The real problem with cross-border payments is coordination

Centiglobe had a chat with Panagiotis Kriaris – fintech leader, payments thinker, and Head of Corporate & Business Development at Unzer – to get straight answers on the structural issues the industry keeps talking around.

– We tend to treat cross-border payments as a speed and cost problem. And although this is true, it is the outcome and not the cause. The real structural problem is coordination. Today a transaction has to pass through multiple jurisdictions, currencies, compliance set-ups, and infrastructures without having a shared layer to manage all of that end-to-end.

– We have the paradox that although participants operate efficiently within their own boundaries, there is no entity or layer with full visibility or decision-making authority across the full path. And this is what we normally refer to as fragmentation. 

– So, what is missing is an orchestration layer that can allocate liquidity, validate compliance, and route transactions dynamically across jurisdictions. Standards like ISO 20022, faster rails, and more recently stablecoins can improve parts of the flow, but they don’t solve this coordination gap.

– Scattered prefunding is the result of how cross-border payments are set up today. Money moves across different jurisdictions, currencies, and legal environments that are not connected. As a result, liquidity is placed in advance across multiple locations to make sure transactions can be completed. And this is the main reason why capital ends up spread across accounts.

– What the industry has done in recent years is improve how this is handled. Liquidity is being concentrated in fewer locations, buffers are being reduced, and funding happens closer to execution. But the core setup has not changed: liquidity still needs to sit somewhere in the system before a payment is executed. Many newer models shift that burden or reduce how much is required, but they still rely on it.

– To move beyond prefunding, we would need to handle risk and liquidity differently. That means managing counterparty exposure without requiring idle balances, and allocating liquidity across currencies and markets as transactions happen.

– So the industry isn’t close to eliminating prefunding. It’s getting better at using less of it. But as long as cross-border payments rely on fragmented settlement and bilateral relationships, prefunding will remain part of the system.

– Tokenized deposits are getting traction because they offer a way to move funds in bank money without relying on existing correspondent and settlement setups. Instead of passing balances through multiple intermediaries, the claim on a commercial bank is represented digitally and can be transferred more directly between participants. For banks and PSPs this is attractive because it keeps their existing credit and regulatory model, while changing only the settlement side.

– Scale adoption would need a few conditions to happen:

• Interoperability. Tokenized deposits need to move across banks, platforms, and jurisdictions without friction. 

• Legal and regulatory alignment. Participants need certainty on what a tokenized deposit represents, when settlement is final, and how liability is handled across jurisdictions. 

• Integration into existing liquidity and treasury processes. Banks will not build separate models for stablecoins. Tokenized deposits need to plug into the current set-up. 

• A business case. Banks and PSPs will only shift volume if tokenized deposits use liquidity more efficiently, simplify operations, and deliver a tangible cost advantage.

– Regulation is in many cases not the real blocker. Payments run on trust, and regulation is what makes that trust scalable.

– What regulation does in practice is force decisions that many new approaches and models try to delay, i.e. who carries risk, how funds are safeguarded, and what happens when something goes wrong. 

– At the same time, a lot of what is described as regulatory constraints is often internal: legacy systems, fragmented ownership of payment flows, risk and compliance teams not set up to support new models, and lack of incentives. Lighter regulation will not fix that.

– We need to distinguish between models that can operate within regulatory frameworks and those that cannot. Usually, the models that scale are designed with regulation in mind from the start.

– The biggest untapped opportunity is in how cross-border payments actually run end-to-end.

– Today, most players focus on individual parts of the flow, for example better FX pricing, faster rails, improved connectivity, etc. But the real problem is broader and it sits across the full transaction path, i.e. liquidity is spread across local accounts, the same compliance checks are repeated, routing is set in advance and there is no end-to-end visibility. 

– So, the opportunity is to manage cross-border payments as a coordinated flow, end-to-end. Meaning decide routing in real time, decide what are the best funds to use, avoid repeated compliance checks and track the transaction until it is completed.

While the general direction is the same for banks, PSPs and networks, there are different approaches they can take:

• Banks can move their role for liquidity holders to actually deciding how it is used across currencies and markets. And that can improve both their balance sheet and margins. 

• PSPs need to move from just passing transactions to choosing how they go through, i.e. picking the route, adjusting for failures, and improving cost and success rates. 

• Networks can extend their role too, meaning that they can go beyond just connecting banks and PSPs. Example: The network will decide which banks can work together and how payments can move between them. Then, the PSP will choose the specific path, i.e which bank or rail to use (based on cost, speed, etc).