Despite the hardships it faces, correspondent banking remains a mainstay of most international payments processes. It should come as little surprise, then, that new initiatives are quickly emerging to help banks shore up and enhance their correspondent relationships – facilitating compliance with increasingly stringent regulatory requirements, and helping them both meet rising customer expectations and fend off encroaching competition.

Stricter regulations are certainly affecting correspondent banking, with know-your-customer (KYC) requirements and anti-money laundering (AML) controls placing a strain on banks’ resources. The Financial Action Task Force (FATF) has been active in addressing this problem – highlighting how de-risking could increase the number of payments in less regulated channels and thereby raise the risk of terrorist financing and money laundering. To counter this, the FATF advises financial institutions (FIs) to fully identify and understand terrorist financing and money laundering risks, and implement the necessary preventative measures.

At the same time, with compliance costs limiting the number of correspondent relationships it is commercially viable to maintain, banks must prioritise quality over quantity – driving coverage through deep, strategic partnerships. In its ‘Correspondent Banking 3.0’ paper, Swift has laid out a framework for breaking correspondent banking relationships into partner banks based on mutual benefit and co-operation, specialist correspondent banks for specific products, and coverage banks for specific geographies. Many banks, including Deutsche Bank, are working on this basis to turn the challenge into an opportunity – not only managing and mitigating risks, but also increasing efficiency.

Digital advances are also helping improve efficiency. Banks acutely aware that the speed, transparency and traceability of cross-border payments made through their correspondent networks are of paramount importance to corporate customers. To answer this, Swift launched its global payments innovation (gpi), joining payment intermediaries via a cloud-based payments tracker to offer vastly improved visibility over cross-border payments, including the status of the payment, the transaction fees levied, and any foreign exchange rates applied.

Blockchain initiatives, meanwhile, continue to attract attention. Industry consensus is that these have the potential to reshape banking models in the long term, but for this to happen, each step forward must be considered, effective, and directly focused on solving client challenges.

Artificial intelligence (AI) promises more near-term benefits – increasing efficiency and reducing costs for risk management processes. For instance, AI systems can learn patterns and trends in the movement of money and highlight potential risks before they emerge.

At a time when efficiency is of immense importance – with customer expectations and compliance demands skyrocketing in tandem – technology is driving improvements across the board. Slowly but surely a new correspondent banking infrastructure is being built – one with the potential to cause a dramatic overhaul of the banking landscape.

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