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Correspondent banking and the call for collaboration

Edward van Dooren

STRATEGIC ADVISOR

27 November 2020

Correspondent banking and the call for collaboration

Correspondent banking is faced with a paradox: while connections are declining as a result of consolidation, volumes are growing. Are banks successfully adapting to meet future client demands or are they threatened with extinction? In the session The future role of correspondent banking in the evolving payments ecosystem on day 3 of EBAday, I felt a positive mood around correspondent banking. However, collaboration is needed more than ever before.

Impossible to build today

Correspondent banking has been the backbone of global trade and cross-border commerce for the last 30 to 40 years. “An infrastructure such as cross border banking is impossible to build today because of regulation”, said John Lloyd, head of FIG Sales Europe, Wholesale Payments at JP Morgan.

In spite of this, correspondent banks must not miss out on innovation. “Cross-border banking is not the only game in town. Instant Payments, digital coins, e-wallets for example, all have the potential to disrupt the sector, delivering cost-effective seamless experiences. Today is certainly a time for reflection. Now is the time to tackle the threats and see the opportunities. Cross-border banking is not just about cross-border wires, we need to embrace that reality.”

Better, faster and cost-effective

“We do see a decrease in the number of correspondent banks offering services, due to stricter regulations and the ongoing changes in technology that need to be made”, said Veerle Damen, Managing Director, Global Head of Network Management at NatWest. “We have less choice of correspondent bank providers to choose from in the market. This creates a concentration risk.”

What makes her hopeful is that there is still demand from customers to provide these services. However, customers are more demanding, because everything needs to be better, faster and cheaper. How do they tackle this at NatWest? Damen: “We have moved the network management department to another part of the bank. We are now part of proposition and customer needs. Here we can better understand the needs of the customers. Traditionally, we are more siloed, but this helps us to find what we need for a particular market or product.”

Collaboration

Damen believes that banks should look wider and take different paths. Collaboration with fintechs is an option. Damen: “We should welcome both competition and partnerships. We need to join forces between banks and fintechs at industry and governance level. We need to work together and compete on price and user experience.”

Mark Recker, Global Head of Clearing Products and Cash Management at Deutsche Bank, agrees with these words. Banks should not just want to provide solutions. “From the perspective of the product manager it might sound disappointing, but no bank in the correspondent banking area has developed anything on its own. At the end of the day, it's also a good thing, because the focus in recent years has been much more on industry-wide solutions, based on the combined efforts of the industry. Take a look at Swift Global Payments Initiative (GPI), which banks have developed together with swift from the start. Don't forget that correspondent banking is not only about cross-border payments, but also about network efficiency.”

With these words we end our liveblog at EBAday 2020. An edition that shows that financial institutions are still investigating their place in an increasingly digital world. In view of the fact that the discussions focus on collaboration, customer needs and embracing new technology, we can conclude that there is nothing wrong with the mindset of the payments world. I am curious to see how this works out in practice. To be continued.