidiaries and sub-
agents in most sending and receiving countries. Un-
like banks, they provide cross-border remittance pay-
ments as a specialized transaction-based rather than
account-based service. The sender of the remittance
payment either transfers funds electronically to a de-
posit or credit account at a bank (usually through a
card payment) or pays in local currency at the local of-
fice of an MTO, such as Western Union, that covers the
principal amount and transfer fees and payment deliv-
ery instructions. The MTO uses a proprietary or third-
party messaging system to instruct the local office se-
lected by the sender or the receiver (usually whoever
is closest) to pay out the local currency equivalent to
the receiver upon verification of identity. The receiving
MTO office contacts the receiver, or is contacted by the
receiver in cases where the latter may choose the pay-
out location, to arrange delivery of funds through cash
pickup or through an electronic transfer, subject to
authentication of the receiver. The electronic transfer
can be to the receiver’s deposit account at a local bank
or—as is more recently the case in some countries—to
a telecommunications account from which a receiver
can access the funds remotely. Although the global and
regional MTOs do not access banks for cross-border
remittance payment services, they do use banks within
the sending and receiving countries to store and man-
age their local currency funds; manage foreign ex-
change positions; and, in some circumstances, transfer
funds acquired in or needed for remittance payment
transactions with end users cross-border.
Banking organizations such as commercial banks, sav-
ings banks, and credit unions remain the primary re-
mittance payment service providers in receiving and
sending countries. Receivers in locations that have
nearby branches of these organizations can acquire
funds directly from the account to which the funds are
delivered in the form of currency via a local branch
or ATM, as a value download to a prepaid device for
point-of-sale payments at merchants. They can also use
other account-based electronic payment instruments
or checks to make payments to merchants, local busi-
nesses, and government agencies. Global correspon-
dent banks or regional banks with branches or sub-
sidiaries in both the receiving and sending countries
are the main payment service cross-border linkage for
these remittance payments. Indeed, these banks may
themselves offer remittance and other retail payment
services in the areas in which they are located, as well
as provide correspondent and commercial banking
services for other bank and nonbank remittance pay-
ment service providers in the area. In effect, they com-
pete with other remittance payment service providers
for end users but also sell wholesale banking services,
including access to cross-border linkage mechanisms,
to their rival remittance service providers in the local
retail payment service market.14
The correspondent banks typically participate in the
clearing and settlement arrangements in either the
sending and receiving country’s payment clearing and
settlement networks or in a third country’s clearing and
settlement arrangement (for example, CHIPS [Clear-
ing House Interbank Payments System] or Fedwire in
the United States). The actual cross-border payment
transfer may be done on the bilateral nostro accounts
of the correspondent banks or branches in the respec-
tive sending and receiving countries. However, the re-
tail payment clearing and settlement systems in these
countries are used to transfer the remittance payment
to and from the payment service provider with the
14
This creates cross-incentives between competition and cooper-
ation among financial firms, which can limit payment system effi-
ciency. For a comprehensive policy discussion, see M. Guadamillas,
ed., Balancing Competition and Cooperation in Retail Payment Sys-
tems, Payment System Policy and Research, Financial Infrastruc-
ture Series (Washington, DC: World Bank, 2008).

correspondent bank to and from its deposit account
with the final receiver and original sender.
The cross-border linkage through correspondent
banking systems is well established and has developed
highly standardized and common payment messaging
and information systems through such third parties as
SWIFT. However, it is highly layered and decentral-
ized. The number of banks that link the originating
and receiving payment service providers in the two
countries can range from two to possibly six. Each
pair of banks in the transfer chain has a purely bilat-
eral arrangement that involves separate bilateral pay-
ments along the chain. Each bilateral payment incurs
separate fees and, in the absence of effective straight-
through processing, increases transmission risk and
slows transmission speed. Moreover, each remittance
corridor between sending and receiving countries can
have multiple, multilayered, correspondent banking
linkages to and from specific pairs of end user pay-
ment service providers. Cross-border transfer mecha-
nisms based on correspondent banking arrangements
are less standardized in terms of transaction and trans-
fer services—especially with regard to the cost and
predictability of transfer lags across corridors—than
are some of the other types of cross-border linkages.
