Correspondent banking – when a financial institution provides its third-party services to another financial institution - is essential to the traditional global payments system.
However, banks are now being selective in how much they use correspondent banking and which banks they give access to.
This is despite correspondent banking supporting financial inclusion and providing access to financial services in different geographies through cross-border payments, even facilitating solutions for customers who do not have bank accounts to transfer funds.
In an effort to cut costs and de-risk, banks are removing themselves from specific geographies. Additionally, the cost of correspondent banking has increased, and only some parts of its model remain profitable, leading to banks further cutting off the less profitable regions.
Financial institutions are also facing the reality that while the majority of correspondent banking is being carried out in US dollars, many non-US banks are curbing the number of services they provide in US dollars to offer services in domestic currencies. Cutting off access to US dollars cuts off opportunities for international trade, impacts an economy’s GDP, and limits individual financial inclusion.
Fintechs have made their name on their ability to meet specific and individual problems. Given the problems that correspondent banking is facing, there is a need for fintech firms to step in and help make improvements that will feed back in to create an overall better correspondent banking system, or replace it.
Sign up for this Finextra webinar, hosted in association with Currencycloud, to join the panel of industry experts as they discuss the following areas:
- Why is correspondent banking being cut off from certain geographies and how does this affect these areas?
- With the blame for the problems around correspondent banking constantly shifting, what is being done about the problem?
- What alternative are there for respondent banks?
- How might the expertise offered by fintech be able to make improvements to the correspondent banking system?
- How can technologies like automation, artificial intelligence and straight through processing help reinvigorate correspondent banking?