Correspondent Banking 3.0 white paper

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SWIFT unveils its vision for a customer-centric, experience banking model where customers are the trigger for banking services, and where banks link together the best components to create a consistent and seamless customer experience. Welcome to Correspondent Banking 3.0.


  • 1. White paper Correspondent banking 3.0 The compelling need to evolve towards a customer-centric experience banking model Executive summary Four such projects of significant benefit yet achievable were identified from 35 Correspondent banking and payments in-depth interviews held with banks by processing is an attractive business. But SWIFT during 2010-2011. The first two Collaborative actions profit is under pressure as banks need make the current model more efficient, the to comply with more regulation and deal towards with increased competition, whilst we last two are more provocative and radical steps leading towards the new model: experience banking are bracing ourselves for another global financial crisis and economic slowdown. nhanced business intelligence E services to better identify new So banks need to right-size and cut market opportunities, understand costs. Thats already happening. Whereas end-customer behaviour, and better correspondent banking 1.0 in the mid monitor liquidity; 1970s was about automating the telex with a large network of banks, a different An interbank EBAM (Electronic Highlights and more efficient 2.0 emerged late Bank Account Management) 1990s: centralised global transaction central utility to more efficiently Correspondent banking is an manage bank accounts and processing, fewer but deeper relationships attractive business relationships; and tighter performance management. Regulation and new market forces That brings more efficiency. A bank-owned global service for put pressure on profit This model is still too bank product person-to-person payments, that is Changing the current model is centric, based on inherently inefficient mobile enabled; necessary but not enough multiple agreements. The world has An international market The industry must evolve towards a changed around us. A mobile payment infrastructure, to reach many small customer centric experience via PayPal is simpler and faster than banks with low volumes, without banking model transferring money from one bank the need for a correspondent bank Collaborative projects are needed account to another. Corporates too are relationship and account with each of to increase efficiency and move looking for more integrated solutions. them. toward the new model We thus need to change again, to a The purpose of this paper is to start new 3.0, customer-centric experience a dialogue in the banking industry on banking model, where customers use a this new model and projects proposed, simple banking service, when they need possibly identify other projects, to in the it, as part of their business or personal end gain consensus and implement 1 or 2 transaction and where banks link concrete new collaborative services. together the best components to create a consistent and seamless customer Correspondent banking is core to the experience. business of over 3,700 banking groups in 200 countries. Evolving that is not How can banks evolve towards this new easy, but the new normal presents a model, or better, take the lead? Whilst compelling need to do so, now. each bank has to make improvements, collaborative projects are needed as well. 1
  • 2. Correspondent banking is an in 2010. Within these, cross-border Impact of regulation on bankingattractive business payments punch well above their weight. Accounting for 2.5% of global volume in business: examplesWe define correspondent banking as ompliance with AML will cost the C 2010, they generated 10% of the revenue;the banking services mainly payments, industry over USD 5 billion in 2011, and by 2020, are forecasted to accountcash management and trade services - increasing at 7.9% per year4; for 3.5% of the volume and their revenueprovided by banks to customers via other contribution rise to 16% of total3. asel III rules on capital and Bbanks. liquidity will make the financialThis is an attractive business. system safer but come at a cost. This combination of sizeable, predictableIt is (still) the primary channel to deliver and growing revenue, with good profit Balances on nostro accounts willcross-border banking services. Looking potential and low capital requirements - no longer included on balanceat cross-border customer payments on make transaction services an attractive sheets, the cost of capital to backSWIFT in August 2011, those settled business for banks. up trade finance will increase;bank-to-bank is 67% of total volume. The odd Frank act will have Don-us payments carried out through fundamental changes in USthe banks own branches over SWIFT Regulation and new market electronic funds transfers andremained fairly stable over the last 5 forces put pressure on profit regulation. Combined withyears and account for 13% of total. Maintaining margin growth in transaction compliance costs, this is leadingPayments settled via cross-border market banking will be difficult going forward some banks to reconsider theirinfrastructures like EBA and Target 2 however. Regulatory and compliance position in retail cross-borderin Europe increased to 20% of total. projects are driving up costs. Increased services.Despite the ramp-up of these marketinfrastructures, bank-to-bank volume competition will put downward pressure S banks will be required to report Umaintained a 7% compound annual on revenues whilst banks in Asia Pacific all in and outbound cross-bordergrowth rate over the period1. and emerging markets will see their transactions to FINCEN; market share increase. Funding innovationSecondly, global payments volumes ATCA may oblige non-US banks F will be difficult to sustain. Lets look atare forecasted to grow at an average to make significant changes to each of these in turn.compound rate of 9% per year through their internal reporting systems toto 20202. report information about financial Regulation and compliance drive up accounts held by US tax payers toAnd thirdly, its a sizeable business. costs the Inland Revenue Service (IRS);Provided along with cash management, The increasing cost of compliance andtrade finance, and sometimes foreign he industry cost of implementing T regulation is on the top of every bankersexchange or custody services, payments SEPA is estimated at EUR 8-10 agenda.are at the core of the services provided by billion, a migration end-date seta banks transaction processing division From AML and KYC, Basel III, Dodd soon5.and generated USD 590 billion revenues Frank, FINCEN and FACTA to SEPA Share of total 45 Annual growth rate 5% 2011 40 Total 8,1%...