Limited standardization, multilayering, and decentral-
ization can reduce overall efficiency and security.
Standardization is important in payment services. It
can promote effective competition among the various
payment service providers and their transfer channels
in each corridor, which typically improves service cost
and speed of delivery. Standardization can also im-
prove other aspects of end-to end efficiency and safety.
For example, the correspondent banking channel may
be slower—and possibly more costly—than the MTO
channel, but standardized messaging formats used by
correspondent banks generate fewer misdirected pay-
ments. Similarly, standardized payment instruments
and transaction systems that allow greater interoper-
ability of front-end networks create more convenient
access to services and funds, especially at the receiver
end of the transfer.
Policy Challenges:
Infrastructure and Institutional
Arrangements
Based on the foregoing information, this section looks
at the challenges to enhancing the efficiency and se-
curity of cross-border remittance payments. Chal-
lenges can be identified in a number of areas for these
arrangements; these may be more or less relevant to
particular corridors and remittance payment channels.
Multidimensionality of Efficiency and
Security of Payments
The first policy challenge is to determine which di-
mensions of efficiency and security are the priorities
for improvement. Is it direct user cost, user conve-
nience, speed of transfer, information security, opera-
tional risk, or reliability of service? It is tempting to
argue that all these dimensions could be improved; in
practice, there are often trade-offs. Faster, more secure
payments often entail higher capital and third-party
service costs, which will translate into higher end user
costs.
Also, there is no single “best” structural model for effi-
cient and secure cross-border remittance payments in
any absolute sense. As noted, different models involve
trade-offs among different dimensions of efficiency
and safety. For example, when each payment corri-
dor has alternative channels, as defined by the type of
payment service providers and cross-border linkage
mechanisms, the service cost-quality-risk profiles may
differ substantially for each channel. Each attracts end
users who prefer its particular profile, and multiple
competing remittance payment channels can coexist
in a single cross-country corridor. To some degree, the

number of feasible remittance payment channels will
depend on the structural match of the national pay-
ment systems in the sending and receiving countries.
The issue then is to incentivize the various types of
payment service providers to work together to meet
the cost-quality-risk profile desired by their cohort of
users for the best outcome of all involved.
Asymmetry in Retail Payment System
Development
The limited volume of cross-border remittance pay-
ments in the major remittance sending countries pres-
ents a practical development problem. Although the
social benefit of cross-border remittance payments
may be significant in some of the receiving countries,
the private costs—and, in some countries, the social
cost—of developing a cross-border system around re-
mittance payments exclusively is untenable. Develop-
ing efficient and secure mechanisms for cross-border
remittance payments is basically a corollary to devel-
oping efficient and secure payment systems and mech-
anisms that can support all cross-border retail and
wholesale payments.
Asymmetry in the level of payment system develop-
ment between sending and receiving countries is prob-
lematic in that the cross-border systems have some
characteristics of two-sided payment networks. Op-
timal efficiency in such networks is obtained only if
the payment sending and receiving end users and their
respective payment service providers participate in
the same or effectively interoperable network arrange-
ments. Where there may be significant asymmetry in
the development of retail payment infrastructures be-
tween a sending and receiving country, there may be
few remittance payment channels feasible for that par-
ticular cross-border payment corridor. In other words,
both sides of the payment cannot effectively partici-
pate in the same interoperable type of payment net-
work arrangement because of a structural mismatch.
Also, even when there are alternative payment chan-
nels in a particular corridor, some channels can be sig-
nificantly more (or possibly less) efficient and secure
than others in the sending than in the receiving coun-
try; this limits effective competition. The likely results
of asymmetrical retail payment system development
are higher costs, lower quality, and less secure cross-
border remittance payment services.
Asymmetry in Banking System
Development
Asymmetry in national payment system development
between sending and receiving countries is generally
accompanied by asymmetry in national banking sys-
tem development. Greater efficiency and security in
cross-border remittance payments requires a well-de-
veloped banking system that promotes the use of elec-
tronic instruments for retail payments. This fosters the
development of infrastructure arrangements for the ef-
ficient and secure transaction, clearing, and settlement
of retail payment systems within the overall national
payment system. Banks are still at the core of cross-
border payment transfers either as direct payment
service providers, agents for providing indirect access
to clearing and settlement networks needed to com-
plete the remittance payment transfer, or participants
in cross-border bank-based mechanisms that link na-
tional payment systems between countries.
