As Mastercard explores new ways to make cross-border payments faster and more efficient, the company is testing an approach that could streamline both international transfers and foreign exchange settlement using Europe’s real-time payments infrastructure.
The TARGET Instant Payment Settlement (TIPS) system is a trans-European platform that enables real-time payments in euros, Swedish kronor, and Danish kroner.
In a pilot that included participation from the central banks of Denmark and Sweden, Mastercard became one of the first TIPS participants to leverage the platform’s nascent cross-currency functionality.
This means that not only was a cross-border payment performed, but the transaction also featured instant foreign exchange settlement. In the trial run, a payment was settled in euros on one side and kroner on the other. Mastercard affirmed the success as proof positive that instant cross-border payments and foreign exchange settlements are possible at the infrastructure level.
A Step Forward, if Scalable
The results point to a potential step forward from the conventional correspondent banking system, in which multiple banks participate to complete a payment—each adding delays, fees, and opacity to the process. Foreign exchange conversions further increase complexity and can become costly if currency values fluctuate between payment initiation and settlement.
A collaboration like the Mastercard-TIPS integration would not only reduce reliance on intermediaries—addressing many longstanding cross-border payment challenges—but would do so by leverage existing infrastructure. This creates a compelling alternative to solutions that require central banks and financial institutions to take on a larger role in building and managing international transaction systems themselves.
Vying to Be the Solution
Many other platforms are already competing to become the preferred solution for cross-border payments. For example, digital assets such as stablecoins, crypto, and tokenized deposits are blockchain-based and can also facilitate near-instant cross-border settlement with low fees.
In particular, the growing adoption of stablecoins in global financial services may make it more difficult for solutions that remain in the pilot or trial stage to gain traction.
That said, there is an important distinction between stablecoins and the model presented by Mastercard and TIPS. With stablecoins, users often need to rely on a separate wallet or app to acquire and transfer digital assets, a process that may also need to be reversed or converted by the recipient.
By contrast, instant payments combined with integrated foreign exchange settlement could allow users to send and receive cross-border payments directly through their primary financial institution.
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