Predictions for the Payments industry in 2018: the global Remittances business

This is the fourth and final one of our four predictions for the Payments industry in 2018, and it is about the global Remittances business.

We all know that this area has been badly hit by “de-risking”, and that the result of that has been the withdrawal by the big clearers in currency centres of correspondent banking services to the banks at the far end of the Remittances chain.

What is less clear is what to do about it but “authorities” have kicked off studies aplenty: the UK’s Department for International Development concluded in September 2017 that costs for Remittances from the UK to Africa cost 9% of face value, whereas the global average was 7.2%, and the UN’s goal for a sustainable cost was 3% - and the costs and timings are going in the wrong direction.

But after stating these facts DFID had not got a clue what to do next apart from splatter logos over a Powerpoint slide and state “something might come out of this lot”. Nor have the PRA come up with anything in their stream on Correspondent Banking under the Bank for International Settlements, nor the Payment Systems Regulator in their Market Review on Indirect Access, nor the Payment Strategy Forum in their stream on Liability under Indirect Access.

Now, ironically, the UK’s HMTreasury has the chair of a global Remittances Taskforce charged with preparing a report for the G-20 Finance Ministers in March 2018. This follows both the IMF’s report “Recent trends in Correspondent Banking Relationships – Further Considerations” of March 2017, and the International Finance Corporation’s report of September 2017 “De-Risking and Other Challenges in the Emerging Market Financial Sector - Findings from IFC’s Survey on Correspondent Banking”.

Each undertaking involves a cast of thousands and none of them have crafted a solution, principally because their understanding of the problem is so superficial. Rather than approaching Remittances as a complex subset of the already complicated business of Correspondent Banking & Payments, they trust in their own intelligence and methodologies, which seem to extend to Google, and re-covering the same ground as previous reports.

The issue is in effect an iceberg and the problems lie near the bottom of the iceberg. Getting to the necessary level of understanding is a long and steep logarithmic learning curve down through the layers, and they have got nowhere near even half way down it.

At PwC we had a mantra which came into play on any complex project – in which many people would then consider themselves to be part of the deal team. The mantra was “If you are involved but you are not adding value, you are in the way”.

The enquiries into the market failure of the Remittances business are a prime example of having hundreds of people involved who are adding no value. It would be better to have just a very few people involved who already knew the business, the market structure, the technical and operational detail, and the key staging posts along the route travelled to get to the current roadblock.

The individuals would have to, for example, understand the very negative impact of interventions by groups like the shadowy “Wolfsberg Group”.

We mention “Wolfsberg Group” in particular because their inputs have wrongly been perceived as regulatory advice but have cut thousands of banks off from effective use of the SWIFT network. People who have no understanding of the pre-requisites for institutions exchanging SWIFT messages will not grasp the impact of, for example, the Wolfsberg Group guidance on RMA.

The prediction is that no progress at all will be made on the market failure in the Remittances business in 2018 because the enquiries are being led by people who have never worked in the international payments departments of banks and therefore have no prior useful knowledge about how the business used to run and what has gone wrong. Hence their primary resource is Google, and their secondary one the prior reports on the same subject written by their peer group.

This is a pretty desperate state of affairs when the destination countries rely so much on Remittance proceeds, but we cannot see any positive movement in the offing in 2018.