Development of a banking system promotes deploy-
ment of affordable banking and retail payment services
on a broad national scale to a range of socioeconomic
groups within the country. It also provides convenient
access to services for end users and promotes competi-
tion in the end user service market.
Regulatory Restrictions on Payment
System Innovation
Under appropriate regulatory policies, fair access to
payment infrastructures for all types of banking or-

ganizations can contribute substantially to the effi-
ciency, security, and reliability of cross-border remit-
tance payments. Core banking functions are generally
defined as loan, deposit, and payment transfer ser-
vices. In many countries, near-banks—financial ser-
vice organizations that provide some types of banking
services to end users, including remittance payment
services—have no direct access to nationally regu-
lated payment transaction, clearing, and settlement
systems. Rather, they access these systems indirectly,
on a bilateral contractual basis, through banks that
are allowed to participate directly in the infrastruc-
ture arrangements and with which they compete as
payment service providers to end users. This is true
for some classes of near-banks, such as local credit
unions or cooperative savings banks, that are regu-
lated under legislation other than bank legislation
that allows them to perform similar banking func-
tions. Such arrangements can leave them at a com-
petitive disadvantage.
Other regulatory policies may be less immediately vis-
ible but have a significant impact on payment services.
For example, payment infrastructure arrangements
in most countries are licensed and regulated at least
with respect to clearing and settlement. The organiza-
tions that actually process the payment information
under contract are typically unregulated and licensed
only under general corporate law and not specifically
for the provision of financial services. These are inter-
mediate middle- and back-office services—critical to
payment transfer services both within a country and
across countries. The criticality of these services to
the national financial system causes public policy in
many countries to restrict their provision to domesti-
cally owned clearing houses and data processors only.
Remote processing and cross-border clearing services
are often restricted for some classes of payment instru-
ments used for remittance payments—such as ACH
credit transfers—but not for others, such as global card
payments.15
Since scale economies matter in the effi-
cient (and secure) provision of payment services, this
can be a costly policy. Many countries with rising vol-
umes of regional cross-border payments are becom-
ing increasingly aware of this fact, as evidenced by the
emergence in recent years of regional payment systems
in developing economies.
Diversity in Legal Frameworks for
Payments
Diverse legislative and regulatory regimes for the pro-
viders of similar payment services can be problematic
within a given country to end users especially, but also
for intermediate payment transfer services as well. If
legal and regulatory coordination is challenging in a
single country, it is doubly so between countries with
different statutory and legal regimes, and different lev-
els of development in those regimes with respect to
payments. Many remittance payment receiving coun-
tries (and even some sending countries) still have in-
sufficiently sound legal frameworks for even domestic
payments. Payments and payment services are based
primarily on contractual arrangements between le-
gally recognized counterparts, some involving very
short-term bilateral credit agreements that define con-
ditions for the final discharge of the obligation. This is
especially true where a country’s legal system does not
adequately recognize the legal rights of foreign coun-
terparts in its courts, or the jurisdictional sovereignty
and decisions of foreign courts with regard to cross-
border payment disputes. If some remittance payment
instruments and services have a comparatively un-
15
This may be due partly to path dependency and public owner-
ship policies. Innovative new products and services developed by
private banking organizations collectively, such as card payments,
are less restricted in terms of their middle- and back-office services
as long as local banks that participate in these arrangements are
regulated locally. This is because banking regulation has historically
focused on local end users rather than intermediate-level financial
services. Also, many payment clearing and settlement systems are
operated by national central banks and are considered to be utilities
best suited to public, rather than even regulated private, ownership.

sound legal basis regarding the rights of sending and
receiving end users or their payment service providers,
the legal risks of using these instruments and service
providers can reduce the attractiveness of this type of
remittance payment channel for many users even if it
has more efficient features than other channels.
