NEXUS

Michael Salmony 0:12

Hello, my name is Michael Salmony and Ralf and Javier and I would like to welcome you to another episode of the Payments Trilogue, where this time we have another long-standing friends joining us, Mark Munne, who's now at the BIS. The BIS is famous throughout the banking world, of course, because they do the Basel II and Basel III standards.

about compliance and interoperation. I always think of them as the meta-organisation across central banks, but you can correct me on that. But the reason why we're here is because they also do a lot of stuff in payments, ⁓ especially payment innovations. mBridge is very famous, but there are others like Aperta and Nexus, which we will be talking about today.

and icebreaker and I think about 20 projects going even into quantum use in payments. maybe Mark, you can tell us a little bit about the BIS yourself and then get us into Nexus.

Mark Munne 1:14

Yeah, absolutely. Thank you, Michael. I'm happy to be here and see some old friends in the podcast. ⁓ Yeah, so I've been working in payments for, I guess, about 20 years now, and I've been luckily involved in some of the big movements in payments. I started in the migration to SEPA, then moved on to Instant Payments, where I met

Javier 1:23

.

you you

Mark Munne 1:43

but Michael and Ralf at the time, did some stints in open banking. But about four and a half years ago, I got involved in the BIS, specifically the BIS Innovation Hub in Singapore. So the BIS, a couple of years ago, started opening up innovation hubs all across the globe where they launched innovative projects, as the name suggests, I guess.

Javier 1:54

.

Mark Munne 2:11

One of those projects is Project Nexus. if you, at the time, so this was about four and a half, five years ago, we had about 70 countries in the world either had implemented instant payments or were in the process of implementing instant payments. ⁓ And today that number has already reached over 100, but all the initiatives were very focused on

solving the issue domestically, which is of course a very, very valid use case. It's 95 % of the total volume in such a country. So it is a very, very real problem and that's very good. But it is very difficult to tell customers that you can transfer money to your neighbor within five or 10 seconds. But the moment you do that cross border, it certainly becomes very expensive. It becomes very slow. It becomes very opaque.

Michael Salmony 2:54

it.

.

Mark Munne 3:10

that transaction happened, how that transaction happened. So we already saw in, especially in Southeast Asia, a few initiatives across the globe, but especially in Southeast Asia, you saw that a few of those countries started working together and forming bilateral connections. So Singapore built a connection to Malaysia, another connection to Thailand was in the process of building a connection to India. ⁓ What they quickly found out was that

Michael Salmony 3:32

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it.

Mark Munne 3:38

each of those connections was a project. It was a bespoke connection between two systems that were built to solve a domestic problem. And that was actually the starting point at the BIS, looking at, okay, this works for solving that bilateral connection, but this doesn't scale globally. So what would a multilateral

Javier 3:41

.

you

Michael Salmony 4:05

.

Mark Munne 4:06

connection? What would that look like and how can we solve that issue? And that was actually the start of Project Nexus. And about four and a half years ago, one of my good friends, Fred Bair, was working at the World Bank and got in touch with the BIS ⁓ in Singapore. ⁓ that was Fred called Paul Vanderhoof, another good friend of mine. Paul called me and the three of us actually got involved in ⁓ Project Nexus right in the first...

Javier 4:13

Okay.

Mark Munne 4:36

the first white paper and onwards to the four years of different

phases across that project.

Michael Salmony 4:44

Can you explain maybe a little bit why it's so difficult, why you needed a project, as you say? mean, you could naively think everybody's doing instant, everybody's doing ISO 20022, they're all central banks who talk to each other.

Why is everything so different and so difficult?

Mark Munne 5:00

Yeah, very good question. I guess there are three layers which you can look at this problem. So the first one is, guess, the basic one, which is technical. So as you mentioned, they all use ISO 20022, but they all use ISO 20022 in their domestic context, which means that the good thing about standards is we've got so many, they've all

Javier 5:14

. Okay.

