The evolution of correspondent banking | Editor’s picks

By Alex Hammond | 23 March 2018

For many years correspondent banking was something of a forgotten element in financial services. The main reason for this was inertia in the market; banks were perfectly content with their correspondent banking relationships and the utility of the SWIFT network, which evolved little for decades.

All that has changed in the past decade, and the result has been greater levels of scrutiny being placed upon the correspondent banking model.

This began with the financial crisis, the aftermath of which saw a sharp decline in the number of correspondent banking relationships. However, this was only one catalyst for an industry overhaul.

The squeeze on margins generated by increasing cost of regulation compliance and meeting growing customer expectations, coupled with falling revenues as new players enter the market, left traditional banks in a quandary.

So where does that leave us today, and in which direction should banks turn next? With further regulation such as PSD2 entering the equation in 2018, how can banks fight back as the traditional correspondent banking model evaporates? If the answer is technology, then what does that answer look like in practice? Will we see increased collaboration between banks and fintechs as we enter this new period in correspondent banking, and if so what will this new banking model look like?

Earlier this week bobsguide and TAS Group published our latest webinar, titled Correspondent Banking Innovation: The improved offer delivered by banks and fintechs, which answers these questions. The webinar is still accessible online.

In addition, here are some of our favourite articles on the evolution of correspondent banking from the past six months:

 

How emerging financial utilities could solve the pain points for international payments

Anders La Cour, Chief Executive Officer, Saxo Payments

Pressure continues to weigh heavily on the shoulders of the financial services industry, with increased regulation, the high cost of cross border payments, and the correspondent banking system becoming even less effective as banks retrench from foreign markets. Added to that, financial tech businesses and other new entrants that are also able to provide efficient and tailored solutions are bearing down on the traditional providers, particularly tier two and three banks, adding further pressure, especially in terms of pricing and customer expectations.

Increasing competition to win and keep customers, coupled with new regulation, has already had a huge impact. And the reality is that for the first time in generations the banking industry is on the cusp of big change.

Everything you need to know about SWIFT gpi

David Beach, Reporter, bobsguide

With SWIFT announcing its new SWIFT gpi network, extensively covered at Sibos 2017, we’ve pulled together an overview and the best SWIFT gpi articles on bobsguide.

How interlinked technology is underpinning the evolution of payments

Alessandra Riccardi, Business Expert, TAS Group

There’s no time to rest for financial services. The unstoppable wave of innovation and change that the industry is riding is showing no signs of abating, thanks to new challenges and opportunities such as T2+T2S Consolidation, GDPR, PSD2, Instant Payments, open banking, SWIFT gpi, and blockchain. Each topic cannot ignore the others, giving life to a chain of opportunities and creative solutions where new actors on the scene, i.e. fintechs and vendors, will potentially cooperate together with financial institutions to satisfy the industry’s new business and technology demands.

Sibos 2017: The emergence of SWIFT gpi and the future of correspondent banking

Alex Hammond, Managing Editor, bobsguide

In one of the livelier panel discussions on Day One of Sibos 2017, Stefan Dab, Senior Partner and Managing Director at The Boston Consulting Group led a conversation examining the future of correspondent banking, and specifically the pain points corporate treasurers face in their cross-border payments operations and where technology can be developed to alleviate these.

Sibos 2017: Extinction v evolution? Digitisation and banking’s fork in the road

Alex Hammond, Managing Editor, bobsguide

In one of the first discussion panels that took place at Sibos 2017, a collection of experts from across the banking sector tackled the question of whether traditional banking institutions will be able to evolve in the face of disruptors and more agile competitors with sights on a greater market share, or whether the banking giants of today are dinosaurs staring extinction in the face.

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