Nontransparency and Information Gaps
Individual users and authorities in some receiving
countries have expressed concern about the level and
structure of service fees on cross-border remittance
payments, which are often low-value payments. The
World Bank’s 2010 fee survey indicates that sender fees
can range from less than 2 percent to over 20 percent
of a remittance payment of up to US$500, depending
on the sending and receiving country and the type of
payment transfer channel. Additional fees or payout
discounts also may be charged to the final receiver of
the payment. Although these concerns have legitimacy,
attributing the high costs solely to inadequate competi-
tion among end user payment service providers is mis-
leading, given the complex and nontransparent nature
of the cross-border payment transfer process.
Transactions between individual payment service
providers along the transfer chain involve bilateral ar-
rangements that stack the fees of all service provider
institutions from the settlement system operators to
end user payment service providers. This applies to
both the sending and receiving legs of the transaction,
and includes service fees charged to both sides by the
operator of the cross-border linking mechanism. End
users are charged fees that cover the cost of the stacked
intermediate service fees along the chain, which in-
clude profit mark-ups for each of the service provid-
ers. Consequently, the more organizations involved in
a transfer, and the lower the volume of payments over
that particular channel in a given sender-receiver cor-
ridor, the higher the end-to-end user costs are likely
to be.
Full transparency of end-to-end costs, especially for
users and their direct retail payment service provid-
ers, is difficult to achieve. Payments are transmitted
through the retail payment systems of two countries,
and the organizations that provide the payment ini-
tiation and final distribution services typically operate
in only one of those systems. The payment systems in
the two countries are tiered, and the original send-
ing institution may not actually know the extent of
the overall transfer chain and number of fee-charging
organizations in the chain in its own retail payment
system, let alone in the receiving country. It will know
the service fees that are charged to it by its intermedi-
ate service providers, but may not know what fees they
have been charged and by what other service organiza-
tions. Hence, differentiating costs between true value-
added intermediate services and pure profit mark-ups
is very difficult. Few service providers have an incen-
tive to inform their customers of a split between their
per transaction mark-up and production costs, even if
they could estimate such a split.
There is, of course, a public good value to acquiring
and publishing information on the nature and costs of
various remittance payment channels over the major
corridors for sending and receiving countries. Infor-
mation about similar channels and transfer processes
in different remittance corridors between pairs of
sending and receiving countries can help end users
select payment channels that best meet their cost-
quality-risk profile while limiting the private cost of
acquiring that information and the marginal risk of a
suboptimal selection. Policy makers in both sending
and receiving countries can focus their policy actions
with respect to remittance and other retail payment
systems more cost-effectively. Even so, such trans-
parency faces a collective-good problem. Providing,
acquiring, and processing this type of information in
each country involved entails costs to individual ser-
vice providers and government agencies. The value of
this information cannot be fully internalized, espe-

cially when it is published, as it concerns cross-border
payments and is available for countries other than the
one collecting the data. Even government agencies in
some countries seem reluctant to demand mandatory
reporting of this information, since the beneficiaries
are often among the poorest segment of the popula-
tion and provide little of the compensating resources
consumed in providing this public service; the cost of
ensuring quality compliance of the information pro-
vided by the financial sector can be high when they see
no individual benefit.
Non-Universality in Standardization,
Integration, and Interoperability
Although much of the attention regarding cross-bor-
der remittance payments is rightfully on front-end
systems and their potential for helping resolve the last-
mile problem, front-end systems are not stand-alone
arrangements that can fully resolve all the efficiency
and security concerns around cross-border remit-
tances. They are vertically integrated into the middle-
and back-end retail payment correspondent banking,
clearing, and settlement systems in the receiving and
sending countries. These infrastructure arrangements
need to operate efficiently and securely to complete
cross-remittance payment transfers and to provide
effective cross-border linkages that horizontally inte-
grate the retail payment systems of the sending and
receiving countries.
Uniformity and standardization of retail payment
infrastructure arrangements would contribute to
establishing effective cross-border linkages for one
or more remittance payment channels. Such stan-
dardization would generally enhance the degree of
interoperability within horizontally and vertically
integrated network arrangements and, thus, contrib-
ute further to the relative efficiency and security of
remittance payments over a number of dimensions.
Moreover, well-designed automated clearing and
settlement systems for retail payments in each coun-
try’s national payment system would support alter-
native remittance payment instruments and channels
that could help produce competitive pressures on the
payment service providers associated with them and
allow more choice on alternative cost-quality-risk
profiles for end users.