Mark Munne 5:27

done there are slight variations in that that in the complex. So first you have to do a mapping and some of the technology behind each of these systems is slightly different. This one is API based, that one uses MQ, there different security standards. So on a technical level you need to work through a process of connecting these systems. Not more standing on technology.

Javier 5:43

. .

Mark Munne 5:57

That's actually the easy part. We can solve things in technology. But the next level is if you look at the actual ⁓ process, each of these processes are slightly

Michael Salmony 5:57

Okay. ⁓

.

Mark Munne 6:10

different. Some of them use a five-leg process, some them use a four-leg process. Finality rules are slightly different. Dispute management works slightly different. So you need to have a scheme that oversees

Javier 6:17

.

Mark Munne 6:26

the rules and things like eligibility, who can join the system, all slightly different from each of these jurisdictions. So you need to have a scheme. And then on the third level is that the financials, the business case. So again, for each of these jurisdictions, the market operates slightly differently. So for each of these bilateral corridors that they're building, it's a discussion on

Michael Salmony 6:35

Thank Thank

Javier 6:41

.

Michael Salmony 6:54

you.

Mark Munne 6:54

Technology

is a discussion on scheme, compliance, eligibility. Can we allow e-wallets to join the system? And then there's a third discussion on who is paying who and who makes money out of this? What do we do with the FX rate? Who is making margin? It's on those three levels that they need to agree upon. For each of those corridors, each of those three layers involve another discussion.

Javier 7:11

.

Ralf Ohlhausen 7:25

Exactly. So I think there is a lot to unpack here. You mentioned a lot. If I could maybe start at the beginning, I think was the technical side. So who? Okay, so I, you know, going back to my math study, so I do remember the (n x n - 1)/2 problem of avoiding bilateral connections and having a multilateral one via a hub.

Michael Salmony 7:28

Thank you. ⁓

Mark Munne 7:29

you

Javier 7:39

.

Ralf Ohlhausen 7:53

in the middle, very,

of course, important concept. But so everyone has only one connection into the central system. but now, who is an and is and. So each one of those parties, countries, regions, whatever systems, instant payment systems, they have their own mechanics. And then BIS has a central Nexus has the central one on the on their side.

Javier 8:09

.

Ralf Ohlhausen 8:22

and you need this translation in between who is doing the work? Is it Nexus or is it ⁓ the party connecting?

Mark Munne 8:32

Yes,

first, just a slight correction. So this was a project that originated four and a half years ago from the BIS Innovation Hub. It went through four phases, an initial vision paper, proof of concept, a detailed technical design, and then actually a detailed operational design. As of earlier this year, that project now spun out of the BIS and is its own company.

Michael Salmony 8:54

.

.

Mark Munne 9:01

So it's Nexus Global Payments, it's a non-profit which is incorporated in Singapore. ⁓ The five central banks in the region are our shareholders. ⁓ But the BIS has moved from running that project into a more advisory consultative ⁓ role where the is now its own thing. And I'm employed by Nexus.

Michael Salmony 9:25

. .

Mark Munne 9:30

by the BIS at this stage. That said, if you look at how Nexus addresses that problem, you're very right. The instant payment system in a country is responsible for connecting all the files, and they have their own processing, and they have their own settlement processes, and they connect into a Nexus gateway, into the Nexus hub, if you

Javier 9:37

Okay.

Mark Munne 9:53

will.

Javier 9:54

Okay.

Mark Munne 9:55

workload of connecting, I guess, is a bit shared between all of those parties. There's some stuff that the banks will need to do. They'll need to implement certain APIs. They'll need to potentially update their mobile banking environment to allow for Nexus Pages to be initiated by the end customer. There's some work that needs to be done by the banks that are participating. Again, they'll need to implement some of the Nexus processes. The same is true for the IPSO.

Michael Salmony 10:17

. .

Mark Munne 10:24

If you're going to look at the message pack, the interface between the instant system and the Nexus gateway is a standardized message definition. So we have defined a Nexus message implementation guideline based on the work that CPMI has done, based on the work that CBPR plus has done. So we've got a ISO 20022 Nexus message standard.

