Cross-border payments still too reliant on correspondent banks
The last few years have been heralded as a golden age for fintech. Making payments has never been easier or faster, except, when it comes to international payments.
There have of course been huge successes, such as card schemes and SWIFT payments, which fundamentally changed the transferring of international capital. Most recently we had the rise of the money transfer operators, who had the scale to manage huge international cash flows across borders.
MTOs created their own model, breaking out of the traditional constraints that had been a drag on small payments for consumers, families and small companies and seeking alternative ways to move money across borders.
However, the fact remains that the vast majority of international payments are still done via banks and through the correspondent (SWIFT) network.
While some moves (and many promises) have been made to make international payments more efficient and cost-effective, stricter legislation after the 2008 financial crash plus greater controls to combat international terrorist funding have created challenges for new initiatives.
These also provide additional costs and risks to banks worldwide, and many have responded by "de-risking," scaling back their operations and networks to remove risk and reduce overheads of meeting regulatory expectations. Banking availability to some countries has been abandoned altogether.
The World Bank Group’s International Finance Corp. published new data in 2017 stating that 27% of 300 global banks surveyed across 92 countries reported a drop in the number of correspondent banking relationships they have.
Today, simply, banks are providing access to fewer cross-border routes. The drivers for initiatives to improve the availability and quality of cross-border payment services are ever more apparent; we in the industry need to increase supply (and thus demand), enhance infrastructure and bring about a new model that makes international payments as easy as domestic ones.
Initiatives to meet the money transfer needs of today’s customer include open banking regulations in the EU, U.K., Australia etc.; APIs, proprietorial technologies, mobile payments, wallets and tokenization; and partnerships and the formation of new players. These initiatives herald a new era in global payments.
We realize that technology by itself is not the solution, but client centricity, transparency, collaboration, and the removal of technical and nontechnical barriers reign supreme.
The customer of tomorrow is demanding a new system today, and rightly so. Our global connected world demands ease of use, efficiency, speed, safety and security as vital core functions. It is up to the international payments sector to create modern balanced models that work for everyone, and to achieve this, the partnerships are key.
We must work together, and not against each other as players within this market, seeking opportunities where our strengths complement each other.