This issue is possibly among the greatest of the policy
challenges for cross-border payments, as reflected in
the slow pace of convergence in the development of
retail payment systems in some of the receiving and
even sending countries. Payment service providers
with well-established and profitable remittance pay-
ment channels for corridors to various other coun-
tries are reluctant to invest in costly facility and pro-
cess upgrades in their own systems—and especially
in retail payment infrastructures that would support
competing remittance instruments and services, pro-
viders, and channels in existing corridors. Also, some
of the major receiving countries may not have either
a development policy priority or available develop-
ment resources to upgrade their retail payment in-
frastructures to significantly improve efficiency and
security in the receiving leg of the cross-remittance
payment transfer.
Proposed Recommendations
Recommendations are often designed to be fully inclu-
sive for all parties involved. But, by definition, remit-
tance payments feature two relatively distinct groups—
sending countries and receiving countries—for which
the nature of reform and development challenges in
enhancing the efficiency and security of cross-border
remittance payments may be quite different. Accord-
ingly, some of the recommendations made here may
be more relevant to receiving than to sending coun-
tries, while others apply to both groups.

Recommendation 1: Promote the
Development of a Broad, Nationwide Set
of End User Payment Service Providers
to Include Licensed, Regulated Bank and
Nonbank Organizations
The objective of this recommendation is to have the
sending and receiving countries allow development of
a broad set of retail payment service providers that can
compete effectively in terms of cost, quality, and risk
on end user services for remittance and other retail
payments. These providers would deploy user-access
facilities, such as subagents and remote banking de-
vices, to underbanked regions of a country.
1.1 Expand the Provision of Payment Services
Geographically and Socioeconomically
Retail payment service providers could include public
and private near-banks (deposit and lending institu-
tions, such as local credit unions and microfinance or-
ganizations) and other financial or nonfinancial enti-
ties that are franchised as banks and near-banks. These
would be licensed by the relevant authorities to act as
payment transfer agents for banks. They would acquire
and distribute funds, or allow the individual end users
to link remotely to banking account and payment
transfer systems, to initiate and receive remittance and
other retail payments at a local access point. This ap-
proach, in different forms, has been used with notable
success in remittance receiving countries in Africa,
Asia, and South America.
Many of these agency arrangements still involve bank-
based deposit (and some credit) accounts between
banks and the originating and receiving end users.
Thus, banks and near-banks should develop very basic
account arrangements that are convenient and afford-
able to end users. Some major sending countries, for
example, require their banks to provide “no-frills” de-
posit accounts that are available to the poorest mem-
bers of the community.
1.2 Develop the Basic Required Complementary
Physical Infrastructure
Since the local access points are end nodes on a transac-
tion network, the communications and transportation
infrastructure is a necessary element for geographic
expansion of banking services.16
Recent developments
in wireless communications involving electronic pay-
ment instruments such as prepaid cards and mobile
payments help resolve some of these concerns. Conse-
quently, banking system development and telecommu-
nications development are complementary require-
ments for this recommendation.
Recommendation 2: Promote the
Development of Efficient and Secure
Infrastructure Arrangements for Retail
Payments
Cross-border remittance payments are a particular
class of retail payments, and have insufficient volume
and value to warrant a stand-alone end-to-end infra-
structure. The efficiency, security, and reliability with
which remittance payments can be transferred elec-
tronically therefore depends on the efficiency and se-
curity of the domestic retail payment infrastructures
for noncash payments in both the sending and receiv-
ing countries, and on the efficiency and security of the
cross-border linkage mechanism. Since most remit-
tance sending countries have fairly well-developed
retail payment systems, this recommendation is most
relevant to the few that do not and to most of the re-
mittance receiving countries.
16
For example, even where currency is the principal payment
instrument used locally by remittance payment receivers, the trans-
portation infrastructure can be important. Currency must be phys-
ically distributed for use and replaced when worn, thus requiring
secure transportation infrastructure and systems.

2.1 Define Critical Aspects of Efficiency and
Security
Receiving countries, which generally have limited
development resources, should clearly establish what
aspects of efficiency and security in retail payments
are most relevant to their needs. They should then
identify payment instruments and infrastructures
that have these characteristics as their starting point.
