Ever since the G20’s targets for 2027 were set in 2020, international financial executives have remained laser focused on improving cross-border payments. So what’s the next step to make it a reality?

Many see a path forward by prioritizing the role of central banks and the tokenization of currencies. Tokenization refers to the process of converting something real — whether it’s cash, contracts or other real-world assets — into a unique digital asset.

While there has been progress and a willingness to work with private-sector fintechs among banks and executives, some sentiment suggests that central bank digital currencies (CBDCs) and an overall lack of global standards and regulation could slow down the space’s momentum.

Ryan Rugg, Global Head of Digital Assets for Citibank’s Treasury and Trade Solutions business, recently joined Converge on the floor of the Amsterdam Convention Centre at Money 20/20 EU 2024 to discuss these issues and more. Read on to learn how tokenization is driving cross-border payments advancements, plus the opportunities and challenges that lie ahead.

Real-world and digital assets

The rise in the tokenization of real-world assets (RWA) shows great potential to increase efficiencies and enable greater security in trading physical goods, such as real estate and art. It also provides an opportunity to streamline the management of intangible assets like intellectual property and humanitarian aid.

These benefits not only enhance security but also reduce the associated costs of managing and trading these assets.

Rugg notes that digital payment rails are established for this type of commerce, enabling markets to remain “always on.”

Smart contracts

This technology is also programmable, making it possible for companies to deploy smart contracts within blockchain payment systems that respond to different steps in a transaction.

As an example, Rugg references Citi’s work with the global shipping titan Maersk. As its vessel passed through a canal, the smart contract, which Citi had pre-funded, automatically released payments once the ship received fuel.

“Smart contracts are just: if this happens, then do that,” Rugg says. “You can imagine how you can extrapolate that to several different other pain points within financial services overall to really automate it.”

Tokenized cash and central bank digital currencies

Many of Citi’s customers are interested in tokenized cash and deposits, Rugg says. Citi’s Treasury and Trade Solutions division has developed rails between New York and Singapore that power an effective cross-border payment.

“Our clients can send money regardless of the time, regardless of the day, streamlining payment processing and ensuring efficiency. It could be Saturday, Sunday,” Rugg says.

“Ultimately, it’s going to lower costs from a reconciliation process. It settles instantly. You don’t have to have that day or two lag to be able to reconcile the two ledgers you have instantly. You can actually have more transparency in that sense — you can see where your money is at all times.”

The need for speed in today’s payment processing ecosystem

While smart contracts enable lightning-quick transactions that could fuel global commerce, Rugg notes that the payments space is still catching up in many ways.

According to research in Convera’s Fintech2025+ report, the appetite — and expectation — for real-time payments (RTP) is growing quickly. Real-time payments (RTP) transactions are expected to reach 511.7 billion by 2027, a 21.3% annual growth rate.

This growth means blockchain offers a unique opportunity to up-level the speed and security of financial transactions.

“Blockchain — with programmability, with the smart contracts, with the always-on — kind of matches the speed of the internet,” Rugg says.

“But payments money doesn’t match the speed of commerce on the internet right now, and that’s a mismatch. How do we get that more aligned and think about what the future network looks like?”

Security and stability to protect sensitive data

As much as Citi’s massive customer base wants instant payments and automated transactions, Rugg cautions that scaling such services without stability from CBDCs can lead to unnecessary risks, including data breaches, which many banks are unwilling to accept. Above all, both customers and institutions alike must ensure data is securely stored.

“I can speak from a Citi perspective: the safety and soundness of our clients is first and foremost on our minds,” Rugg says.

“We work in collaboration with our regulators to make sure that we’re creating a scalable asset. So, if it’s gray, we’re not going to operate in that area. Having complete clarity on regulation is really important in this space.”

Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.

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*The information shared on this blog is for informational purposes only and should not be considered financial advice. Please note that the opinions expressed on Converge are solely the opinions of the host and the guests, not Convera’s.