Long reads

Why electing for a correspondent bank to access the SWIFT network is a no-brainer

Prasangi Unantenne

Prasangi Unantenne

Implementation Lead, Wise Platform, Wise

The SWIFT network is one of the most trusted ways for banks to move money across borders for their customers. Established in 1973, the network allows banks to speak to each other using financial messages and carries upwards of 5 billion messages per year.

However, while the financial services landscape has expanded significantly over the last 10 years to include neobanks and fintechs, SWIFT has remained largely inaccessible for newer industry players. This is a blocker that can limit what a fintech or neobank can do for their customers when it comes to international payments. While cross-border payments may not be a core offer for all neobanks and fintechs, a simple cross-border transfer experience is quickly becoming an expectation for customers living increasingly international lives.

Rather than accepting that this is the way of things and giving up on connecting to SWIFT, a simple solution for neobanks is easily within reach: partnerships and the use of correspondent banks. Let me explain how.

Firstly, what is the problem here? It can be difficult for smaller neobanks in particular to get connected to SWIFT for a couple of reasons. Understandably, there's a lot of regulation and paperwork involved in joining SWIFT - but this can eat up a neobank's resources. Where time, money, and people power are tighter at startup organisations, resources are channelled elsewhere into building up their core offer. As a result, neobanks and fintechs may avoid, or at least delay, joining SWIFT.

This makes sense; it’s clear that the priority for newer neobanks is building up their core offer and growing their customer base - without which nothing else would be possible. However, kicking cross-border payments down the road has an undesirable side effect; customers cannot reliably receive money from abroad, and so have to look for solutions elsewhere. When your customer defaults to other avenues to make their payment, your organisation misses out on the revenue associated with any cross-border transaction they make. It’s a lose-lose situation.

Cross-border capabilities which are quick, convenient, and low-cost might still be thought of as ‘nice to have’, but in today’s globalised world, international payments are becoming a vital feature at every bank. 

Neobanks are no exception; in fact, customers might expect more from newer players than their established, traditional counterparts. 75% of global consumers  have adopted at least one fintech for money transfer and/or payment services in their search for alternatives to the often burdensome processes of legacy players. The same is likely true for international payments, and financial services companies that can offer strong capabilities in this space are likely to outperform competitors who overlook it as a luxury. 

Why choose a correspondent bank instead?

Rather than tackling the process of joining SWIFT themselves, companies can turn instead to partnerships and correspondent banks. Partnering with a bank or fintech that is already part of the SWIFT network means that neobanks and fintechs can leverage that connection without plugging in themselves, saving time and money while still gaining additional capabilities.

How does this work? In short, partnering in this way means using your correspondent bank as one of the intermediaries between your customer’s account (using their existing account details) and their sender’s bank in a different country. Here’s a whistle-stop tour of what this process can look like: the sender’s bank will initiate the payment via SWIFT, which will deliver a message that lands with the correspondent bank. The correspondent bank is then able to credit the recipient account with the funds.

While it may appear that partnering in this way entails tacking on an additional step to the process of moving money, in actual fact, using a correspondent partner can be faster and cheaper than using SWIFT directly. This is because you are electing to use a specific correspondent partner, rather than defaulting to those designated for you, which offers more flexibility and can save both money and time.

Smaller correspondent banks are also able to offer instant payouts and often take a lower cut on commission than the more established players, making transfers faster and cheaper for you as an organisation and therefore for your customers.

In turn, partnering with a correspondent bank that offers instant payouts reduces the time your customers spend waiting for money to land with the recipient in comparison with moving through the traditional payment flow. 

For those operating on smaller margins, the cost that can be saved by using a correspondent bank can make a huge difference. It can be invested elsewhere into the core business, meaning you can grow your cross-border payment system and central aspects of your business simultaneously; that’s a win-win. 

For all these reasons, fintechs and banks who are already plugged into the SWIFT network might also consider switching from a direct connection to a partnership with a correspondent partner. While you might have a solid offer already, customers are even more likely to choose you when they carry out international transfers if you make it as simple and low-cost as possible - otherwise they may just revert back to traditional banks using the exact same mechanisms, or seek out FX-specific fintechs.

Partnerships allow you to sustain and expand on your cross-border payment services with minimal effort. When working with a correspondent partner, you not only gain their SWIFT connectivity, but the support of their team as well. While no doubt there is work involved in setting up the partnership (albeit less than joining the SWIFT network), once everything is set up things will proceed automatically for your business and your customers. That saves even more time and money for your company. 

Therefore, while SWIFT is a strong choice for those neobanks and fintechs who wish to support cross-border transactions without building new infrastructure themselves, plugging into SWIFT directly is not the only option. The chain of banks that payments must be processed through as part of the SWIFT network can lead to relatively slower processing times and higher transaction costs. By choosing a correspondent partner you limit the time and costs associated with international transfers for you and your customers, driving customer satisfaction, retention and growth. 

Through partnerships, neobanks and fintechs can expand their offering and provide additional value to customers without compromising on compliance; they can meet industry demands while focusing on building their core offer. It’s a no-brainer.

Comments: (1)

Jason McAllister
Jason McAllister - Stripe - Melbourne 28 September, 2022, 00:44Be the first to give this comment the thumbs up 0 likes

Nice article Sangi.  Yes, just because a system is old(er), doesn't mean it doesn't work well.