Most commonly, this involves Internet, card payment,
and—most recently—mobile phone networks at the
transaction service level and an ACH or equivalent
at the clearing level. Settlement systems are typically
operated by the central bank. These infrastructures
are designed to support electronic payments, which
are most cost-efficient, provide reliable and predict-
able transfer times, and can support straight-through
processing that reduces payment error. They can also
provide a good match to the payment infrastructure
arrangements of major remittance sending countries
to facilitate the development of efficient and reliable
cross-border retail payment linkages.
Innovation in remittance payment products and ser-
vices at both the retail and infrastructure service levels
is critical to continuing improvement in the efficiency
and security of such payments. The appropriate bal-
ance of competition among service providers of vari-
ous remittance products and infrastructure services
with cooperation in setting technical and operational
standards and in developing new market strategies,
together with effective and supportive regulation of
these products and services, is essential to innovation
and dynamism in the development of retail payment
service markets.
2.2 Build Infrastructure Arrangements around
Global Standards
Over the past decade or so, procedural design, messag-
ing, technical, operational, and security standards for
retail payment instruments and infrastructures have
been developed; these have converged to the point
where they are becoming internationally accepted as
best practice standards. Typically, they are developed
jointly by international industry groups and public
sector standard-setting bodies for adoption by mem-
ber countries. Many of the major remittance sending
countries and some of the larger remittance receiving
countries are involved in these bodies. Infrastructure
arrangements that feature standards closely aligned to
internationally accepted standards more easily facili-
tate cross-border linkages across a variety of payment
corridors.
2.3 Facilitate Better Use of Global Systems for
Remittances in Corridors Largely within the Same
Region; Also Consider Developing an Appropriate
Regional Payment System
In a number of cases, there are major corridors from
sending countries to receiving countries within the
same economic region or near-region. The sending
country is typically the industrial and financial cen-
ter of the area, and the receiving countries provide a
pool of labor necessary for the host country to grow
and prosper. Very often in such situations, the sending
country is also a major investor in the development of
the commercial, industrial, and financial sectors of the
other countries in the region and involved in privately
arranged and/or nationally negotiated trade arrange-
ments among the countries. Consequently, there is a
substantial and growing volume of cross-border pay-
ments of all types. In regions where these conditions
exist or are beginning to develop, the cluster of coun-
tries involved in these payment flows should consider
developing a regional payment system of some form
that would link their national payment systems into a
regional distributed or centralized network for trans-
acting, clearing, and settling cross-border payments.
Regions that have developed such arrangements have
been motivated to do so to achieve efficiency improve-

ments in the transfer of intraregional payments, in-
cluding remittance payments.
Where a number of remittance sending countries have
corridors to a common group of receiving countries
and are involved in substantial cross-border payments
within the overall group, they might consider joining
a cross-regional payment system. For example, the
FedGlobal ACH Payments Service links North Amer-
ica, Latin America, the Caribbean, and Europe. Other
forms of cross-border linking mechanisms exist, nota-
bly large international payment schemes such as Mas-
terCard and Visa, and various regionally integrated
payment systems that can support intraregional remit-
tance payments. Most are designed to streamline the
middle- and back-end systems for cross-linkages based
on correspondent banking arrangements to achieve
greater efficiencies in cross-border transfers through
standardization and centralization of payment infra-
structure and processing services for cross-border re-
mittance payments within and between regions.
Recommendation 3: Identify and Revise
Legal and Regulatory Barriers to Efficient
and Secure Cross-Border Payment
Transfers
The focus of this recommendation is on barriers to fair
access to domestic payment infrastructure arrange-
ments, restrictions on cross-border provision of pay-
ment infrastructure services, and disharmony in the
legal frameworks of sending and receiving countries
that can limit the development of cross-border pay-
ment channels.