Javier 10:27

you .

Mark Munne 10:53

that we expect

the Instant Payment Systems to set. So if there's any translation that needs to happen between whatever they use domestically and the Nexus standard, that will be the part of the implementation project that needs to be done at the Instant Payment Systems.

Javier 11:05

Okay. Where I lack clarity in my understanding, Mark, is some issues about governance and accountability. Let me pose three concatenated questions because first of all, I would say these initiatives when presented to the public usually

Michael Salmony 11:06

.

I'm going to

you about the impact of So, I'm be you the impact of on our community. So, you the impact of COVID-19 So, going be talking to impact on community. So, to about of on community.

Javier 11:22

They are not well explained. I think it's that you're what you're explaining is extremely valuable. My first question would be what's the purpose of the initiative? Because usually it is very vague. You have started to narrow down what's the what you expect, what you are aiming to. But I think it is very important to be very precise just to say that you are addressing the cross border ⁓ issues or the cross border obstacles. I think it's too

vague. But and you were ⁓ much more.

definitive in your explanation. that is to be appreciated. That's one thing to define precisely the objective what you are aiming to. Second is how you will measure and how you will assess success. ⁓ What are the criteria by which you will be able in the future to say it has been a success or it has been a failure and that to be.

Michael Salmony 11:53

I think you're too high. Okay.

Javier 12:19

made as clear and public as possible. And the third one, which is also linked to them, is what will happen if it is a success and what will happen if it fails. Because we should know how to react in due time when the initiative, the project is ⁓ finalized and there is the evaluation moment.

Michael Salmony 12:20

⁓ . .

Mark Munne 12:42

Yeah, yeah. So. Nexus so the project initially started at the BIS partly because of the G20 clients and that has followed the project through the BIS and is now part of our mission with the Nexus as well. We're as I mentioned, we're a nonprofit or not a commercial company were owned by central banks and are.

Michael Salmony 12:44

So. Okay.

Mark Munne 13:11

objective is to get to the G20 goals. So the G20 goals are about transparency, speed, exactly. So that's guiding what we're trying to do. So we're trying to get those cost-water payments below 3 % and we're trying to get them to what the goal is below an hour, but we're basically connecting into data systems or simply

Javier 13:19

Which.

.

Mark Munne 13:39

far, far beyond that, we're one minute, sometimes close to 10 seconds end to end. So it's about speed, it's about ⁓ transparency of costs and that's the way that Nexus was designed. So as a sender, when I do an experiment, have full transparency about the amount that's going to be debited in my currency, the amount that's going to be credited in the basic exchange currency on their account within that timeline. So I'm getting clarity.

Michael Salmony 14:04

.

Mark Munne 14:09

Now sending funds from Singapore into Malaysia, that's going to take 15 seconds and this is the amount in Malaysia bring it that will end up on the account and that will need to be below 3 % of costs for that particular transaction. So

Michael Salmony 14:13

.

Javier 14:17

Okay. Okay.

Mark Munne 14:26

that's what's driving Nexus. And that ultimately is also what defines success of Nexus.

Michael Salmony 14:35

Okay.

Mark Munne 14:37

If you look at our initial use case, we're focusing initially on retail P2P like payments, written payments. That's our initial use case. We are, most of these bilaterals actually quite quickly evolve into also catering for commerce, like retail

Michael Salmony 14:40

.

Javier 14:41

you you

Mark Munne 15:03

commerce, like either QR code based or e-commerce.

Javier 15:03

you

Mark Munne 15:07

So that's certainly an area where we'll expand into because we'll probably need that additional volume to also get our cost base under control. But it is initially focused on ⁓ pure person to person remittance payments, bill payments, regular account to account transfers. ⁓ We're starting

Javier 15:07

you

Michael Salmony 15:09

.

