As the cross-border payments industry contends with de-banking and stringent regulations, can emerging technologies and alternative solutions pave the way for a more efficient and accessible global payments landscape?
The cross-border payments industry is facing a growing challenge of de-banking and de-risking. Stringent regulations have made banks more risk-averse, leading to declining correspondent banking relationships.
This has created an impasse in the industry, as banks struggle to balance compliance requirements with the need to facilitate cross-border transactions. Inefficient core banking systems, a lack of transparency, and the general complexity of the cross-border payments process have further exacerbated the problem. The impact of money laundering on the correspondent banking model is profound, creating significant barriers for smaller banks and electronic money institutions (EMIs). Gary Palmer, founder and CEO of Payall, highlights how these challenges are exacerbated by stringent regulations and the decline in correspondent banking relationships:
“For banks and regulators, it’s important to note that up to 5% of the global GDP is being laundered through banks. This high level of money laundering contributes to the difficulties smaller banks and EMIs encounter in establishing correspondent banking relationships. In fact, one of the main reasons some banks struggle in this regard is the concern about money laundering. Furthermore, there has been a 25% decrease in correspondent banks, indicating that the problem is worsening.”
The decline in correspondent banks has made it more difficult for certain institutions, such as e-money providers and payment service providers, to access the global financial system and move money internationally. This has reduced the efficiency and accessibility of cross-border payments, leading to slower transaction times, higher costs, and more barriers for certain customers and businesses trying to engage in international financial activities.
The need for more transparency, outdated technology, and complex compliance requirements in the correspondent banking model has exacerbated these challenges, highlighting the need for new solutions and approaches to improve the cross-border payments landscape.
To read the complete article visit The Payments Association.