3.1 Provide Fair Access for All Licensed Retail
Payment Service Providers to Domestic Payment
Infrastructure Services
Fair access involves a balance between the efficiency
and safety of the system; it does not necessarily re-
quire that access conditions be identical for all types of
service providers. For example, it may be fair to limit
some types of service providers to indirect access to
an ACH or settlement system. But it is equally fair to
ensure that their rights and obligations as an indirect
participant in that system—as well as those of the di-
rect participant that acts as their clearing or settlement
agent—are well defined, protected, and reasonable in
terms of the efficiency-safety balance in system rules
and procedures. Moreover, the contractual arrange-
ment between the clearing and settlement agent (typi-
cally a bank) and the indirect participant (generally
a near-bank or independent MTO) should contain
certain service-level provisions that ensure that any
rivalry in the end user payment service market is not
unduly tilted in favor of the clearing and settlement
agent.17
A principal proposal in this recommendation is that
all payment service providers be licensed to perform
that function, either as part of their banking regulation
or as a nonbank service provider. Licensing provides a
legal right to oversee and regulate the payment transfer
business of these institutions, which provides a form of
certification and legal recourse for end users. While li-
censing should be considered a principal requirement
for the direct provision of remittance and other retail
payment services to customers, it is not generally suffi-
cient in itself to ensure direct participation in all retail
payment infrastructure arrangements. Since such ar-
rangements are characterized by network interdepen-
dencies and systemic risks—especially in the case of
payment settlement systems—technical, operational,
and financial requirements beyond business licensing
are generally needed for direct access and participa-
tion in payment infrastructure arrangements, includ-
ing those for cross-border remittances.
17
In some countries, near-banks are permitted to form special-
purpose, cooperatively owned banks to clear and settle their pay-
ments to avoid the rival agency problem.

3.2 Consider Cross-Border Provision of Infra-
structure Services in Countries Where No Formal
Regional Payment System Is in Place
In many countries, payment clearing and settlement
systems have traditionally been operated by central
banks and were highly integrated through proprietary
messaging and processing arrangements. However, the
processing of payment data and payment messaging
systems are now provided in large part by third-party
service organizations. Payment clearing is therefore
a payment information management function that
can be provided separately from payment settlement,
which involves funds account management and trans-
fer. Indeed, a few central banks now co-source opera-
tions management and outsource the actual system
operations of their settlement system, while interfac-
ing it with their internal account management sys-
tems. As middle- and back-end payment services have
become increasingly commoditized and modularized,
contractual arrangements among various service pro-
viders are now arguably as important to the provision
of a core payment function as the technical arrange-
ments. The existence of globalized, high-speed tele-
communications systems and the commoditization,
modularization, and third-party provision of payment
information processing services can allow for remote,
cross-border information management and processing
of even domestic currency payments. This is a lesson
to be learned by both sending and receiving countries
that seek greater efficiency in their cross-border trans-
fer of retail payments.
National sovereignty concerns may be raised in this
regard; these typically relate to the payment funds
management and transfer functions in banking and
settlement systems, rather than to the actual informa-
tion processing (save for commonly held privacy and
data integrity concerns). Countries participating in re-
gional payment systems that feature a regional settle-
ment bank and, in some cases, a common currency
are willing to compromise on this type of sovereignty
concern if the countries meet common legal and tech-
nical requirements. Also, a cross-border linkage at the
settlement level is not the only possible cross-linkage
arrangement and is not necessarily the best model
when the remittance sending and receiving countries
are globally remote.
Where there exists a regional cluster of remittance re-
ceiving countries, each with its own local currency, a
common regional automated clearing and processing
system would permit scale economies and standard-
ization that could enhance the efficiency and security
with which remittance and other retail payments are
transferred. In effect, this would create a cross-border
linkage at the clearing service level similar to that in
global card payment system models and a regional-
ized version of the FedGlobal ACH Payment Service.
This mechanism would require standardized messag-
ing formats for payment information from payment
service providers in each participating country to the
regional ACH and to their national settlement sys-
tems, as well as technical interfaces among their vari-
ous internal and shared systems. It is not a complete
regionalization of the national payment systems of the
participating countries, since they can retain their own
national central banks and currencies and would still
require correspondent banks to settle the cross-border
regional and interregional payments in each country.
