This is an excerpt from the Future of Payments 2025 report.
The decline in the number of correspondent banking relationships globally has been widely noted, leaving many communities who rely on it for cross-border payments without many other choices.
This is in part because of a heightened focus on high-risk jurisdictions, which is known as de-risking, intended to protect financial institutions from higher legal and regulatory in certain jurisdictions.
However, this development has raised greater concerns about fraud, money laundering, transactions being moved to alternative channels.
Maintaining the balance of modernisation and compliance
The US Treasury published a de-risking strategy in April 2023, listing recommendations for AML supervisors, banking regulators, and financial institutions to follow updated guidelines, and for the use of digital identity solutions that can protect customer
data.
Samarth Bansal, general manager at Wise Platform in the Asia Pacific region, stated that banks need to modernise their payments infrastructure to meet the increasing demand of consumers and SMEs, however, modernisation is not a simple and straightforward
process. There are regulatory and compliance hurdles to overcome, along with the complexities of various payment schemes and systems in various countries.
“To overcome these hurdles, many banks are connecting to trusted payments infrastructure providers that complement their existing correspondent banking relationships. These providers can integrate seamlessly into existing infrastructure and connect directly
to the SWIFT network, thereby streamlining correspondent banking operations, speeding up delivery times and bringing down operating costs,” said Bansal.
Kevin Flood, director of FIS payments ecosystem strategy, corporate and international banking at FIS Global, explained that there needs to be a balancing act in place to maintain regulatory compliance whilst accessing global financial systems:
“By implementing combinations of de-risking strategies like KYC/KYCC (know your customers customer), transaction monitoring, Enhanced Due Diligence (EDD) and utilising technology such as regtech (regulatory technology) correspondent banks can work to reduce
their exposure to financial crime, sanctions violations and regulatory penalties while maintaining essential cross border relationships. Leveraging these strategies allow banks to protect reputations, meeting regulatory demand and remaining able to facilitate
global financial flows responsibly.”
Collaboration is vital to boost cross-border payments
Shifts in the market will require new collaborative strategies and innovative solutions in the cross-border payments sector.
Gayathri Vasudev, head of cross-border payments at J.P. Morgan Payments, stated that there needs to be a collaborative effort to make cross-border payments seamless. While there have been developments in transparency around payments fees, making payment
status accessible, and connecting realtime payments, there is still more work to be done.
She expounded: “Given the complexity of the cross-border payments space, no single organisation or regulator alone can drive change. There will continue to be numerous competing initiatives and challenges to prioritise between them. This will enable the
industry to look beyond legacy solutions and adopt new ways of growth. A public-private cooperation to streamline regulations and speeding adoption of technology, and a closer collaboration between fintechs and legacy players will help to truly deliver a seamless
cross border experience.”
According to J.P. Morgan Payments, international payments are expected to increase 5% per year until 2027, as underserved and underbanked populations gain access to digital financial tools. Real-time payments are estimated to make $173 billion by 2026, according
to the Centre for Economics and Business Research. Many countries have real-time payments systems in place, or an automated settlement system controlled by the central bank.
Annalisa Ludwinski, head of correspondent network management at Investec, stated: “As card providers look to diversify and build out their payments businesses, I see a move towards more institutions partnering with them to pay out in local currencies. Their
ability to utilise their network and technology is making this model appealing to small and challenger banks, as the costs and margins are low and easy to pass on to the consumer. I expect this business will grow, potentially changing the way cross-border
payments are initiated and facilitated with the card rails taking a slice of the volume. This could potentially lead to concentration risk with a few global players.”
Cross-border payments are expected to support the
growth of SMEs in Latin America, where digital solutions can bridge underserved payments gaps. Currently, SMEs in Latin America struggle to transfer funds internationally, but as more small businesses adopt digital payment apps, especially in technology
hubs like Mexico, Colombia, and Brazil, moving money internationally is becoming easier.
New trends in cross-border payments
There is potential for blockchain to revolutionise cross-border payments networks, with private blockchains operating between systems that can permit digital international payments at a lower cost and through various currencies. CBDCs are in development
in multiple countries, such as Singapore and the UK.
Flood highlighted that regtech will have a significant role in the future of correspondent banking and cross-border payments, by using new technologies to meet compliance requirements and manage pressure placed on financial institutions to maintain regulatory
standards.
“These solutions are able to leverage AI and machine learning (ML) on-top of big data to augment organisations with activities such as automation of compliance processes, real time monitoring, regulatory reporting, KYC and AML solutions, and fraud detection
and prevention. The benefits available to companies that can consume and deploy these types of services and technology range from efficiency gains and cost reduction, improved accuracy, faster, and more targeted responses to regulatory changes, increased risk
management, to enhanced transparency and global compliance,” Flood commented.
Ludwinski added: “The reduced number of correspondent banking providers has led to a move towards institutions, particularly EMIs and card providers, increasingly stepping into the cross-border payments business and connecting to payment schemes or local
banks for payouts. I expect this trend will grow due to the rising cost of maintaining a network, as well as the reduction in the number of partners driving this change.”