Thank

Mark Munne 15:31

in Southeast Asia, partly because

That's where the initial momentum was in the market. That's where these bilateral connections started. So that's our initial focus. So the five central banks that are our current shareholders are Singapore, Thailand, Malaysia, Philippines and India. ⁓ We've got quite a bit of interest in the region

Javier 15:36

you you

Michael Salmony 15:38

.

Mark Munne 15:59

itself. So we'll expand as these.

these markets expand. But you may have also seen the announcement of the ECB as well. They have been part of the project, as part of the BIS

Javier 16:11

you

Mark Munne 16:13

project a couple of years ago already. So they've been on the journey with us and they're very much working to connecting into internet as well. We'll also then expand our footprint, of course, to Europe and we'll grow as we go. Are we out for world domination? No.

Michael Salmony 16:24

Perfect.

Javier 16:31

you

you

Mark Munne 16:32

We certainly see a few initiatives that address the same problem. So, BUNA is of course a prominent example. BAPS in Africa is an example. So, there are multiple of these initiatives ⁓ that address that same problem. There are other completely other solutions, of course, if you look at single

coins and there are other solutions that address the same problem.

In the end, we're driven by getting those G20 goals. So whenever we get those G20 goals, through either which way, if it's partnering BUNA, if it's adopting stablecoin along the way somewhere, we'll do that. But we're driven by the G20.

Michael Salmony 17:14

I mean, that's a thing that does worry me a little bit, that last point you raised. There seem to be so many initiatives now connecting instant islands around the world. There's Swift, right, who's traditionally his job is that they're doing all sorts of stuff. There are private initiatives like Wise and Revolut. There are, ⁓ I think, several even within the BIS. There's CBDC, there's stablecoins.

Isn't there a risk that we're fragmenting our efforts and not going to get one single interconnected world?

Mark Munne 17:45

Sure, that risk I guess always exists. ⁓ And we're not trying to solve that, guess, holistically within Nexus. But the two things that I think sets Nexus apart is... ⁓ So the first thing is, course, is Nexus is ⁓ using what's already there in the market.

Javier 17:48

Okay. Okay.

Mark Munne 18:14

So we're not building anything new. not

doing very big stablecoin or CBDC. They're very interesting solutions, they're starting from scratch. They're starting from point zero. While we're using what's already there in the market today, all the banks are connected to a domestic instant payment system. All the customers have an app, they're onboarded, they have a bank account. So we're starting from the place where this is already...

Michael Salmony 18:22

All right. Thank

Javier 18:23

Okay. you

Mark Munne 18:42

existing today or just bridging that gap. that's one way. The second thing is that we've,

Javier 18:50

you

Mark Munne 18:51

as part of the previous phase of the BIS, already also started looking at, okay, if we're connecting domestic and surveillance systems, but in some jurisdictions there is already a network in place. For example, in TIPS in Europe, have multiple jurisdictions connecting to TIPS, in BUNA, have multiple jurisdictions connected to BUNA.

Michael Salmony 19:02

Okay. Okay.

Javier 19:03

you

Mark Munne 19:11

would be able to

connect like a network of into into into Nexus. Conceptually that's possible as well. And then the third thing and that's something that's on our vision board as well is conceptually we could connect into either a CBDC or a stablecoin. For us that would be a a settlement mechanism that we would connect into Nexus as well. So we need to look at eligibility criteria and participation criteria.

Javier 19:17

you you

Mark Munne 19:41

But from a technology perspective, we would be able to connect a country that is fully onboarded onto a stable coin of CBDC into Nexus and then have a stable coin settlement on one side and then have an instant payment settlement in the destination country on the other side. And this is there's future thinking and we'll need to do some more work on this. And we'll start with just proving Nexus and making sure that it works and we can connect those domestic payment systems in the larger countries.

Javier 19:45

. you

Michael Salmony 19:50

.

. .

Mark Munne 20:09

But yeah, there is the option ⁓ of expanding and connecting to those initiatives as well.

