Moody’s Investors Service has published a research note warning that the wide adoption of CBDCs in cross-border payments would eat into banks’ fees and commissions, particularly for those that are active in foreign-currency payments, clearing and remittances.
The note follows a partnership agreed between BIS Innovation Hub Singapore Centre, the RBA (Reserve Bank of Australia), BNM (Bank Negara Malaysia), MAS (Monetary Authority of Singapore), and SARB (South African Reserve Bank) to test the use of CBDCs for international settlement under Project Dunbar.
The project aims to build a prototype platform for settlement in multiple CBDCs, to make cross-border payments and settlements faster, cheaper and more secure.
“The revenue that banks generate from cross-border transactions is significant,” Moody’s said.
Citing McKinsey data, the rating agency says banks generated about USD 230 billion in revenue globally from cross-border transactions in 2019, about USD 100 billion of which is made up by APAC banks. Most of this revenue for APAC banks comes from commercial transactions such as bank-to-bank.
The McKinsey data shows that banks generated around USD 60 billion in revenue globally in 2019 from consumer business for cross-border
transactions such as remittances, which are subject to heavy charges.
On average, banks charge 6.4 percent on outward remittances. Banks in Nigeria, South Africa and Thailand charge some of the highest fees globally for remittances.
“These fees will be reduced with the wider adoption of CBDCs,” Moody’s said, saying the impact would be credit negative for banks.