3.3 Ensure That Legal Regimes Support the Rights
and Obligations of Both Parties in a Cross-Border
Payment Transfer
Virtually all guidelines, recommendations, principles,
and standards for the development of payment sys-
tems, both narrowly and broadly defined, argue for
a common set of legal arrangements that form the
basis of a sound legal regime for payments. Generally,
they refer to the legal regime governing domestic cur-
rency payments; but if implemented in all countries,

they would make up a large part of the legal founda-
tion for cross-currency, cross-border payments.18
Re-
gardless of what form the legal basis takes, it would,
at minimum, need to recognize in local jurisdictions
the contractual rights and obligations of nonresident
parties and the validity of contracts signed by residents
in foreign jurisdictions. It would also need to provide
legal recognition to electronic payments and to the
associated privacy and data protection laws of coun-
terpart countries—at least (and especially) where the
contractual choice of law is explicitly defined as that
of the other country. Laws supporting effective com-
petition of foreign-owned service providers with do-
mestically owned providers, whether they are resident
or remote in location, would also facilitate efficiency
gains in cross-border payments, including remittance
payments.
Recommendation 4: Support the
Development of Efficient and Secure
Cross-Border Payments through Effective
International Cooperation and Policy
Coordination
With respect to the remittance sending countries,
the main outcomes of this analysis are (1) to identify
where remittance sending countries might be able to
adjust their payment system policies to support safe
and secure cross-border linkages to countries with
varying degrees of payment system development; and
(2) to help receiving countries develop the payment
infrastructures needed to support efficient and secure
retail payments, including remittance payments. For
receiving countries, the main message is to be commit-
ted to payment system development as a core part of
overall development strategies, given their importance
18
For a discussion of the basic legal requirements and an infor-
mative annex on the legal requirements and model laws for various
elements of a national payment system, see Committee on Payment
and Settlement Systems–World Bank, “General Guidance for Na-
tional Payment System Development” (Basel, Switzerland: Bank for
International Settlements, 2007).
to commercial and financial sector development, and
to be innovative and flexible in developing these sys-
tems individually and as a regional group.
The interest of the remittance sending countries
in examining issues relating to efficient and secure
cross-border remittance payments is a positive step
in accepting a leadership role in helping resolve the
identified problems. However, the less developed re-
ceiving countries also need to share the leadership
role. This can be done by focusing more attention and
resources of international bodies on cross-border pay-
ment problems and including representatives from re-
ceiving countries in work on cross-border payments,
especially remittance payments.19
Sending countries must also be prepared to review and
revise, where appropriate, current payment system
policies to facilitate their integration into cross-border
regional and global systems. A main focus should be
on legal restrictions, regulations, and policy positions
that are based on a paradigm that has changed sub-
stantially given new communication and information
technologies with significant payment applications.
Also, the sending countries need to focus more atten-
tion on developing databases around relevant aspects
of cross-border remittance and other retail payments,
by supporting the data-gathering of international or-
ganizations such as the World Bank, and in their own
payment and flow of funds reporting systems.20
Reli-
able (time-series) data on volumes, values, and user
costs for the sending leg by alternative payment chan-
nels and across major sending and receiving corridors
would be a very useful starting point.
19
See, as an example of joint action, WB-G8 Global Remittance
Working Group, “Special-Purpose Note: An International Remit-
tances Customer Charter: A Toolkit for National Action” (2010),
available at http://go.worldbank.org/SOAZF9BP80.
20
WB-G8 Global Remittance Working Group (2009), “Guid-
ance and Special-Purpose Note: Remittance Price Comparison
Databases: Minimum Requirements and Overall Policy Strategy”
(2010), available at http://go.worldbank.org/SOAZF9BP80.

The receiving countries need to understand that this is
a collective action problem in which they have not just
a stake but also a responsibility to contribute time and
resources. For some, remittance payment inflows may
be a motivator for action as a source of economic well-
being, but the development of their payment and bank-
ing systems will have broader development and socio-
economic payoffs than just those relating to the inflow
of remittance payments. They need to be prepared to
develop payment infrastructure arrangements that will
be sufficiently flexible in supporting domestic as well as
cross-border payments. In doing so, they help develop
the level of infrastructure to better match that of their
principal sending countries as required for more effi-
cient and secure cross-border payment receipts. These
countries also need to dedicate resources in both their
private and public sectors to participate in international
projects that facilitate the development of regional and
global cross-border payment infrastructure with an eye
to future development opportunities.

Guidance for Improving Cross-Border Payment Infrastructure Efficiency

Guidance for Improving Cross-Border Payment Infrastructure Efficiency

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