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EBAday 2024: Derisking correspondent banking and cross border payments

EBAday 2024: Derisking correspondent banking and cross border payments

Taking to the stage on the second and final day of EBAday in Lisbon, Portugal were Erik Frantz, executive director, financial institutions – banks, CaixaBank; Roisin Levine, head of UK and Europe partnerships, Wise Platform; Rafael Linde, head, international development and global relationship management, Cecabank; Dean Sposito, head of institutional cash and trade finance, Western Europe, Deutsche Bank; and Gareth Lodge, senior analyst, payments, Celent, who moderated the session.

During the first session of the day, the panel discussed the current state of correspondent banking relationships, consolidation, and risk management across the banking industry. They emphasised the need for collaboration between banks and fintechs – reiterating the key theme of this year’s EBAday. Further, in addition to this, speakers also referenced the challenges of consolidation and the impact of political events on the industry.

Lodge set the scene with BIS statistics that revealed that banks are shifting business models away from cross-border payment services along some corridors due to the unfavourable risk-return trade-off. As a result, the number of active correspondents and corridors decreased between 2011 and 2022.

In Levine’s view, this global trend comes down to the cost of maintaining relationships. She said that while there are advantages to leveraging networks that have been built up over the last decade and provide real-time, faster payments, “consolidating correspondent service providers for emerging market currencies” may be easier. Levine continued: “So you don’t have several different relationships, it may be easier to work with one provider as a correspondent. […] There’s an obligation to make sure that the currency routes that customers use in the emerging markets are available for financial inclusion reasons, but we must also optimise the experience for major currencies where the big volumes flow”.


“We talk often about this idea of how can we make payments faster and give good experiences, just like that of domestic payments. However, especially with retail customers, you have these changing expectations. I think we have a lot to think about here. It’s not just about offering the longtail currencies or sourcing good pricing, but also making sure we’re finding the best possible experience for all customers,” Levine said.

Linde believes that in order to open up the market in this way, “we need tools, systems, and technology to work against risks. And the second message is maybe even more important than reducing risk – compliance.” Sposito provided a similar view, drilling down the point that derisking is as important to Deutsche Bank as it is to Cecabank. He said that it is a “trade-off between costs and revenue.”

Sposito referenced the report and asked if banks are prepared for the task. With thousands of possible accounts, and the risk assessment on top of that, “the same resources and knowledge are used to face the challenge. Facing regulators, we don't know how harmful that might be for some of the services. Institutions are going to have a relationship with thousands of clients, but only a few of them have meaningful relationships with them. Perhaps it’s time to find some food for thought and maybe dig deeply. Often too many accounts back in the day were done over a handshake.” How has this impacted consolidation?

Frantz echoed the panel’s sentiment and said that if in the future, “the risk-reward just doesn't make any sense at all, an ecosystem partnership approach with the regulatory agencies together where showing exactly what they're working on could be the way forward.” KYC's role in client transactions plays a part when scaling operations, and while a risk-based approach for regulating banks may emphasise the need for a partnership between regulatory agencies and the financial industry, client needs and expectations must also be considered.

In another panel, Elizabeth Lumley led a session on cross-border payments with Marianne DeMarchi, chief executive Europe, Middle East & Africa, Swift; Vijay Lulla, head of EMEA cross currency product, J.P. Morgan Payments; Emanuela Saccarola, global head of cross border payments, treasury and trade solutions, Citi; Fiona Turnbull, product and scheme manager, NatWest; and Dr Hubertus von Poser, member of the management board, PPI.

The panel continued the conversation on the challenges and complexities of cross-border payments, emphasising the need for standardisation and regulatory simplification. Again, highlighting the importance of collaboration in the payment industry to overcome challenges and achieve success, the speakers advised technical collaboration as a solution.

Focusing in on stablecoins and CBDCs, Lulla mentioned that perhaps organisations should prioritise customer needs ahead of national interests. “There's not one secret solution that can address all of the problems that we are facing, so that we can reduce incidents. I look at them as easy building blocks,” he said.

Von Poser followed on from this and discussed competition in the payments industry, highlighting the importance of efficiency, cost-effectiveness, and security, in relation to CBDC initiatives, which he deems “more political”.

Turnbull also believes that where cross border payments innovation is concerned, “setting up each other's contexts is really important. When I've been talking to our journey managers, they say what customers really want is less speed, but showing the reliability and safety is there.” Saccarola added that banks have “set targets around speed and accessibility, transparency, costs and GDP - it's really an agenda everyone can get behind. We're all about payments we want to collaborate with here.” DeMarchi agreed and leaned into the debate on public and private sectors providing access to digital infrastructure.

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