Ralf Ohlhausen 20:16

Could I ask you that because not that long ago, we had an episode here about cross border and

we were touching on Nexus there. But it was mainly focusing on one leg out the European OLO scheme by the EPC. And the time I was asking how he is so how does how does that relate? So do we need OLO if we have Nexus? Or do we need any of these national or regional activities bringing things together?

Javier 20:38

.

Michael Salmony 20:40

Okay.

Javier 20:42

you

Ralf Ohlhausen 20:45

if we had Nexus? Would we even I mean, taking it to the extreme? Do we need TIPS if we have Nexus? ⁓ So how

Javier 20:55

you

Ralf Ohlhausen 20:56

and where does the national versus a regional aspect versus a global aspect like Nexus sort of compete or interact or how do they come together or not?

Mark Munne 21:08

Yeah, so Nexus connects instant payment system operators ⁓ together, right? So we're not connecting them to banks. So we'll need to have ⁓ a local operator that has implemented instant payments, has a live product and has banks connected and has got a system that's up and running. So we'll need something like TIPS or Faster Payments or Swish or

Javier 21:11

you you

Mark Munne 21:38

a solution that caters for that hub in a particular country to connect into Nexus. That's the way Nexus is designed. ⁓ It needs to have a domestic scheme because that will dictate the rules and the finality, eligibility, liability, dispute management, which we can use to then supplement with these are the explicit rules that you need to

Javier 21:41

You

Michael Salmony 21:46

. .

Mark Munne 22:07

onto your domestic scheme that are applied when you do a Nexus transaction through your domestic scheme. So they need to be in the domestic scheme. If there's already a cross-border scheme like OLO in Europe, that helps in that process. It's not a requirement to connect into Nexus that there is a one-leg out scheme, but it certainly helps. Because again, it standardizes that process of applying all those elements that are part of a scheme rulebook for that particular transaction.

Javier 22:09

you you

Michael Salmony 22:12

Okay. Okay.

Javier 22:36

But I think you need precisely to, even when you have all

the technical connections, you need to distinguish different kind of traffics. So if you are in a jurisdiction, you need to identify those transactions coming into and getting out because of compliance issues. So even if there is full technical connectivity, you still would need to distinguish one kind of traffic from the other. So how I see it is that

Yes, even if there are several ways to connect, you will still need to identify cross-border traffic for compliance reasons and the domestic traffic. But I also would say that even if there are multiple ways to connect, that is something positive because then there is more ample choice, there are several ways to and more competition as well. So even if there is some kind of overlapping of solutions that I would say...

Michael Salmony 23:11

And.

you

Javier 23:33

from its very ⁓ existence do not derive any harm. So that is good, then maybe they merge or maybe there are ways to connect more intimately. But I think that every initiative helps to have a closer world. So in that sense, I think it's a positive idea because it helps bring together different ends. But still what I wanted to point out is that even if there is technical connectivity,

you need to distinguish the different kinds of traffic.

Mark Munne 24:06

Absolutely. It's actually quite an interesting point because when we started this project about four and a half years ago, the initial starting point was, we design Nexus in a way that 100 % uses whatever is in these domestic regions? So it will be a domestic transaction on one side, will be a domestic transaction

Javier 24:34

.

Mark Munne 24:34

on the other side and we'll just

cross that bridge. because of, mainly because of compliance reasons and partly because of user experience reasons, that wasn't 100 % possible. So we can't make it invisible for a customer to send a payment that's actually processed, that looks like a domestic payment, it's processed as a cross border. You really can't do that. So there will be...

Michael Salmony 24:43

Okay.

Javier 25:03

you

Mark Munne 25:03

It will be a separate payment

flow that will need to be implemented by the IPSOs and system operators and by the banks. And it will be visible as such also to the end customer. So it's slightly more work. It is of course a lot less work connecting into Nexus with the other is to build all these bilateral connections, integrate with all these separate solutions. It offers a way for the banks in these markets to compete with

the Wise and the Revoluts of the world, hopefully.

Ralf Ohlhausen 25:39

Could I ask you one more on the interoperability there? Because, you know, here in Europe for whatever last two, three, four, whatever years, we had these big talks about, okay, how can we get things more interoperable? So we have more and more account to account systems, and they each doing their own thing and not working well together. And so we now have, you may have heard that what we had the EMPSA model, a roaming model and a hub

Javier 26:01

.

Ralf Ohlhausen 26:08

there, we had the the EPI, a different approach. Now they are talking that maybe they are creating some interoperability. But it couldn't Nexus play a role in that inter or being an alternative to interoperability. I mean, you know, you mentioned peer to peer more, but I mean, you

Michael Salmony 26:11

Okay. .

Ralf Ohlhausen 26:27

think you seem to be open to retail payments as well. C2B. So would that be an option to use Nexus for our European interoperability?

Javier 26:31

.

Mark Munne 26:36

So that's certainly, so whether it's going to resolve European interoperability, I

won't make that claim. ⁓ QR code payments or P2M payments is certainly on our roadmap. It's one of the first things that we will look into after we've go live with the basic solution. is...

It is a big driver also in the Southeast Asia region. Again, we see these, there are different solutions in each of these countries. And again, these bilateral allow you as I live in Singapore, I'm at a Singaporean bank. The moment I go into Malaysia, I can go into any stall or any market, scan the local Malaysian QR code with my Singaporean mobile phone, Singaporean bank account, and that will trigger

Michael Salmony 27:23

. .

Mark Munne 27:33

a transaction from that account into Malaysian Vingate at that particular store. That payment experience is absolutely flawless. And ⁓ that goes through that bilateral linkage. So it sits on two levels. It sits on the interoperability of the QR code. So it standardizes the way that QR code transfers the information about the amount and the transaction and the merchant.

Javier 27:51

⁓

Mark Munne 27:59

And then it's the payment going the other way from my account into Malaysia. Again, use that bilateral linkage.

Michael Salmony 28:01

.

Javier 28:07

And Mark, I have, don't understand one issue. When you say you connect the domestic systems, do PSPs participating in a domestic system have the choice to join that cross border?

Michael Salmony 28:20

you

you

Javier 28:21

link or are they mandated to join because they are already participating to the domestic system to join inevitably the cross-border platform? How can you claim to ensure that any merchant or any participant or any account in one domestic market is reachable?

Mark Munne 28:32

Yeah.

Yeah, very good question. ⁓

ultimately that's an implementation plan and decision that needs to be written by the instrument system operator in the country. We have put requirements regarding participation in our scheme rulebook. So you can imagine lots of instrument systems.

Michael Salmony 28:47

. .

Mark Munne 29:07

across the globe. Some of them are a lot more mature than others. Some have a lot more penetration than others. have, and as part of the,

Javier 29:12

you

Mark Munne 29:16

whenever a new country comes to Nexus, as I want to join Nexus, there's a checklist and an onboarding protocol that looks at what's the adoption rate, what's the use cases that are supported, what's the value limits that you impose on your domestic system. Do you have a national proxy directory that we can use to address payments? What's the...

Michael Salmony 29:16

Okay.

Javier 29:25

you

you

Mark Munne 29:35

the compliance capabilities of the participants in your country. So we have a list that we'll need to go through once they're on board. And then in our

Michael Salmony 29:38

Okay.

Mark Munne 29:46

scheme, we'll look at the instant payments system operator needs to adhere to, they become a direct participant of the Nexus scheme. There are requirements regarding participation. So yes, we'll need to make sure that we're not going live with a country that has two small banks.

and a coverage of 20 % because then in the end you're getting the perception also that Nexus doesn't work towards that particular country because 80 % of the payments are not working. So we need to get to a level of quality that gives that assurance. So that's part of the scheme.

Michael Salmony 30:04

Thank you.

Javier 30:19

Yeah.

Michael Salmony 30:22

I'm interested in your operating model. You mentioned that you sort of carved out Nexus out of BIS and made it an independent entity. I think that's what the BIS also did with mBridge, with the CBDC connection. I mean, that sounds very smart to me. Once it sort of left the pilot and sort of ⁓ trial stage to turn it more into a volume play.

Would the next stage then be to create a proper for-profit company and become another market player or is that going too far?

Mark Munne 30:53

No, no, sorry. We're very corporate ⁓ as a nonprofit ⁓ company by guarantee. ⁓ We are owned by the five central banks. have got ⁓ two models for new jurisdictions to join Nexus. ⁓ One model is where they join Nexus as another owner ⁓ and then they get a seat on our board. will be part of the

of the governance of Nexus. ⁓ And we have a participation route, again, probably for smaller countries or countries that are due to whatever jurisdiction are not able to join ⁓ as we become an owner of Nexus. And we're owned by central banks. We're not going to be a commercial company. That's not the route that we're going into.

Javier 31:51

Okay.

Michael Salmony 31:52

No big

Ralf Ohlhausen 31:52

Well,

Michael Salmony 31:52

cells.

Ralf Ohlhausen 31:53

I guess that is good news in terms of cost, which of course, one of the big problems of all these cross border and world wide transactions is the horrendous costs still and cutting them down. I think it's a good start if the central hub isn't for profit. ⁓ But then there are other players in the game, especially the FX providers, liquidity providers, I guess. Do you have any...

Michael Salmony 32:00

Thanks for having me. Thank you. ⁓

Ralf Ohlhausen 32:18

rules? Or is there any governance on or caps on fees that they could command? Or do you think it's enough competition? Do you have many of them? Do

we have limited numbers of them? So how do you ensure that the overall cost is coming down?

Michael Salmony 32:29

It's coming

back. .

Mark Munne 32:36

Yeah, yeah, yeah, yeah. So you can imagine this is a tricky

area to move into because we're balancing ⁓ quite a few competing interests in the sense. On the one hand, success of Nexus relies on the participation of banks, banks allowing this in their... ⁓

Javier 32:50

Okay. Okay.

Michael Salmony 32:59

you

Mark Munne 33:05

their mobile banking apps, ⁓ promoting Nexus, the same goes for instance payment system operators. So it is a delicate balancing act. We're trying to get to below 3 % and for some of these corridors it will be a lot lower than that. But if we're dropping the overall fee, if we're reducing the cost of that transaction, means someone is actually paying that difference, Someone has to fork out. ⁓

Javier 33:11

Okay.

Mark Munne 33:35

We're making a lot of money on this. So we're looking at this from several angles. yes, we've defined elements in the rulebook. So we designed a pricing model that we believe is fair and that distributes value to all the players involved, whether you are a sending bank, whether you're a liquidity provider, whether you're an FX provider, whether you're an instant payment system operator.

Michael Salmony 33:41

Okay.

Javier 33:54

you

Mark Munne 34:01

For each of these roles, we've defined a ⁓ model. Some of these are very prescriptive. So when it comes to the scheme fee that Nexus charges, if it becomes to the fee that the destination bank charges to their end customer, those are

Michael Salmony 34:08

Okay.

Javier 34:11

Okay.

Mark Munne 34:22

prescribed in the Nexus Scheme Logbook. Some of them are more, if we left that open to

Javier 34:22

you you

Michael Salmony 34:22

.

Mark Munne 34:30

the market up to a certain extent. So there's a bit more freedom to, as long as there's transparency, the source bank, for example, can define their own fees up to a certain extent within that bandwidth. And that's to cater for local market practices. of these banks and some of these markets have different practices with that record. ⁓

Michael Salmony 34:31

.

Javier 34:52

.

Mark Munne 34:54

In the end, we have a monetary in place as part of the scheme. We're able to get down to below 3 % and get that G20 goal.

Michael Salmony 34:58

Okay.

Mark Munne 35:04

When specifically looking at the FX rate, that's something that's where Nexus I guess, differs from already the bilateral connections that are existing today. Currently in the bilateral connections that are linked, it tends to have a single party that's responsible for the FX. So the bilateral connection,

contracts with

DBS, Deutsche Bank, HHBC, whatever bank is able to provide that accord or when it comes to liquidity, they're contracted to provide the FX for the next two, three, five years, whatever the contract dictates. That's not how we work. So we have an open FX market in Nexus. So we invite both the global banks that are able to provide these codes, as well as smaller, very dedicated FX like Stonex or

Michael Salmony 35:36

. .

Mark Munne 35:51

There are a couple of players that are currently very active, for example, in the dynamic currency conversion in cards that are very interested in participating in Nexus. And you have a competitive marketplace for that particular quarter and where the moment the sending bank says, oh, I want to send 100 euros into Singapore, they do an API call to Nexus and will give them back the list of quotes, the list of FX rates that each of these providers

Javier 35:54

. you

Michael Salmony 36:03

Okay.

Mark Munne 36:20

gives them for that particular quarter. And then it's up to the source bank to actually say, oh, my preferred provider is X. I see that they're more expensive. For this particular transaction, I'll go with Y or for this particular

Javier 36:22

Okay.

Michael Salmony 36:32

Good.

Mark Munne 36:33

transaction, I'll start talking to my average provider, my preferred average provider to get them to offer a more competitive rate. So given that transparency also on the rates and opening that market, not only to the global banks, but also to specialists of X providers,

which do not act in that retail market space. ⁓ The goal is that that will bring down the FX rates as well.

Michael Salmony 37:00

That's pretty disruptive.

Javier 37:00

So I have a short question or just for you to confirm whether I'm wrong or not. But listening to you and reckoning that it is taking years.

for the BIS and Nexus to build a fully fledged solution for a regional problem which was well identified and had the appearance of being a business case for a new solution. Is that not evidence that the problems identified at the very beginning were real ones? That there were reasons for the slowness, for the lack of transparency, for the high costs? That it was not simply someone...

exploiting a market gap or market failure. It's a real problem which is not easy to solve. And even if you intend to bring a solution, it will take years to overcome the problem. I'm wrong or more or less right.

Mark Munne 37:57

Well, you're not wrong. It took us four years to overcome the technical hurdles to come up with a Nexus Scheme rulebook that's sufficiently detailed enough that addresses all these concerns. ⁓ We still haven't finalized completely our commercial discussion, so that commercial model is still being debated because these are very challenging things to overcome.

Michael Salmony 38:02

.

Okay.

Mark Munne 38:27

So it's certainly not an easy problem to fix and if it was an easy problem to fix, it would have been fixed already, right? So that said, we've been working for four and half years on this problem. We've come to a solution design which we think is addressing this problem. We've got the funding from the five central banks, we the commitment from the central banks and from the operators and these local markets to bring this to market.

Michael Salmony 38:50

Over.

Mark Munne 38:53

We're about to finalize our contract with our technical operators

So we're going to go into the production build phase next year, which means that, yes, it's not an easy problem to solve. yeah, we're actually in the process of getting very close to providing a real solution.

Michael Salmony 39:17

Fantastic. I think our time is gradually up. So unless any of my

colleagues here have any burning questions, I would call it a halt. And really, thank you, Mark, it's been really inspiring. Also giving us lots of food for thought in Europe about interoperability in Europe, not just in Southeast

Javier 39:35

Yeah.

Michael Salmony 39:37

Asia and globally. And Ralf pointed to some really lovely topics there. ⁓

Yeah, I've always been wondering why everybody's always talking about Nexus and not about the 20 other BIS projects. I always thought Nexus just had the best PR department, but no, actually you have some very smart ideas and some very smart people like you and all power to you. Sounds like you're really solving a real problem for real people. So thank you very much, Mark, for being with us and thank you to Javier and Ralf for another I hope excellent podcast.

Javier 39:44

Yeah. Yeah.

Mark Munne 40:06

Thank you for having me.

Michael Salmony 40:11

And thanks to all who are listening and watching. See you next time.

Javier 40:14

Mark, thank you very much and I wish you all the best.

Mark Munne 40:18

Thank you, thank you, thank you.